Tax-mageddon

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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