More than a dozen tax cuts are set to expire and a couple of new taxes are scheduled to land on Dec. 31. Combined, they would affect nearly 90 percent of taxpayers, from the very richest to the very poorest, with the typical household’s tax bill rising by about $ 2,000 in 2013, according to the nonpartisan Tax Policy Center. One-percenters would see their taxes rise an average of $ 121,000.
On Tuesday, Congress will reopen discussions about how to deal with the combination of spending cuts and tax increases looming at year-end, and maybe even dip a toe into a broader tax overhaul.
“It would be bad for the economy and it would hit families that are already struggling to make ends meet,” President Obama said on Friday of the scheduled increases in taxes. “While there may be disagreement in Congress over whether or not to raise taxes on folks making over $ 250,000 a year, nobody — not Republicans, not Democrats — want taxes to go up for folks making under $ 250,000 a year.”
While legislators are expected to try to reverse or temper many of the scheduled tax increases, at least a few appear to be a fait accompli. Accountants and tax attorneys are expecting a flurry of frantic calls in the last few weeks of this year as clients rearrange their affairs to minimize the blow.
“I don’t expect to have any respite from now til the end of the year,” said Robert Willens, the president of his tax and accounting practice in New York. “Clients are very concerned and kind of confused about what to do, whether they should be taking any affirmative steps or waiting to see what happens.”
TAX INCREASES YOU SHOULD EXPECT
At least two categories of tax increases are widely expected to materialize in some form.
A payroll tax cut given in the 2011 and 2012 calendar years — which was intended as a temporary stimulus — is set to expire, and so far both Democrats and Republicans seem ready to let that happen, although there could be some provision made to ease the pain for the lowest-earners.
The lapsing payroll tax cut affects everyone who works, or about three-quarters of all tax filers. A household in the middle quintile, roughly between $ 40,000 and $ 65,000, could expect its taxes to rise by an average of $ 672 next year, while a household in the top quintile, earning more than $ 108,000, would pay an average of $ 1,950 more, according to the Tax Policy Center.
With the re-election of President Obama, the taxes imposed by his health care overhaul will also almost certainly remain.
Starting in 2013, high-income Americans will pay an additional tax of 0.9 percent on their earnings above $ 250,000 if they are married and above $ 200,000 if filing singly. These households will also pay an additional 3.8 percent on capital gains, dividend and interest income over those same thresholds. The average household in the top income quintile — the group of Americans most likely to be hit by these new taxes — would owe an additional $ 1,141.
TAX CHANGES OBAMA WANTS
The fate of the other scheduled tax increases is less clear. Mr. Obama has advocated for some of them, but the Republicans, who control Congress, have opposed them.
In particular, Mr. Obama wants to let lapse the lower rates begun in the Bush era on income, capital gains and dividends for higher earners, whom he has defined as those earning over $ 250,000 for married couples and $ 200,000 for others.
These tax rates were previously set to expire at the end of 2010, and were given a two-year extension. Letting them expire at the end of this year would raise an additional $ 52 billion in 2013.
Allowing the income tax rates for high-earners to lapse would mean that, for married couples, income over $ 397,000 would be taxed at 39.6 percent instead of the current 35 percent, and that income from $ 222,300 to $ 397,000 would be taxed at 36 percent instead of the current 33 percent.
For those in the top income quintile, these provisions would raise their tax liability by an average of $ 2,282 next year. The top 1 percent of tax filers would owe an additional $ 45,002.
Allowing the Bush-era capital gains rates to rise would also affect these high-income earners.
This year, investors pay a top marginal tax rate on their long-term capital gains of 15 percent. Under current law, this rate will jump to 20 percent in 2013, not including the additional 3.8 percent increase from the Affordable Care Act on high-income investors described earlier. In addition, a limitation on itemized deductions is also scheduled to kick in at the end of this year that could add another 1.2 percent.
Source:
http://13lei.net/2012/11/10/a-roundup-of-coming-tax-changes-for-individuals/