I had a dream of writing this blog on December 31st. Below is how I was going to rant:
It is sad news that today is December 31 and we still do not have a resolution to this fiscal cliff dilemma. the accounting community is calling us Taxmageddon.
This issue is going to cause many heartaches for the Americans that will need to file tax returns. For those people that normally file tax returns early this will delay refunds and processing by the IRS potentially all the way out until middle to end of March. the fiscal cliff will have effects on teachers, students, and estimates say between 80 to 100 million of the normal taxpayers who are now estimated to be hit with the alternative minimum tax. I find it interesting that the IRS has had to begin preparing forms with lines on it using the word “reserved”because our government can get their act together.
It is my professional recommendation that if your salary is over 40,000, if you are a teacher, are a student, have any children that are dependents that her students, if you itemize on your tax return, that you wait to file your tax return in till at least Middle march. If you fall into any of these categories you filing and paper processing will be delayed. This does not mean that you shouldn’t prepare your tax returns now. What this does mean is that you should prepare tax returns and be prepared for changes in till the fiscal cliff issues have been decided.
As stated by Representative Sander Levin, a Michigan Democrat, “Failure to act on the fiscal cliff will throw the 2013 tax filing season into chaos.” I couldn’t have said it better myself.
The part that bothers me the most about the fiscal cliff isn’t so much that the filing is going to be delayed. My biggest issue with this is that the AMT is going to hit many small business owners trying to earn a living, trying to create jobs, and trying to rebuild our economy. for those of you that are unfamiliar with the AMT, The AMT is a levy designed to ensure that high-income taxpayers pay a minimum tax – an additional tax above and beyond the normal income tax rates. Democrats and Republican typically agree to adjust the tax for inflation to prevent unintended taxpayers from being hit by it, however, with this unresolved cliff, many Americans will be hit with this additional and potentially egregious tax.
Since none of us know what the outcome of this will be, I am recommending to all of our readers, clients, family, and friends that they prepare for a minimum of a 5% tax increase over last year. if I were to put my money on it, I believe that the rates may go up even higher than that to 10 to 15% increases. I never liked being the naysayer, or the gloom and doom type, but I would much rather be prepared then be surprised.
If you have not already done 2013 planning with your CPA, you need to set up an appointment right away. It will be important for your family’s future.
WITH THAT BEING SAID, OUR GOVERNMENT COMES UP WITH A “SOLUTION” THE VERY NEXT DAY:
Here is where we stand right now (By Adjusted Gross Income brackets)
- GENERAL for everyone:
- We are going to retain the 10 percent, 15 percent, 25 percent, and 28 percent income tax brackets from the Bush tax cuts permanently
- We will retain the 33 percent and 35 percent income tax brackets from the Bush tax cuts for taxable income under $400,000 (single), $425,000 (head of household), and $450,000 (joint filers).
- A new 3.8 percent health care tax on investment income above $200,000 (single) and $250,000 (joint filers) in adjusted gross income
- Continues setting the standard deduction for joint filers at 2 times single filers (would have otherwise reverted to 1.67 times single filers)
- Permanently sets Alternative Minimum Tax (AMT) exemption at $50,600 (single) and $78,750 (joint filers) for 2012 and adjusts for inflation thereafter
- One year extension of 50 percent bonus depreciation rules
- Extends American Opportunity Tax Credit (education) through 2017
- Extends the various “extenders” tax incentives through 2013
- Retains the doubled child tax credit ($1,000) permanently, its refundable portion through 2017, and the expanded earned income tax credit (EITC) through 2017
- Raises estate and gift tax to 40 percent, but above the current exemption level (~$5.12 million) and adjusted for inflation in future years
- Ends 2 percent payroll tax cut; taxpayers should expect greater FICA withholding from their next paycheck.
- ADJUSTED GROSS INCOME: over $250,000 (single), $275,000 (head of household) and $300,000 (joint filers)
- the personal exemptions (PEP) will now phase out.
- there will now be limits on itemized deductions.
- ADJUSTED GROSS INCOME: over $400,000 (single) and $450,000 (joint filers)
- We will have the new imposed 39.6 percent tax rate on income above this level.
- Capital gains tax and dividends tax will be 20 percent
Well, at least the rates didn’t go up as much as I expected, however, they are still way up, and are causing havoc with reporting and requirements for businesses and their employees.
As I learn more I will keep you posted, but in the meantime, get ready for Tax Season! (My Favorite time of year!) 🙂
Let me know if you have any questions on any of this. We are implementing a new brown bag luncheon, free for our clients, where you can come, discuss business, ask questions, and generally have a great lunch with your CPA! 🙂 We will be posting details of our January brown bag early next week 🙂