It's only money live chat: Your taxes after the fiscal cliff
11:45
The Oregonian: 
Hello and welcome to our live chat on your taxes after the fiscal cliff deal. It's Only Money columnist Brent Hunsberger will join us at noon. Until then, please feel free to submit your questions and comments.
Tuesday January 8, 2013 11:45 The Oregonian
11:46
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Tuesday January 8, 2013 11:46 
12:00
itsonlymoney: 
Hi folks. I finally figured out how to log in. Welcome to the live chat
Tuesday January 8, 2013 12:00 itsonlymoney
12:00
itsonlymoney: 
I welcome your questions about how the fiscal cliff deal impacts your personal income taxes.
Tuesday January 8, 2013 12:00 itsonlymoney
12:00
The Oregonian: 
We heard lots of talk about the first paychecks of the new year. "Everyone's taxes went up this week," one commenter said. Why?
Tuesday January 8, 2013 12:00 The Oregonian
12:01
itsonlymoney: 
Basically, Congress let the payroll tax holiday expire. In 2011, Congress reduced the taxes on paychecks from 6 to 4 percent. It extended that holiday in 2012. But it's now gone. That money goes to pay for Social Security and Medicare benefits.
Tuesday January 8, 2013 12:01 itsonlymoney
12:02
[Comment From MasonMason: ] 
So what should we expect more public services on the chopping block ????
Tuesday January 8, 2013 12:02 Mason
12:02
itsonlymoney: 
Mason, thanks for participating, but I don't really know. We're discussing the impacts of what Congress passed on Jan. 1 on individual income taxes.
Tuesday January 8, 2013 12:02 itsonlymoney
12:02
[Comment From DebbieDebbie: ] 
Please address credits, deductions relating to college expenses.
Tuesday January 8, 2013 12:02 Debbie
12:03
The Oregonian: 
Thanks for the question, Debbie. Brent is finding a quick link for you.
Tuesday January 8, 2013 12:03 The Oregonian
12:04
itsonlymoney: 
Debbie, great question.
Congress extended the popular and helpful American Opportunity Tax Credit through 2017. This is one of the most generous breaks for college expenses out there.
Tuesday January 8, 2013 12:04 itsonlymoney
12:05
itsonlymoney: 
Congress also permanently extended the above-the-line tax deductions for tuition expenses and for student loan interest. Generally, you can't take both the tax deduction for tuition and the American Opportunity Tax Credit. So be sure to check which one is most helpful for your situation. For most, it's the credit, but not for all.
Tuesday January 8, 2013 12:05 itsonlymoney
12:05
[Comment From GuestGuest: ] 
So I am not like, the 1% does this mean anything changes for those like in the 40K-50K range?
Tuesday January 8, 2013 12:05 Guest
12:06
itsonlymoney: 
Guest, neither am I! As I said when I started, you'll feel the impact of the expiration of the payroll tax break. There will be slightly less money in your paycheck
Tuesday January 8, 2013 12:06 itsonlymoney
12:07
itsonlymoney: 
Beyond that, there are a lot of nice tax breaks that Congress made permanent with the fiscal cliff deal. For one, you'll now fall into the 10% tax bracket. That Bush-era invention had been scheduled to exipre. You would've bumped up into the 15% bracket. Now, the 10% bracket is permanent. A nice break.
Tuesday January 8, 2013 12:07 itsonlymoney
12:07
itsonlymoney: 
Guest, do you have kids? Are you married?
Tuesday January 8, 2013 12:07 itsonlymoney
12:08
The Oregonian: 
Brent, what are the changes for folks who do have kids?
Tuesday January 8, 2013 12:08 The Oregonian
12:08
[Comment From GuestGuest: ] 
I have one child and I am head of household.
Tuesday January 8, 2013 12:08 Guest
12:10
itsonlymoney: 
Guest - Ouch! Head of household! OK, scratch that previous comment about the tax bracket.
Tuesday January 8, 2013 12:10 itsonlymoney
12:11
The Oregonian: 
Folks, it really helps us keep track of comments and questions if you type a name or initial in the "Your Name" field before you submit. Thank you.
Tuesday January 8, 2013 12:11 The Oregonian
12:11
itsonlymoney: 
I am less familiar with the impacts on heads of households. I"m sorry. You should, however, benefit from the extension of the child tax credit. That should give you a $1,000 credit for your child. That had been scheduled to drop to $500.
Tuesday January 8, 2013 12:11 itsonlymoney
12:12
[Comment From BenBen: ] 
Brent, did you just say those making 40k-50k fall into the 10% federal tax bracket? That's not true, is it?
