The Fiscal Cliff: What’s Good, What’s Bad and What’s Ugly for Anyone Owning a Business

After everything, we still have something that’s not that very comforting.

Congress’ negotiations on the New Year’s tax hike as well as spending cuts, which are collectively recognized as the fiscal cliff, got into 2013’s first day and with congress giving the go signal on a concession late last Tuesday.

Here are the details about the measure introduced on the eleventh hour.

What’s good:

-          Making lower than $400,000($450,000 for those who are married) yearly means that the income tax rate’s been permanently frozen at its current level.

-          People having large estates can count themselves lucky. Estate tax exemption got scheduled to drop to $1,000,000 tax free. However, the deal retains exemption at $5,000,000 for every individual.

-          What’s known as the carried-interest tax break survives. What this means is that performance fees being charged to the investors, normally at about 20% of an investment profit, are going to keep a complimentary tax treatment.

What’s bad:

-          If you’re making more than $400,000 ($450,000 for married people), the federal income tax you have just made a leap from 35% to 39.6%.

-          For everybody, their social security payroll taxes just went up. However, a tax holiday temporarily lowered the rate. It used to be 4.2%, now it’s 6.2%.

-          In spite of the high estate tax exemption, what’s known as the estate tax rate went up from 35% to 40%.

-          Capital gains taxes were allowed to go up as scheduled, raising the top rate from 15% to 20%.

What’s ugly:

The mess that’s been left which, by the way, needs some sorting out. Congress negotiated so close to nail biting proportions that a handful of serious financial problems didn’t get addressed. Additionally,

-          The federal debt ceiling, which is at $16.4 trillion, ought to have been achieved come Monday. However, the Treasury is making use of accounting methods in order to push a potential US default off until the month of February, so expect one more hostile showdown come that time.

What’s more is that there was no deal that was reached in preventing scheduled spending cuts that are across-the-board, otherwise called sequester, that would chop of billions in federal funds for many things, such as national defense and non-profit funding, among others. Now, congress has 60 days in order to come up with a deal.

The financial markets have, so far, stayed fairly stable during the fiscal cliff debacle, although analysts have warned that congress will be wise as to not push their luck by getting involved into drawn out matches over economic policy.