Contact Us
Firm Overview
Why Legend Is Different
Client Types
Professional Biographies
Frequently & Rarely Asked Questions
Risk Spectrum
Investment Strategies
Second Opinion
Global Investment Pulse
Event Calendar
Press Center
Legend News
Clients Only
Career Opportunities
Newsletter Sign-up
Site Search
Site Map
Tell A Friend About This Website
Informational Booklets   
Phone: (412) 635-9210
  (888) 236-5960
Connect With Legend:
Subscribe to me on YouTube

7 Major Tax Changes In The Fiscal Cliff Law

From the edge of the “fiscal cliff,” Congress took a step back and approved the American Taxpayer Relief Act (ATRA), a hodgepodge of tax extensions and modifications. But the agreement postponed decisions on spending cuts and failed to continue a 2% “payroll tax holiday” for employees. Moreover, upper-income taxpayers will have to shoulder a greater burden going forward. Here are seven noteworthy changes for individuals. 

1. Individual Tax Rates. Across-the-board tax hikes are averted and the “marriage penalty” is eased. Nevertheless, ATRA creates an “extra” top tax rate of 39.6% for single-filers with income above $400,000 and joint-filers with income above $450,000. When you add in the new 3.8% Medicare surtax for certain upper-income investors, which begins in 2013, your effective top tax rate can reach 43.4%!

2. Capital Gains And Dividends. The “Bush tax cuts” for capital gains and dividends are generally preserved. The maximum tax rate remains 15% for net long-term capital gain and qualified dividends (0% for investors in the lowest tax bracket). Otherwise, the tax rate for capital gains would have soared to 20% (10% for investors in the lowest tax bracket). Even worse, dividends would have been taxed at ordinary income rates. But the upper crust still pays a steep price: a maximum 20% tax applies to single-filers with income above $400,000 and joint-filers with income of more than $450,000.

3. Alternative Minimum Tax. The onerous alternative minimum tax (AMT), which has steadily been casting a wider net each year, is overhauled. Under ATRA, exemption amounts have been increased and nonrefundable personal credits can be used to offset AMT liability in full. In addition, the exemption amounts will be indexed for inflation in the future. Because the changes are retroactive to the 2012 tax year, it’s been estimated they will save as many as 60 million taxpayers from the clutches of the AMT.

4. Itemized Deductions And Personal Exemptions. Two other “back-door” tax increases may affect taxes of wealthier individuals. Due to the revival of the “Pease rule,” most itemized deductions are reduced by 3% of the amount of adjusted gross income (AGI) above a specified threshold, beginning in 2013 (but the overall reduction can’t exceed 80%). At least ATRA establishes higher thresholds of $250,000 for single-filers and $300,000 for joint-filers. A comparable provision begins to phase out the tax benefits of personal exemptions at the same thresholds.

5. Education Tax Breaks. ATRA generally extends several valuable tax incentives relating to higher education. Significantly, it allows parents to claim the maximum $2,500 American Opportunity Tax Credit (AOTC) for another five years, subject to a phaseout based on modified adjusted gross income (MAGI). It also extends the above-the-line deduction for tuition and fees, also phased out based on MAGI, through 2013. This deduction may be claimed in lieu of a higher education credit. The tuition deduction extension is retroactive to 2012. Finally, ATRA permanently extends enhancements for Coverdell Education Savings Accounts (CESAs), the tax exclusion for employer-provided education assistance and the student loan interest deduction.

6. Extensions Of Other Rules. Besides those already mentioned, ATRA extends a host of other tax provisions for individuals, many of them retroactive to the beginning of 2012 (i.e., for provisions that technically expired). Most of the extended tax breaks are limited by dollar amounts. The list includes:


  • Optional state sales tax deduction (in lieu of state income tax)
  • Enhanced child tax credit, dependent care credit and adoption credit (and tax exclusion for adoption program assistance)
  • Credit for energy-saving at home
  • Monthly tax exclusion for certain commuting benefits
  • Deduction for mortgage insurance premiums
  • Deduction for classroom expenses of educators
  • Tax exclusion for mortgage debt forgiveness
  • Tax benefits for donating real estate for conservation purpose
  • Tax-free distributions of IRA funds to charity by those age 70 ½ or over


7. Estate And Gift Taxes. At long last, there’s greater certainty in estate planning. Beginning in 2013, the unified estate and gift tax system permanently retains a $5 million exemption and will be indexed annually for inflation ($5.25 million in 2013), instead of plummeting from $5.12 million in 2012 to $1 million. The top estate tax rate, which was scheduled to jump from 35% in 2012 to 55% in 2013, is bumped up to 40%. ATRA also retains the provision allowing “portability” of estate tax exemptions between spouses and coordinates various other aspects, including implementation of the generation-skipping tax.

