The 157 pages of the AmericanTaxpayer Relief Act of 2012will
never be a best-seller. But for income investors, it was welcome
news. Here are some of the highlights...
Personal Income :
Every personal incometax rate was set to increase at the end of
2012. Under the new legislation, however, income tax rates have
been maintained at 2012 levels for alltaxpayers except those making
more that $400,000 per year ($450,000 for joint filers). The
portion of income above those limits will now be taxed at 39.6%, up
Since the income from manyasset classes is taxed atordinary
income tax rates, the preservation of the personal tax rates for
the vast majority of Americans was particularly important for
The highest tax rate for qualified dividends had been 15%, but that
rate was set to expire at the end of 2012. Under the fiscal cliff
scenario, these dividends were scheduled to be taxed at ordinary
income tax rates -- resulting in higher tax bills fordividend stock
The new legislation preserves a favorablequalified dividend tax
rate -- albeit a little higher for the highest income bracket. The
qualified dividend tax rate for those making more than $400,000
will increase to 20% from 15%. For all other taxpayers, the
dividend tax rate will be the same as it was in 2012 -- 0% for
those that don't exceed the 15% personal incometax bracket and 15%
for the balance.
The gains from securities held for at least one year had been taxed
at a maximum rate of 15%. Under the new legislation, only the
highest income tax bracket will see an increase to 20%. All other
taxpayers will continue to pay either 0% or 15% on long-term
capital gains, just as they did in 2012.
In my newsletter,
The Daily Paycheck
, I tend to hold securities in my real-money portfolio for the long
haul, consistent with my goal to reinvest dividends from solid
dividend-paying securities forcompound growth. So while my strategy
is focused on income and growth, it's good to know that when I
finally do sell a security, my long-term gains will continue to be
taxed at a favorable rate.
Action to Take -->
On Jan. 2, themarket soared in reaction to the new legislation. But
Congress still has alot of difficult work to do in the coming
months. The battles over federal spending cuts and the extension of
the debt ceiling are bound to roil the markets. But the
preservation of most personal income tax rates, and the favorable
tax treatment of dividends and capital gains, is welcome news for
income investors going into 2013.
-- Amy Calistri
P.S. -- Many so-called "investing" systems promise you the moon
and are complicated that they should only be used by professional
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hours on end each day. Not this one. It's called the "Dividend
Trifecta Strategy," and it just might be the key for regular
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Amy Calistri does not personally hold positions in any
securities mentioned in this article. StreetAuthority LLC does not
hold positions in any securities mentioned in this article.
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