Today we will take a look at year-end and the fiscal cliff.
Since it appears that Congress and the President are not ready to finalize any tax legislation yet this year, I thought it would be good to take another quick look at some of the areas this lack of legislation could impact.
The maximum income tax rates for 2013 could be as high as 43.4 % on ordinary income or 44.6% if the reinstated limitation on itemized deductions is taken into account. That is compared to a top rate of 35% for 2012.
The rate for long-term capital gains could be as high as 23.8% or 25% if the limitation on itemized deductions is considered. That is compared to a 15% rate for 2012. The 15% rate for qualified dividends is also set to expire at the end of the year. This could result in that form of income being subject to the highest rate for ordinary income of 44.6%.
Also, unless Congress acts, millions of additional taxpayers will be liable for the Alternative
Minimum Tax (AMT) for 2012. This is because the amount of income that is exempt from AMT, is currently set to fall to $45,000 for a married couple. This is down from the 2011 exemption amount of $78,750. All of this could have a huge impact on the filing of the 2012 tax returns as the IRS would need to rewrite their software if Congress does not extend the higher exemption amount. This will result in huge filing delays.
The payroll tax holiday, which provided for a 2% reduction in the employee portion of social security, will also expire at the end of the year.
Congress also needs to pass a large list of smaller individual and business tax breaks. This is something they have historically renewed, but they have not done so at this time.
We are regularly monitoring what Congress is proposing and will issue a special edition if needed to keep you as current as possible as we approach year-end.
Disclaimer: The items included in the Tax Tip Tuesday Video 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.