The "Fiscal Cliff"

Although Congress was able to agree upon a legislative deal to avert the "fiscal cliff" and pass the American Taxpayer Relief Act on Jan. 2, uncertainty still remains. Here we answer frequently asked questions regarding this new deal:

Q: What tax rate is in the final version of the bill?

• A: The final bill permanently sets the top rate at 39.6 percent on income over $400,000 for individuals and $450,000 for joint filers while permanently extending current-policy rates below those thresholds.

Q: What about other types of income?

• A: Those thresholds also apply to capital gains rates and dividends, with earnings below that threshold taxed at 15 percent and those above taxed at 20 percent. These changes are also permanent.

Q: Is the alternative minimum tax (AMT) addressed?

• A: The bill also provides a permanent patch of the alternative minimum tax, which adjusts the exemption amounts for inflation.

Q: What about estate tax?

• A: The maximum estate tax rate rises to 40 percent from 2012's 35 percent. The bill also keeps 2012's individual exemption amount, $5.12 million (meaning gifts and bequests under that amount will not be subject to the tax) indexed for inflation, and maintains the exemption's portability between spouses.

Q: Are there any small business tax deductions in the bill?

• A: Section 179 was expanded for both 2012 and 2013, allowing small businesses to immediately deduct up to $500,000 of equipment purchases and up to $250,000 of the cost of qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property. The law also extends the reduced holding period of S corporation built-in gains are also through 2013.