Tuesday January 8, 2013 12:12 Ben
12:12
[Comment From GuestGuest: ] 
What, should I give up the kid?
Tuesday January 8, 2013 12:12 Guest
12:12
[Comment From GuestGuest: ] 
Ah, good. I knew I kept that baby for some reason. Thanks.
Tuesday January 8, 2013 12:12 Guest
12:14
itsonlymoney: 
Ben,
Sorry. Single taxpayers making less than $36,250 in 2013, most likely, will fall into the 15% bracket. Joint filers making less than $72,500 this year will fall into that bracket, according to Tax Foundation projections.
Tuesday January 8, 2013 12:14 itsonlymoney
12:14
[Comment From RMSRMS: ] 
The AMT is "fixed". What does that mean for 2012 and 2013?
Tuesday January 8, 2013 12:14 RMS
12:15
itsonlymoney: 
RMS -- Argh! A dreaded AMT question!!!!
Tuesday January 8, 2013 12:15 itsonlymoney
12:15
itsonlymoney: 
I'll do my best with this.
Tuesday January 8, 2013 12:15 itsonlymoney
12:15
itsonlymoney: 
I'm going to quote from the Journal of Accountancy's summary of the fiscal cliff deal:

"The exemption amount for the AMT on individuals is permanently indexed for inflation. For 2012, the exemption amounts are $78,750 for married taxpayers filing jointly and $50,600 for single filers. Relief from AMT for nonrefundable credits is retained."
Tuesday January 8, 2013 12:15 itsonlymoney
12:16
itsonlymoney: 
Basically, had this not been fixed, more and more upper-middle class and, eventually, middle class taxpayers would've been caught by the AMT, driving up their taxes.
Tuesday January 8, 2013 12:16 itsonlymoney
12:16
itsonlymoney: 
Now, this problem is permanently fixed, meaning Congress won't have to "fix" it every year to relieve taxpayers threatened by it. Make sense?
Tuesday January 8, 2013 12:16 itsonlymoney
12:16
[Comment From RMSRMS: ] 
Thanks! I hadn't seen the exemption numbers before.
Tuesday January 8, 2013 12:16 RMS
12:17
The Oregonian: 
So can we talk about the Roth question. You wrote, In an attempt to raise more revenue now, Congress agreed to allow 401(k), 403(b) and 457(b) account holders to convert to a Roth while still working. It's one of the biggest surprises of the deal.

So how do folks jump on that opportunity? And should they take that leap to a Roth?
Tuesday January 8, 2013 12:17 The Oregonian
12:18
itsonlymoney: 
Good question, moderator.
Really, employees of such retirement plans can only take advantage of this break if:
a) Their plan offers a Roth option. Many don't.
b) Your employer amend the plan to allow for a Roth conversion
Tuesday January 8, 2013 12:18 itsonlymoney
12:19
itsonlymoney: 
So, you can't really run out tomorrow and do it. You'll have to wait to hear more from your employers. It might take several months or a year.
Tuesday January 8, 2013 12:19 itsonlymoney
12:20
[Comment From BenBen: ] 
So the distinction is conversion to a Roth 401k (if the plan has that option) vs. converting to a Roth IRA, correct?
Tuesday January 8, 2013 12:20 Ben
12:20
itsonlymoney: 
As to the question about whether you should convert, the younger you are, generally, the more likely a conversion will benefit you in the future. Look for Roth 401k conversion calculators on your retirement plan provider's website or on websites provided by Schwab or Fidelity to calculate your potential benefit.
Tuesday January 8, 2013 12:20 itsonlymoney
12:20
[Comment From BruceMBruceM: ] 
If Brent will indulge my opinion...:-)
Tuesday January 8, 2013 12:20 BruceM
12:21
[Comment From BruceMBruceM: ] 
On the Roth conversion question, from my perspective, it would make sense if you think you'll be in an equal or higher tax bracket when you make the future withdrawals, or you don't want to have to deal with Required Minimum Distributions at age 70.5.
Tuesday January 8, 2013 12:21 BruceM
12:21
itsonlymoney: 
Ben, yes. Previously, you would've had to leave your employer or reach a certain age before you could've rolled your money out of your 401(k) and into a Roth IRA. Now you can do it while still working.
Tuesday January 8, 2013 12:21 itsonlymoney
12:21
itsonlymoney: 
Not Bruce M!!!
Tuesday January 8, 2013 12:21 itsonlymoney
12:22
[Comment From BruceMBruceM: ] 
The same :-)
Tuesday January 8, 2013 12:22 BruceM
12:22
itsonlymoney: 
Seriously, thanks BruceM. He was my financial planning instructor at the University of Portland.
