Pease and PEP: How the IRS Can Take Your Deductions Away

The resolution to the fiscal-cliff crisis at the end of 2012 avoided some potentially huge tax increases. But two provisions, known as Pease and PEP, did return as a result of the compromise among lawmakers, boosting taxes on high-income taxpayers. But how do the provisions work, and will they affect you?

In the following video, Dan Caplinger, The Motley Fool's director of investment planning, talks about the Pease and PEP provisions, noting that they both take effect on single taxpayers with income of $250,000 or more and joint filers with $300,000 or more in income. Dan notes that the Pease provisions reduce allowable itemized deductions, while the PEP or personal-exemption phaseout reduces how much you're able to take in personal allowances. Dan concludes with some tips on how you can avoid the full brunt of these provisions in certain circumstances.

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The article Pease and PEP: How the IRS Can Take Your Deductions Away originally appeared on

Fool contributor Dan Caplinger and The Motley Fool have no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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