What the Fiscal Cliff Aversion Means For You

                                                          

The fiscal cliff is a term used to describe the sharp decline in the budget deficit and is the difference between what the government receives in revenues and what it spends.  The fiscal cliff battle lasted for almost two months with fighting and negative and snide remarks from the house and senate, all promising to do this or that.  Well the fiscal cliff has been averted thanks to President Obama but there is still work to do.  

The aversion of the fiscal cliff prevented taxes going up for 98% of Americans, and 97% of small businesses and helped President Obama keep his promise he made in 2011. As a result, more mmillionaires and billionaires will pay more in taxes to reduce the deficit through a combination of permanent tax rate increases and reduced tax benefits.  This is a huge victory for all Americans.  Finally Congress decided to put their egos aside and worked together like a team.  Here are some of the many benefits to Americans:

1. Tax increases will raise around $600 billion over the next decade.
2. The Earned Income Tax Credit, the Child Tax Credit and the American Opportunity Tax Credit were extended for the next 5 years.
3. There will be no cuts to Medicaid, Medicare or Social Security.
4. Temporary business tax breaks will be extended through 2013.
5. Federal benefits will be extended for those unemployed for more than 26 weeks.
6. A nine month farm bill will avoid milk doubling in price in 2013.
7. The payroll tax will expire and raises taxes on 77% of Americans. The average taxpayer will pay approximately $700 more in taxes. This was a temporary benefit to help Americans.
8. Tax rates will increase for families with income more than $450,000 and individuals making more than $400,000.
9. American families making $450,000 or individuals making $400,000 will pay 20% on capital gains and dividends. Everyone else will pay 15%.  Estate tax will be 40% for the wealthy.
10. The Personal Exemption Phase out threshold will start at $250,000 and the itemized deduction limitation starts at $300,000 for the wealthy.
11. The Alternative Minimum Tax will be adjusted for inflation.
12. Tax rates for 2013 will be: 10%, 15%, 25%, 28%, 33%, and 35%.  A new rate will be implemented for income over $400,000 single, $425,000 head of household, and $450,000 married filing jointly.
13. In 2013 the personal exemptions and itemized deductions phase out threshold will start at $250,000 for single taxpayers, $275,000 for heads of household, and $300,000 for married taxpayers filing jointly.
14. For Roth IRA conversions in 2013, individuals can convert a portion of their balance in an employer plan to a Roth IRA and there is no early withdrawal penalty.
15. Expanded the standard deduction for joint filers to twice the deduction for single filers and made it a permanent extension.
16. Expanded child and dependent care credit rules, including a permanent extension of the 35% dependent care credit applicable to eligible child care expenses for children under age 13, disabled dependents and the $10,000 credit for qualified adoption expenses.
17. Enhanced rules for student loan interest deductions beyond 60 months and increased the income phase out range and made it a permanent extension.
18. Made the employer provided child care credit a permanent extension.
19. American Opportunity Tax Credit which includes four years of schooling, an increase to the income limits for credit eligibility purposes, allowing up to 40% of the credit to be refunded, and an expansion of eligible expenses is extended through 2018.
20. Deduction for certain expenses of elementary and secondary school teachers is extended through 2013.
21. One year extension of 50% bonus depreciation rules for qualified business property placed in service before January 1, 2014.
22. Fifteen year straight-line cost recovery for qualified leasehold business improvements, qualified restaurant buildings and improvements, and qualified retail improvements retroactively extended through 2013.
23. Extends the ceiling limit and phase out thresholds to tax years 2012 and 2013 for small business expensing under section 179. The limitation is raised to $500,000 and is reduced if the cost of property placed in service exceeds $2 million. Within the thresholds, a taxpayer can expense up to $250,000 of the cost of qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property.
24. Work Opportunity Tax Credit retroactively extended for 2 years through 2013 which is based on a percentage of wages paid to newly hired employees meeting specific qualifications.
25. Active Duty Member Wage Credit is an employer wage credit for employees who are active duty members of the uniformed services and is retroactively extended for 2 years through 2013.
26. Energy Credits extended through 2013 including: non-business energy property credit for energy efficient existing homes, credit for energy efficient new homes, cellulosic biofuel producer credit, credits for facilities producing energy from certain renewable resources, and credit for energy efficient appliances.
27. New Markets Tax Credit retroactively extended for 2 years through 2013 which provides a 39% credit over 7 years for equity investments in certified Community Development Entities.

The best way to shield yourself from what happens in the world is to make a financial plan. This includes having adequate insurance, eating healthy, exercising, minimizing stress, enjoying life, having at least one year’s salary in a savings account, having an adequate retirement account balance and living a modest lifestyle. Make better financial choices in 2013 so you don’t have your own personal fiscal cliff.

