Today, I have both good news and bad news. The good news is that the election is over and the TV ads are now over for a while.
The bad news is that we now have a very uncertain tax environment ahead.
Americans reelected Obama to the White House, left Republicans in control of the House and let Democrats stay atop the Senate. The President must tackle the $1 trillion annual deficits, rein in the $16 trillion national debt, reduce spending in certain programs, encourage job growth, pass tax legislation and do all that with a split Congress.
President Obama would like to raise taxes on higher income individuals. He only wants to extend the Bush era tax cuts for the lower tax brackets. The current 15% rate for long-term capital gain and qualified dividends will probably be in Obama’s proposal for a tax increase. It is possible the long-term capital gain rate will go at least 20% and maybe higher. In addition to that we have the new Medicare surtax of 3.8% talked about in an earlier blog. The qualified dividend rate could go from 15% to the taxpayer’s highest tax bracket.
This might be a year to consider accelerating income and/or deferring expenses for some taxpayers. This will depend on what your current tax rate is compared to what rate you expect to pay in 2013 and beyond based on tax law changes.
There is going to be a need for compromise from all parties to get any legislation passed that deals with the upcoming fiscal cliff issue and expiring tax provisions. It will be very critical that they do all that without plunging our economy back into another recession. The coming weeks will be very important and we will be following the progress very closely.
Disclaimer: The items included in the Tax Update Blog are informational only and are not meant as tax advice. Consult with your tax advisor to determine how any item applies to your situation. IRS Circular 230 disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advise contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.