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Tax Troll explains the results of the "cliff" legislation ...

As someone has already said in another thread, Obama got most of what he wanted, but not all. The main differences: 1. Temporary tax rate reductions set by "W" will remain, except for those taxpayers with income over $400K ($450K for married couples), which go back to a 39.6% marginal rate. (Before the temporary cuts, the highest bracket kicked in around $200K lower than that.) 2. The 2% reduction in employer portion of Social Security tax did NOT get extended. Therefore, most employees will see their pay checks decrease by that percentage, starting immediately. 3. Long term capital gains (and qualified dividends) will continue to be taxed at a lower rate than regular income, maximum 15% for all except those above the $400K/$450K levels mentioned in #1, who pay 20%. 4. The temporary elimination of income phaseouts of some itemized deductions and the personal exemption were NOT extended past 2012, but the new legislation starts the phaseouts at a higher AGI than before, so it will affect fewer taxpayers. Some of the good news: Most of the expiring tax credits have been extended through 2013, including the American Opportunity Tax Credit for education (much more generous than the Hope Credit), and even the home Energy Credit, at its old 2011 level. The AMT has been indexed for inflation, so it is unlikely to hit middle income taxpayers (which would otherwise have happened). State sales taxes can still be deducted, as an alternate to state income tax, on Sch A. The above-the-line deductions for educator expenses and tuition have been extemded, as has the temporary relief from having to recognize income on a short sale or foreclosure on your main home, if worth less than the mortgage debt. One note of caution: Some of the items extended (such as AMT relief) have technically been made "permanent" in the law. Before you start doing cartwheels to celebrate, keep in mind that NOTHING in tax law is ever really "permanent," as everything is subject to revision by our elected officials. We got over this hump, but we're in for a bumpy ride, folks ...

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