These are just some of the highlights of the fiscal cliff law. We will be offering further guidance on the tax law changes, but please don’t hesitate to call us about how the changes affect you personally.

This article was written by a professional financial journalist for Legend Financial Advisors, Inc. and is not intended as legal or investment advice.

  • Commodities Stink But Serve A Purpose
  • A Guide To The New Rules On Tax Deductions In 2018
  • Will Rising Bond Yields Be Bad For Stocks?
  • A Trust For Creditor Protection
  • New Year's Resolution: Review Your Estate Plan
  • Despite Distractions, Demographics Are Poised To Drive U.S. Long-Term Growth
  • 17 Year-End Moves That Can Preserve Your Tax Benefits
  • How Now, Dow Jones Industrials?
  • ETFs Can Provide Some Other-Worldly Benefits To Investors
  • Trust As IRA Beneficiary: Not Crazy
  • Should You Fly Solo In Your Own 401(k) Plan?
  • Swap Munis To Your Tax Advantage
  • Sowing Tax Seeds For Capital Gains
  • With Fed's Mission Accomplished, Expect Rate Hikes And Low Bond Returns
  • Five Tax-Smart Ways To Transfer Your Wealth
  • Easier Rules On IRA Rollover Waivers
  • 4 Year-End Strategies For Investors
  • 6 Common Medicare Myths That Should Be Dispelled
  • 5 Key Documents In An Estate Plan
  • 10 Sensible Stock Market Strategies After A Fall
  • Be Aware Of Your Tax Surroundings
  • 4 Good Ways You Could Use An RMD
  • Take Early Withdrawals Penalty-Free
  • Life Insurance In Your Plan? Maybe
  • A New Direction For Your 401(k)?
  • Could Estate Tax Repeal Or Reform Become A Reality?
  • Taking Aim At Target Date Funds
  • Here's What You Can't Do In An IRA
  • 6 Common Estate Planning Myths: Here's The Reality
  • A Plunge, Snap Back, And A Goldilocks Economy
  • How To Avoid Emotional Portfolio Withdrawals
  • When To Harvest Gains, When To Harvest Losses
  • Are You Flying Below The Tax Radar?
  • Slice Through 7 Layers Of Taxes For Investors
  • Stay Focused On The Need For Tax-Aware Investing
  • 14 Sure-Fire Midyear Tax Planning Moves In '14
  • Beware The NII Surtax On Trusts
  • Do You Know The Basics Of 401(k) Retirement Plans?
  • 2014 Global Forecast Offers Hope Bull Market Can Spread
  • For Charitable Trusts, The Tax Icing On The Cake
  • 6 Bad Money Habits For You To Avoid
  • Want To Shift Income? Give It Away
  • Avoid Squabbling Over Your Estate
  • Wall Street Gurus Miss Again On Sector Predictions
  • Dust Off Life Insurance Policies
  • New Law Poses Tax Risks For High-Income Investors
  • How To Choose Trustees For Your Trust
  • Pros and Cons Of Section 529 Plans
  • 7 Major Tax Changes In The Fiscal Cliff Law
  • ''Ghost Story'' Can Haunt Your IRA
  • Who's Going To Pay The 3.8% Medicare Surtax?
  • New 3.8% Medicare Surtax Spurs Year-End Action
  • Selling Short And ''Short Sales Against The Box''
  • The Real Impact On US Markets Of A Greek Default
  • How Important Is The Debt Level To Future U.S. Economic Health?
  • New Study Shows Future Impact Of Great Recession
  • Commercial Real Estate May Boost Your Portfolio
  • If You Must Tap Your IRA Early, Know SEPP Rules
  • Get Up To Speed On Estate Planning
  • What Is A Will, And Do You Really Need One?
  • When Are Two Trustees Better Than One?
  • Money Market Funds Should Shrug Off U.S. Downgrade
  • What The Tax Act Means To Investors
  • Children In College Need A Health Proxy
  • The Tax Fallout From The Healthcare Reform Law
  • How A Solo 401(k) Plan Provides You With An Edge
  • Roth IRA Fall-Back: Re-Characterizing
  • Being An Informed Donor: The Realities Of Charity
  • Donor-Advised Funds Gain In Recession
  • Don't Miss Out On The Zero Capital Gains Rate
  • Finding Hidden Treasures In The New Pension Law
  • Ease Pressure On Loved Ones With Tax-Free Gifts
  • Seven Tax-Saving Moves To Make Right Now
  • Roth IRA Conversion Rule Changes Offer Opportunity
  • Nine Estate Planning Mistakes To Avoid
  • One Way To Reduce The Tax On Real Estate Gains
  • Working Longer To Fix The Retirement Mess
  • Tough Times May Turn 401(k)s Discriminatory
  • You Should Find A New Home For An Orphan 401(k)
  • Low Rates Give Estate Planning A Boost
  • Marriage Doesn't Mean Owning All Your Assets Jointly
  • Do The Math Before Refinancing Your Home
