Fiscal cliff - those two little words struck fear into the hearts of many Americans for several weeks. That is, until we just became numb to them and made them the brunt of late night television comedians. Despite the best efforts of doomsayers and journalists, these words lost their terror from overuse. Now, here we sit at the base of that dreaded cliff, having discovered the fall wasn't nearly as far nor the landing so hard as we all feared. We have retained many of the tax breaks that have become "part of the family" and obtained a few new definitions. Did you ever wonder where the middle class actually ends? What is the dead end of suburbia? According to congress, it is at $400,000 for individual filers and $450,000 for married couples. Good to know, but not so great if you just got bumped out of the middle-class neighborhood.
Another convenient delineation for taxpayers is the AMT fix. Every year congress has had to "patch" this extra tax to bring it into the new year, but for the first time in forty years it has some permanent definition by being indexed for inflation. It is what it is at this point - at least until they change it again!
Some financial relief that has made life a little less catastrophic has been continued for another year. Emergency Unemployment Benefits that were due to end in 2012 have been continued for another year, giving people more time to look for work. That is a big relief for many who are struggling with unemployment. Another potential disaster that was averted was for homeowners who face foreclosure or short sale. The amount of debt the bank forgives would normally be taxable to the homeowner. For example, if you owed $250,000 for your home and the bank did a short sale for $150,000, you would be taxed on the $100,000 of forgiven debt. The government suspended that because of the drop in real estate values, but that was due to expire in 2012. Congress has extended that for another year, giving troubled homeowners one less thing to worry about.
These are just a few highlights of the cushions the government threw under the base of the fiscal cliff. There are more cushions - and some rocks as well. Contact Actual Numbers if you have questions or concerns about your tax situation. We would love to help!