Tuesday January 8, 2013 12:22 itsonlymoney
12:23
The Oregonian: 
Another reader question on that topic: I always thought the conventional wisdom was tax deferral (traditional 401K) rather than Roth. I can see the point that pay the taxes now and enjoy the gains tax free later, as there's no telling what future rates or tax policy will be.
Tuesday January 8, 2013 12:23 The Oregonian
12:24
itsonlymoney: 
BruceM is welcome to chime in, but generally, moderator, the safest rule of thumb is to defer taxes until your tax rate is the lowest. Yes, tax rates could be higher in the future, but who knows. So, if you're young and in a low tax rate, but expect to earn more later and get taxed at a higher rate, and you have lots of time to let your savings grow, then it's worth considering a Roth.
Tuesday January 8, 2013 12:24 itsonlymoney
12:24
[Comment From BevBev: ] 
This AMT thing will have to be dealt with, I assume, at some point down the road?
Tuesday January 8, 2013 12:24 Bev
12:26
itsonlymoney: 
Bev,
I'm not entirely sure about that. This fix helps quite a bit, I think. And generally, AMT was never intended to catch the taxpayers it's catching. But then again, Congress needs more revenue. So ....
Tuesday January 8, 2013 12:26 itsonlymoney
12:26
[Comment From BenBen: ] 
Back to the 401k to roth conversion question. The law now allows you to convert to a roth 401K from a pre-tax 401k, not converting out of the plan to a roth IRA correct? There is a difference between a roth IRA and a roth 401k.
Tuesday January 8, 2013 12:26 Ben
12:29
itsonlymoney: 
Ben, yes, that's right. It's an in-plan Roth 401k. And, yes, there are differences between Roth IRAs and Roth 401ks. Both require after-tax contributions. Both will allow tax-free withdrawals in retirement. But Roth IRAs offer a few more features, such as pre-retirement withdrawals with no 10% penalty if they are spent on qualified higher education expenses. They're a decent college savings vehicle, in fact. Roth 401(k)s? Not so much.
Tuesday January 8, 2013 12:29 itsonlymoney
12:29
[Comment From BigBadBradBigBadBrad: ] 
seems silly this issue of tax increase because the fica witholdings are back to what they should have been
Tuesday January 8, 2013 12:29 BigBadBrad
12:29
[Comment From BigBadBradBigBadBrad: ] 
if i'm not mistaken, the feds were giiving full credit while witholding partial, that's not smart
Tuesday January 8, 2013 12:29 BigBadBrad
12:30
itsonlymoney: 
BigBadBrad, I would agree. The payroll tax cut was always meant to be temporary. It was done to stimulate the economy by stimulating spending. It was extra money dripped into our paycheck, more likely to be spent than saved.
Tuesday January 8, 2013 12:30 itsonlymoney
12:31
itsonlymoney: 
Many called it a payroll tax "holiday." Because that's truly what it was intended to be. The holiday is now over, and while some might be suffering a hangover, that party's over.
Tuesday January 8, 2013 12:31 itsonlymoney
12:31
[Comment From JanJan: ] 
I had some health issues in 2012 and reached my deductible. Insurance paid quite a bit. I was told that I would have to pay taxes on anything over $10,000 that insurance paid. They referred it it as the Cadilac tax. Is that true?
Tuesday January 8, 2013 12:31 Jan
12:32
The Oregonian: 
Folks, Brent will be with us for about 10 more minutes. What else do you want to know about your taxes after the fiscal cliff? Get those questions in.
Tuesday January 8, 2013 12:32 The Oregonian
12:33
The Oregonian: 
And while Brent responds to the "Cadillac tax" question, more thoughts on Roth.
Tuesday January 8, 2013 12:33 The Oregonian
12:33
[Comment From BruceMBruceM: ] 
To the question of Roth conversion vs. 401(k) contribution....yes, the latter is deductible. For example, if one were to contribute $5,000 to their 401(k) for the year and they are in the 20% Fed + State tax bracket, they would reduce their tax bill by $1,000 for that year. But the question then becomes, what are they doing with that tax savings? Simply consuming it...or saving it? If the former, then $5,000 is saved, the lifestyle is greater by $1,0000/yr. and future withdrawals will be taxed as ordinary income....... If the latter, $5,000 is saved but its earnings will be tax free in future years.
