Accounting News

Tuesday, October 2, 2012
What Will Tax Changes Cost You?

A number of tax provisions are set to expire at the end of this year. With the election coming up in November the Congress and President were uninterested in making in changes to the tax code. If there are any changes they will need to take place in the lame duck session after the election. Each party would like to protect the tax breaks for their backers while letting the ones of their opponents expire.

The important question is what will the cost be to your family if the laws are allowed to expire. We can give you estimates but every situation is different. Now is the time to meet with your certified public accountant to examine your specifics. Together you can come up with a plan to minimize your tax burden if the laws are changed or if they are not. Now is the time to make plans so you are not scrambling at the end of the year.

This is such an large issues because it impacts almost every tax cut that has been enacted since 2001. This includes the Bush tax cuts as well as payroll tax cuts enacted under Obama. The changes will raise the taxes of 90% of all tax filers. It is an increase of 5% on income, 7% on capital gains, and 20% on dividends. The average is $3,500 per family but lets break that down.

So lets look at the numbers. These number were part of a report from the Tax Policy center at the request of the Urban Institute and the Brookings Institution.

Lower income filers will notice the difference in the payroll tax and social security tax the most. This would amount to around $400 of tax increased in 2013.

Middle income earners would feel the impact of increasing the marginal tax rate as well as the social security tax break. That represents around $2,000 for middle income earners. There is also the risk that they would be hit by the alternative means tax (AMT) which could but them in higher tax brackets.

As you might imagine the largest increases would be seen by the highest wage earners. They will average $120,000 of increased taxes. This is because they were able to take advantage of more of the tax breaks as well as getting the tax increase from the health care law.

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