Big changes are coming to your taxes if the government doesn’t come to an agreement on the fiscal cliff, and those changes will make your pockets lighter in 2013. The “fiscal cliff” is a term that is used for changes that will occur in the tax code based on previous tax legislation expiring at the end of 2012.

Here are some of the big changes to your tax rates if the “fiscal cliff” is breached:

  • Long-term capital gains rates will go up to 20% from 15%. Long-term capital gains rates are associated with investments that you hold for longer than a year. This will affect the amount you pay for income that you derive from selling long-term investments like real estate, stocks, and bonds.
  • Qualified dividends rate will change from being taxed at 15% to being taxed at your ordinary income tax rate (with a maximum rate of 39.6%). This tax increase will affect the dividends you make from your stock portfolio (this also affects closely held corporations).
  • The maximum individual income tax rate will increase to 39.6%.
  • The Estate and Gift Tax Exemption will go from 5.12 million to 1 million, and the tax rate above the exemption will go from 35% to 55%. This represents a major increase in the taxes applied to the estate of a loved one who will die in 2013.

If there is no agreement in Washington then we will certainly see higher taxes. Make sure that you are aware of the changes and how they will affect you. Talk to an accountant or your tax specialist to learn more as these are only a few of the changes that will be coming in 2013 if we go off the “fiscal cliff.”

Here is an in-depth look at some of the new tax changes from Bank of America’s MerrillEdge

This is not tax advice.