Tuesday January 8, 2013 12:33 BruceM
12:33
[Comment From BenBen: ] 
yes, however Roth IRA's have income limitations to them making some high income people ineligible, whereas the Roth 401k does not have income limitations. That's a huge distinction worth noting and makes this new law really appealing. Also the contribution limits change on a Roth IRA vs. Roth 401k. I don't know. just a couple thoughts. Thanks for bringing it up, but I think it's important to distinguish between the roth 401k and roth IRA.
Tuesday January 8, 2013 12:33 Ben
12:33
itsonlymoney: 
Jan, You don't have to worry about that. That Cadillac tax won't kick in on high-cost employer health plans until 2018.
Tuesday January 8, 2013 12:33 itsonlymoney
12:34
itsonlymoney: 
Ben, good point. You can also put a lot more into a Roth 401(k) than a Roth IRA.
Tuesday January 8, 2013 12:34 itsonlymoney
12:35
The Oregonian: 
So what other "fiscal cliff deal" changes do we need to make sure to consider when we sit down to file our taxes this year?
Tuesday January 8, 2013 12:35 The Oregonian
12:37
[Comment From BruceMBruceM: ] 
Brent....the sales tax deduction in lieu of income tax for Vancouver residents...this has been continued for 2 years (2013 and 2014)...correct?
Tuesday January 8, 2013 12:37 BruceM
12:38
[Comment From BruceMBruceM: ] 
...or is it 2012 and 2013?
Tuesday January 8, 2013 12:38 BruceM
12:38
itsonlymoney: 
Congress permanently extended the 0% tax rate on capital gains and dividends for those in the 10% and 15% tax brackets. That means you'll pay NO taxes on dividends and capital gains if your income is below $72,500 for joint filers and $36,250 for singles. That's a nice break that previously had been meant as an economic stimulus. It'll help a lot of seniors - and a lot of trusts.
Tuesday January 8, 2013 12:38 itsonlymoney
12:38
itsonlymoney: 
BruceM, it's 2012 and 2013.
Tuesday January 8, 2013 12:38 itsonlymoney
12:38
The Oregonian: 
Anything else before we go?
Tuesday January 8, 2013 12:38 The Oregonian
12:39
[Comment From BruceMBruceM: ] 
thanks Brent!!
Tuesday January 8, 2013 12:39 BruceM
12:39
[Comment From BenBen: ] 
Thanks Brent!
Tuesday January 8, 2013 12:39 Ben
12:39
itsonlymoney: 
Thanks! What tax questions would folks like to see addressed in an upcoming chat?
Tuesday January 8, 2013 12:39 itsonlymoney
12:39
itsonlymoney: 
Or any personal finance topic, for that matter?
Tuesday January 8, 2013 12:39 itsonlymoney
12:40
The Oregonian: 
How about when to file on your own and when to seek professional help? Does that question interest folks?
Tuesday January 8, 2013 12:40 The Oregonian
12:41
[Comment From BenBen: ] 
I'd love to hear your thought's on the Fed's monetary policies and what that means for inflation in the future?
Tuesday January 8, 2013 12:41 Ben
12:42
itsonlymoney: 
Ben, I would, too. I'll defer on that to our editorial board, which each Wednesday holds a live chat right here on various topics. I'll pass it along....
Tuesday January 8, 2013 12:42 itsonlymoney
12:42
[Comment From RMSRMS: ] 
Inflation is a great topic...
Tuesday January 8, 2013 12:42 RMS
12:42
[Comment From BruceMBruceM: ] 
How about what qualifys as 'qualifying medical expenses', as many out there have FSAs, HSAs or may consider using IRA funds to pay medical bills.
Tuesday January 8, 2013 12:42 BruceM
12:43
[Comment From BenBen: ] 
Sounds great!
Tuesday January 8, 2013 12:43 Ben
12:43
itsonlymoney: 
BruceM - Good one! The list of what qualifies is long, and there are surprising items on it. We'll consider that one for sure.
Tuesday January 8, 2013 12:43 itsonlymoney
12:43
The Oregonian: 
Great ideas! If you have more thoughts on what we should chat about next time Brent's here to talk about personal finance, please email him at bhunsberger@oregonian.com
Tuesday January 8, 2013 12:43 The Oregonian
12:44
itsonlymoney: 
Thanks everyone! Remember, if you have questions, in Oregon, consult a licensed tax consultant or a CPA who regularly does individual income taxes (not all do).
Tuesday January 8, 2013 12:44 itsonlymoney
12:44
The Oregonian: 
Thanks everyone for joining today's chat. Keep up with Brent's "It's Only Money" columns at http://www.oregonlive.com/finance/
Tuesday January 8, 2013 12:44 The Oregonian
 
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