That so-called “fiscal cliff:” may be yesterday’s  news, but as Christine Benz writes smartly in a comprehensive Improving Your Finances article on,  the tax deal had . . . “something for everyone to revile: Tax hawks decried higher taxes on the wealthy, while many on the left rued that Bush-era tax cuts were made permanent. And it’s hard not to be depressed that further partisan bickering is almost certainly on the way: Within the next few months, Congress will revisit the debt-ceiling limit as well as spending cuts.”

“Yet financial planners and tax and legal professionals still have something to cheer about in the wake of the deal: certainty. The past several years have featured many question marks about the direction of tax rates, with various Bush-era provisions facing expiration, being extended, and threatening to expire yet again. In that many of the cuts are now permanent, the newfound certainty in tax rates makes matters of investment, estate, and tax planning significantly easier.”

The next few blogs will summarize, in excerpts, some of those provisions– as well as their implications for your portfolio–addressed in Benz’s article, beginning with . . .

Higher Rates for Higher Earners

What’s Happening:  Higher income, dividend, and capital gains taxes will kick in for those individuals earning more than $400,000 in 2013 and married filers earning more than $450,000. Starting

with the 2013 tax year, those high earners will pay a top tax rate of 39.6% on ordinary income and 20% on both dividends and long-term capital gains.

“What You Should Do: If you expect to fall into the aforementioned higher income tax bands for 2013 and beyond, many of the long-standing best practices for tax management will make more sense than ever. Those best practices include maximizing contributions to tax-sheltered accounts such as IRAs and 401(k)s, placing assets with high year-to-year income production (Treasury Inflation-Protected Securities, junk bonds, and real estate, to name a few) in tax-sheltered vehicles. You should then manage

your taxable accounts with an eye toward maximum tax efficiency; broad-market stock index funds and exchange-traded funds are good bets, as are municipal bonds. Limiting short-term trading–and in turn the realization of costly short-term capital gains–is another “do,” as such gains are taxed at nearly twice the rate as long-term gains. In addition, high-income households with the wherewithal to defray ongoing health-care costs should consider  a health savings account, which remains the only triple-tax-advantaged wrapper in the whole tax code. Contributions go into the accounts on a pretax basis, the money compounds tax-free, and withdrawals for qualified health-care expenses are also tax-free. “

In the next blog: Tax Parity for Dividends and Long-Term Capital Gains.