Make Your Finances Fiscal Cliff Proof

                                                                   

The “fiscal cliff” is a term referring to the effect several laws enacted under President George W. Bush which if not changed would have on the economy that could result in tax increases for families making over $250,000 and individuals making over $200,000, huge budget cuts, stoppage of extended unemployment benefits on January 1, 2013, and a reduction in the deficit starting in 2013. 

In late February 2012, Ben Bernanke, chairman of the U.S. Federal Reserve, promoted the term "fiscal cliff" for the fiscal crisis. In front of the House Financial Services Committee he described that "a massive fiscal cliff of large spending cuts and tax increases" would take place on January 1, 2013.

Some analysts argued that the term “fiscal slope” would be more appropriate because although the economic effect would be extensive, it would not occur on December 31, 2012 and would be felt gradually over time.

The fiscal cliff is the result of the "trigger" idea that became popular a few years ago.  Triggers are policy changes that are passed into law in advance of when they are scheduled to go into effect and only if other usually unpopular policy goals are not met.

Most Americans believe the term “fiscal cliff” means the government will run out of money on December 31 because the deficit is so large and they fear that another recession will occur.  Media and other so-called experts have been screaming about the “fiscal cliff” for several months.  Politicians and others hope to scare Americans so they can push their own agenda and get away with it. The media has not been explained the term “fiscal cliff” so Americans can really understand the impact, instead the media continue to keep Americans in the dark.

The only ones that would benefit from the “fiscal cliff” budget cuts are big corporations such as Goldman Sachs, Wal-Mart, ExxonMobil, Shell, Fannie Mae, Berkshire Hathaway, UnitedHealth Group (parent of United Healthcare insurance), Bank of America, Ford, and the rest of the Fortune 500 corporations who are also involved in the effort to scare and misinform Americans.

According to an analysis by the Institute for Policy Studies, the Campaign to Fix the Debt has organized dozens of corporate CEOs to advocate for over 130 billion in tax breaks for the Fortune 500 companies as part of a deal to avoid the fiscal cliff.  The Alliance for Savings and Investment, is one of several corporate lobbying groups that are pushing to include tax perks for the wealthy and large corporations in a deal to avoid the fiscal cliff.  

Some governmental programs such as Social Security, Medicaid, federal pay (including military pay and pensions), and veterans' benefits, are exempted from the spending cuts. Spending for federal agencies would be reduced if Congress does not act.

Congress is being pressured to extend some or all of the tax cuts, and to rethink the wide reductions with more pointed cutbacks by December 31, 2012.  Democrats want to prevent cuts to social welfare and entitlement programs.  Republicans want to prevent tax increases and defense cuts. 

Congress should play nice and focus on developing programs and policies that create jobs and reduce the deficit over time instead of looking for quick fixes that don’t last and don’t work.  Here are 11 ways to make your finances fiscal proof. 

1. Create a budget. Create a budget to determine how much you earn, how much you owe and how much you are spending.   Include savings in your budget.  Ensure that everyone in your family follows the budget. Track your spending daily, weekly or monthly.
2. Reduce expenses. Reduce your expenses by determining areas where you can reduce spending by buying more needs vs. wants such as bringing your lunch to work, shopping at discount stores or buying generic brands or downsizing to a smaller car or home. 
3. Don't hide from overdue bills.  Call your creditors right away to setup payment plans to get current on old bills to prevent harassing calls or letters from creditors, damage to your credit report or legal action. 
4. Pay down debt.  Pay down debt and keep credit card balances at 20% or less of the credit limit which helps increase your credit score.  Don’t open any new accounts or incur any additional debt if possible. 
5. Pay bills.  Pay bills on time or before the due date to increase your credit score.  Pay bills online or through automatic deduction to save money and avoid late fees. 
6. Establish an emergency fund. Create an emergency fund to cover bills and monthly expenses for 12-15 months to prevent going into debt. 
7. Plan for retirement. Contribute 10-20% towards a retirement fund each month.  Contribute to a retirement account through your employer or make automatic contributions to an IRA if you are self-employed or if your employer doesn’t offer a retirement plan. 
8. Get Protection. If you don't have health, life or disability insurance consider getting at least basic health and life insurance.  Bundle services with the same company to save money. 
9. Find stable employment. Find a stable job or get a part-time job to get additional income.  Do research on a company to see their annual finance report, see what the company's plans are for the future and ask others if they have heard about the company to ensure you are working with a stable company.  If you hear rumors of layoffs dust off that resume and start looking for a new job. 
10. Extra Income.  Find ways to earn extra income either through a part-time job or start a business. 
11. Plan for the unexpected. Plan for the unexpected. Reduce spending by 30-50% and have a plan A and B.  Think of possible scenarios and action plans for each such as illness, death, divorce, unemployment, etc.

Do whatever you can to make sure whatever is going on in the world does not control your environment or finances.