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Understanding The Fiscal Cliff Deal

The Fiscal Cliff Deal

The taxes paid by most Americans will definitely increase despite the fiscal cliff deal just signed by Congress.

President Obama has declared that the fiscal cliff deal as a victory for middle class households. This may not be true because taxes are bound to go up and this will lead to an increase in middle class taxes.

The percentage of households and individuals i...

The percentage of households and individuals in each income bracket. “US Census 2005 Economic Survey, income data” . . Retrieved 2006-12-09 . “US Census Bureau, personal income distribution” . . Retrieved 2006-12-09 . (Photo credit: Wikipedia)

America also has a huge national debt of $16 trillion. The tax relief and pork included in the new deal will add about $4 trillion to the national debt over 10 years. The fiscal cliff deal has been hailed as a victory for the middle class but this deal means that about 77% of the American population will pay more federal taxes in 2013. There are bound to be tax increases in 2013 and this affect the people in the middle classes too.

This may seem pretty high but people in high income brackets will pay much more than this in 2013.
The new deal will definitely affect people in the $400,000-$450,000 income bracket.

For those in the top income bracket, investment taxes will increase from 15% to 20%. Another category of top income earners will experience an increase of 4.6% in the taxes they already pay. This means that the tax will move up from 35% to 39.6%.

The Obama 2010 health care law necessitated a higher amount of tax for families which earn high incomes. In 2013, households with incomes in the $500,000 and $1 million bracket will pay $14,812 more. Families making more than $1million per year will fork out $170,341 in federal taxes.

The new tax deal was passed into law on January 1, 2013. The aim is to get more money for social security which is financed by taxes paid by employees and employers of labor. The fiscal cliff deal was opposed initially by republicans but the law has now been passed into law.

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Learn More About The Tax Breaks That Will Expire At The End Of This Year

End of Tax Breaks: All You Need To Know About the Expiring Tax Breaks

There seem to be changes in the IRS tax code every single year. The only advantage they have is that they keep accountants employed.

It is important that you stay informed about tax code changes regardless of whether you use computer software to do your taxes or you have your accountant do it for you. Knowing changes in the tax code will help you to file the right returns and get your refund quickly.

The first tax breaks to go are Bush Tax Cuts that gave high income earners huge tax deductions. They are expected to expire towards the end of 2012. The expected changes will affect:

Retirement

When Bush tax cuts are phased out, people will have to pay higher taxes when they retire. Taxpayers who benefited from Bush tax cuts should convert to a Roth IRA, as this will allow them to pay taxes upfront and enjoy their full retirement benefits when they retire. This will save them the hassle of filing income tax returns in their old age.

Converting to the new Roth will be costly for taxpayers who benefited from Bush Tax cuts in 2010. Generally, they will have to pay up to 35 percent tax rate on a rollover. This rate may increase after these tax cuts expire.

Home sale

Homeowners who lose their homes to foreclosures, a short sale, or had their debt reduced through mortgage restructuring will have to pay taxes on the difference between the actual debt and the new debt, or between the outstanding balance on the mortgage and the sum recovered from a short sale.

There are many other changes that will affect education and health care among other industries.

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