With the election just one short day away (FINALLY), the media and national spotlight is primarily centered on determining our next President. While the election for President, House, and Senate are undoubtedly important, they are not the sole determining factor of the fiscal cliff that faces our nation and each and every one of us as taxpayers. In our office, this fiscal cliff or taxmageddon are our primary concern as we move into the final two months of 2012.
What is taxmageddon you ask? First, it is a clever term the media has coined to highlight an important tax law shift. Second, IT IS AN IMPORTANT TAX LAW SHIFT. This shift is brought on primarily due to fact that there are many tax provisions expiring at the end of 2012. Congress has yet to act on extending these provisions, therefore, the tax laws will shift and trigger many changes for taxpayers to face. With no solution on tap at this time, it’s imperative the taxpayers, businesses and individuals, take time to work with their CPAs to determine if any action should be taken prior to year-end.
This list of tax provisions set to expire at 2012 is rather long, but I do want to highlight of few key provisions here:
- Tax Rates: The 10% bracket currently in place will disappear and income in that bracket will revert back to 15%. All other rates will revert back to a graduated rate schedule of 28%, 31%, 36%, and 39.6%. Additionally, the taxation of qualified dividends and capital gains at preferential rates of 0% or 15% will expire as well.
- Payroll tax deduction: The lower 4.2% rate for employees’ portion of Social Security payroll will move back to 6.2%.
- Sec. 179 Deduction: A huge deduction in the ability to utilize Sec. 179 for businesses is on the horizon. The Sec. 179 limit will drop to $25,000.
- AMT “Patch”: The question here is will Congress act again as they have for the last several years to patch the AMT exemption or will the AMT tax become a major force for many taxpayers who had previously gone unaffected by the tax.
The bottom line is stay tuned and stay connected to your CPA. Put a plan in place for that can be enacted by 12/31/12. And while you’re at it, put a backup plan in place as well. As a CPA, we wish we could get our crystal ball and forecast how Congress will act. Unfortunately, we cannot. What we can do is work with you to determine your tax implications of various scenarios and what steps you can take to control those outcomes.