Now that the Senate and House have done some work to address the fiscal cliff, we know the future for the estate and gift tax. The 2012 exclusion amount of $5.12 million is now set to remain in place. The tax rate on estates in excess of that amount is now 40% (up from 35%). The article linked below explains the revised statutes in detail.
With the fiscal cliff looming, the House and Senate have each put forward tax bills that are designed to hold off some of the tax increases that will go into effect on January 1, 2013. However, the Democrats and Republicans continue to battle over increased tax rates and government spending levels.
The estate tax is not addressed in the Senate bill. As a result, the exclusion amount would go to $1 million, and the tax rate for amounts over $1 million will increase to 55%.
The estate tax provision in the House bill proposes extending the current provisions through 2013. That means an exclusion amount of $5.12 million, and a tax rate of 35% for amounts over the exclusion.
The article linked here is an excellent example of the impact the impending fiscal cliff will have on the average middle class family, as wages stay flat but costs of food and insurance, as well as income taxes increase.
Despite the threat of the fiscal cliff causing another recession, economists believe that Congress will act soon to prevent potential economic devastation. The end of the 2001 tax cuts coupled with the $1 trillion budget cuts that are set to go into effect in the new year could be devastating. The budget cuts are part of the debt ceiling deal from 2011. Most likely Congress will act, either in the lame duck session after the November election or in early 2013, to either extend the current tax cuts or enact different ones. However, until something is passed, and set in stone, small businesses are likely to continue holding back on hiring and investing. A time of fiscal uncertainty is generally not a good time to be spending.
Many small business owners are unsure of what the future holds for them. There is uncertainty regarding a wide array of federal regulations that have not yet come into effect, leaving them questioning whether they should expand or hire new employees. It is too unclear how much these regulations will cost the businesses. The tax rates are unknown. And the future of legislation will remain a mystery, at least until after the November election, but likely beyond.