The last time congress did anything substantial, it extended the Bush era tax cuts and extended many other tax provisions until the end of this year, 2012. In otherwords, they punted, again. Absent any further action by Congress the extenders will expire expire and in 2013 taxpayers face, “Tax-mageddon.”
Unless you have been living in a cave over the last 4 years you are aware of the substantial partisan divide; Congress cannot seem to do one of its main jobs, which is figuring out how to collect and spend taxpayer dollars. We are currently in an election cycle so Congress is election focused, not tax-writing focused.
According to some Estimates, the expiration of various tax provisions could add an additional $409 billion in taxes, which is quite a bit more than the additional $22.7 billion tax increase attributable to Obamacare.
If the Bush era tax cuts expire, the top income tax rate will go from 35% to 39.6%, and the income tax rate will increase for all other income levels except the 15% tax bracket. The top dividend rate will go from 15% to 43.4 %, the top capital gains rate will go from 15% to 23.8% and the top estate tax rate will go from 35% to 45%. Taxpayers will see a return of the marriage tax penalty, loss of bonus depreciation, the return of the personal exemption phaseout, the return of the limitations on itemized deductions, the end of the double child tax credit, and the end of the more generous EITC credit.
In addition, the AMT patch, the R&D tax credit , the alternate deduction for state & local sales tax, elementary & secondary school teacher adjustments to income, the work opportunity credit, and other things will go away. Let us not forget the payroll tax cut, which reduced employee contributions to Social Security 2%; yes, that will go away as well.
Then there is this whole issue of sequestration. Remember the suicide pact wherein congress said if the Super-committee could not come up with a budget and tax cuts, then an automatic 50/50 spending cut split of between DoD and non-entitlement spending would kick in? So far sequestration has not happened, but the Super-committee did not come up with a plan, so sequestration was supposed to happen and may still.
Oh. the debt ceiling issue will probably recur in 2013 too.
Many people think congress will act in the lame duck session after the November election. The bush tax cuts will probably be extended until the spring of 2013. In other words, Congress will punt again.
Obama’s plan includes increase taxes, and Romney’s plan decreases taxes, but remember it is the divided Congress that writes the tax laws to collect and spend our money-and folks, they can’t seem to do that.
In the mean time, the IRS does not know what to do about this year’s taxes, which means at the very end of the year the IRS will be creating the tax forms etc. for 2012. Tax planning in this environment is just about impossible.
Folks, we don’t know what to tell you. Tax-mageddon could happen. Prepare yourself for tax sticker-shock.
What you can do now? You should consider taking advantage of certain tax rates and laws as they exist now.
As always, small business services and taxation are our business. If you need help with taxes, or other services, Please give Art & Business Consulting a call. We would love to engage you as a client.
Jake Beckman, EA and Tax Specialist at Art and Business Consulting LLC
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