It's tax season again. All the phone lines to the IRS have hold times of up to 27 mins, the waivers dressed in crazy costumes are on the side of the road trying to get you to come in their establishment, and most business owners are trying to gather all their receipts. It's hectic for everyone. You feel prepared, but are you really? Last year, all the talk about the fiscal cliff had everyone nervous but what does it mean for you both personally and professionally? Here is some very enlightening info:
To the surprise of many, Congress hasn’t brokered a deal to overcome the fiscal cliff situation. Thus, everyone is asking me, “what does it mean to go over the Fiscal Cliff?” Frankly, a lot of tax breaks will expire and a lot of automatic spending cuts will go into place that will cut the yearly deficit in half but could enhance the recession. Here are some of the changes:
1. 2% increase in payroll taxes such as social security for everyone.
2. Automatic reduction in discretionary and mandatory spending.
3. Sharp reduction in Medicare’s payment to physician services by as much as 25%. Expect to see waves of doctors opt out of Medicare and Obama care.
4. Elimination of the bottom 10% tax bracket. The lowest bracket will be 15%.
5. The top four tax brackets will go up to a max rate of 39.6% from its current 35%. This means an increase of at least $2,000 in taxes for the average American and not just the rich.
6. Employer provided educational assistance of up to $5,200 per year-ends.
7. Student loan interest phases out over lower income levels.
8. Many of the adoption credits, except for special needs kids, are either eliminated or significantly reduce after 2012.
9. Marriage penalties come back. This means that the standard deduction for married folks isn’t twice the single amount for 2013.
10. Itemized deductions and all exemptions phase out by 3% above an inflation figure for higher income taxpayers.
9. The child care credit ends in 2012.
10. Fewer people will be eligible for the earned income credit.
11. The child credit drops from $1,000 per child to $500.
12. The minimum amount needed to file a tax return is lowered to require more people to file returns.
13. Regular corporations have more potential tax problems due to significant raises in the accumulated earnings tax and personal holding company tax rates. If you operate as a “C corporation,” you must meet with your accountant to plan to avoid these problems.
Sandy’s elaboration: it is nice of Congress to require more accounting time. I call this act the “Small Accountants Relief Act.”
14. Back up withholding on gambling rises from 25% to 28%.
15. Voluntary withholding on social security and unemployment rises.
16. The estate tax and gift tax exemption goes from the current 5.1 million dollars to one- million dollars, although you do get a renewed credit for family owned businesses.
17. Estate and gift tax rates rise from a max rate of 35% to as much as 55%.
18. Elimination of Tax credits for educational expenses such as The American Opportunity Credit and Lifetime Learning Credit. Moreover, this isn’t a comprehensive list, but it does give you an idea of how this will affect you. Notice it affects everyone and NOT just the rich, although the rich will pay more taxes as a result.
19. Normally when your home gets foreclosed or given back as part of a short sale, you do NOT have taxable income if the amount of forgiven or cancelled debt is less than two million dollars. This exclusion ends in 2012. Thus, if your home if foreclosed or given back as part of a short sale, you are deemed to have sold your home. Thus, if the bank sells the home for less than the amount of the debt, you are taxed on the difference!
Now imagine dealing with all of that and not getting the deductions you deserve because you don't have adequate records. That's where Taxbot comes in. This software allows you to keep a running total of your deductions throughout the year. Not only can you see what you can write off but if your smart, you can calculate your quarterly tax debt and not get behind. Take a look at the software. There is a free trial in it for ya!
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