  • As Nursing Home Care Claims Drop, Home-Care Claims Rise
  • Making The Best Of A Bad Time For The Economy
  • Regulatory Guidelines Update
  • Beware Of Social Security Identity Theft
  • Free Credit Reports Available Online
  • Don't Forget About Roth 401(k)
  • Understanding the Importance of a Fiduciary Standard
  • Energy Systems Scale and Timeline
  • The Oil Patch Profit Squeeze
  • Timber As A Liquid Investment
  • Emerging Market Food Consumption Growth Equals Rising Prices
  • Timber Facts
  • Ethanol: Salvation or Panacea?
  • Emerging Market Food Consumption Growth Equals Rising Prices
  • Bank Loan Funds - A Primer
  • A Primer On Managed Futures
  • REITS: A Very Good Portfolio Diversifier, But Should You Invest In Them?
  • Does Investing Internationally Still Diversify Your Portfolio?
  • Another Way To View The Current Valuation Of REIT Sector
  • Understanding Risk-Preparing For The Unseen
  • How Volatile Can The Stock Market Be?
  • What Is Shorting Expense?
  • How Dangerous Is A Dollar Crash?
  • The Case For Industrial Metals
  • GMO 7-Year Asset Class Return Forecast Is Bleak
  • Too Many ''Phish'' In The Sea
  • Identity Theft In The New Year
  • Ways To Improve The Score
  • Know The Score
  • Total Credit Market Debt (All Sectors) As % Of U.S. GDP
  • To Reinvest Or Not To Reinvest
  • Why Not Alternative Fixed Income Investments?
  • Just How Expensive Is The Market?
  • Beware of Brokerage Firms' Misconduct
  • Identity Theft : Correct Those Credit Reporting Errors
  • Risk-Controlled Investing
  • Q & A With Robert Arnott
  • Identity Theft : Applying For Credit? Better Check Your Credit Report First
  • Identity Theft: Everyday Prevention
  • Identity Theft: Help Is On Its Way
  • Identity Theft: Tips to Protect Yourself
  • Identity Theft: What Documents Should You Shred Or Store?
  • Identity Theft : Don't Fall For That E-Mail!
  • Identity Theft : One More Reason To Protect Your Credit
  • Identity Theft: A Note About Social Security Numbers
  • What Do Rising Interest Rates Mean For Money Market Yields?
  • Section 529 Plans Are Popular But Not The Only Way To Go
  • The Importance Of Commodities In A Portfolio
  • A Tale Of Two Hedges
  • Bank Loan Funds: A Great Fixed Income Investment As Interest Rates Rise
  • REITs: A Great Diversification Investment
  • What Is Risk?
  • How To Find A Great Financial Advisor?
  • Is It Time To Find A New Financial Advisor?
  • Year-End Tax Planning Can Help Generate High Return On Investment
  • 4 Steps To A More Secure Investment Portfolio For Your Retirement
  • Medical Practice Succession Planning: Developing A Plan
  • Traditional Investing May Decrease Your Retirement Lifestyle
  • Understanding Deflation
  • Medical Practices Receive Temporary Depreciation Bonus
  • Is Your 401(k) Plan A Failure?
  • Tax Issues To Consider When Buying A Long-Term-Care Policy
  • The ERISA Retirement Plan Law Spells Out Fiduciary Issues
  • Evaluating The Quality Of A Company's Earnings
  • Investing In Times Of Uncertainty And Risk: The Importance Of Diversification
  • Yesterday's Great Companies
  • 2001 Tax Relief Act Changes Education Planning
  • A Retirement Plan Primer After The 2001 Tax Act
  • Beware Of Common Home Repair Scams
  • Custodial Accounts: One Way To Make Gifts To Children
  • Estate Taxes To Be Reduced Then Repealed In 2010
  • Faulty IRA Conversions Can Lead To Tax Penalties
  • Many Individuals Pay Private Mortgage Insurance Beyond When It Is Necessary
  • Rethinking Estate Planning
  • Retirement Plan Contribution Limit Changes
  • Shopping For A Bank Account That Pays The Highest Possible Rate Of Interest
  • Your Medical File Report May Need A Check-Up
  • Do It Yourself Tax Preparers Watch Out: Tax Answers From IRS Centers Oftentimes Are Incorrect And/Or Insufficient
  • Five Tips For Preventing Thefts From Your Checking Account
  • Home Office Deductions: Hoops To Jump Through
  • Income Tax Effect On Single And Married Taxpayers
  • Income Tax Planning For Investments
  • Property Tax Challenges Should Not Be Overlooked
  • The IRS Will Follow Your Wealth To The Ends Of The Earth
  • When Do You Need Life Insurance
  • Year-End Tax Defferal Planning

  • ©2018 Legend Financial Advisors, Inc.®. All rights reserved.