Call it the not-so-happy new year. Unless Congress wrangles a deal in the next few days, Americans will ring in 2013 with champagne, funny hats -- and a knock-you-off-your-feet cocktail of tax hikes.
As you ring in 2013 in Cincinnati, it may be hard to welcome a new year without some amount of financial stress if Congress fails to resolve the fiscal crisis. An article in Fox News recently explained “How Washington’s failure to reach a tax deal could spoil your 2013.”
A few of the topics identified in the article include:
Tax Hikes
By now, everyone knows the Bush-era tax rates are slated to roll-back to pre-2001 rates. This means families making between $50,000 and $75,000 could see taxes jump roughly $2,400. Capital gains would be taxed at 20 percent rather than 15 percent. Dividends would be taxed like regular income. And the estate tax would expand to include more and more families.
In addition, a short-term Social Security payroll tax cut is also likely to expire, with the rate rising from 4.2 percent to 6.2 percent. And without an agreement to do otherwise, the alternative minimum tax would expand to 28 million more taxpayers.
So, without an agreement in the next few days, the New Year will bring with it the largest tax increase in American history – a $536 billion tax increase.
Spending Cuts, Threatened Jobs
Along with the steep tax hikes, 2013 will bring the first installment of $110 billion in government spending cuts. About half of the cuts will focus on defense spending, thereby threatening the thriving defense industry. The other half will affect other federal departments, possibly causing some federal workers to be furloughed or laid off. The Congressional Budget Office predicts the country could lose up to 3.4 million jobs.
IRS Filing Frustration
American taxpayers were not the only ones hopeful Congress would come to a fiscal agreement before the end of 2012. The IRS was too. In fact, the IRS assumed that Congress would avert the alternative minimum tax provision so it failed to make necessary changes to its computer system. Now, if nothing is done, more than 100 million taxpayers will have to wait until mid-March to file their 2012 tax returns.
Refer to the above mentioned article for more ways this Congressional dilemma could impact you in the New Year.
If you have any questions about any of the information contained in this blog, see the estate planning website of Cincinnati attorney, David H. Lefton, or contact him at 513-399-PLAN (7526) or by email at dhl@bpbslaw.com.
Reference: Fox News (December 25, 2012) “How Washington’s failure to reach a tax deal could spoil your 2013”
