So, this morning we can all take a step back from the cliff we were on.

The Senate and House have passed a bill that the president is expected to sign.

Highlights of the bill are:

1. Tax rates will stay the same unless your income is over $450,000 for joint filers, $400,000 for single filers. If your income is at those levels what used to be a 35% tax rate will be 39.6%
2. Jointly filed tax returns with income over $300,000 ($250,000 for single filers) will see their personal exemptions and itemized deductions somewhat limited. These are the same rules that were in effect several years ago.
3. Capital gains (gains on stocks and mutual funds, for the most part) will be taxed at 20% for those tax returns showing income of at least $450,000 on a joint return, $400,000 on a single return
   1. That’s an increase from 15%.
   2. So every $10,000 in capital gain or dividends will cost them an additional $500 in federal income tax. Wonder if they’ll even notice?
4. Capital gains again – if a taxpayer is in a 15% tax bracket (that’s taxable income of a little over $70,000 on a joint return), the long-term capital gains and dividends will continue to be taxed at ZERO percent. Yes, we’ve had clients with substantial capital gains taxed at …zero!
5. Alternative Minimum Tax – most of you probably have no idea what this is, but this was a biggie…many of you would have seen a substantial increase in tax due to this, but the AMT exemption was “permanently” (as much as that word can be used regarding federal tax law!) set to a number that will exclude most of those reading this from this “other” tax.
6. Other credits that were extended:
   1. 1. College education
      2. Child credits
      3. Option to deduct state and local income tax
      4. Tax-free distributions from IRA accounts for charitable purposes.
      5. Energy credits on your house – $500 lifetime credit ($200 windows) – most people have already made use of this, but if you haven’t, now you still can (thru 2013)
      6. And thankfully, this was also extended – “the cellulosic biofuel producer credit under Code Sec. 40(b) is modified and extended one year through 2013”. So, if you’re a “cellulosic biofuel producer”, you must be one happy camper today!

So, the upshot is that most of us won’t really notice any difference. The biggest change from 2012 to 2013 is that the FICA tax (social security) withheld from your wages will be 6.2%, not 4.2%. For the last couple of years the percentage dropped 2 points so we’d all go stimulate the economy, but I guess they figured the stimulating is done and maybe cutting social security’s receipts isn’t such a great idea.