Tax Planning:
Will the U.S. Go Over the “Fiscal Cliff?”
By Erich Faber
The elections are over so now
what is in store for theU.S.economy?
The real work for Congress begins in
the next few weeks if we are to avoid
what Federal Reserve Chairman
Ben Bernanke calls the “fiscal cliff.”
Taxes are going to be a major issue
for the rest of 2012 and for much of
2013.
So what is the fiscal cliff and how
could it impact my finances? Come
January, if Congress fails to act,
spending cuts and tax increases large
enough to throw the country back
into recession will hit. There will
be an increase in taxes at all income
levels, not just for the rich. The
Tax Policy Center, a Washington
research group, has estimated that
the average mid-income family
would see their tax bills go up $3,500
and after tax income drop 6.2%.
Many people will be receiving
lower paychecks the first of 2013 as
tax withholdings will change. The
marriage penalty is reinstated under
the change causing the standard
deduction to decrease and taxes to
increase for many married couples.
A delay in passing tax law could
lead to delays in tax filing season
due to IRS updating systems and
software. For the 75% of taxpayers
that usually expect an early refund
averaging $3,000, that could be a
serious financial delay. The estate
tax exemption of $5.2 million will
automatically drop to $1 million
and the estate tax rate will increase
from 35% to 55%.
The stakes are very high and
there is little room for error. Neither
political party wants to go down in
history as the one that caused the
U.S. to go over the “fiscal cliff.” There
is no way to predict what Congress
will do about these issues or when
they will act. That uncertainty
makes doing effective tax planning
for yourself or your business very
challenging. Yet doing nothing
could leave you paying significantly
more in taxes.
The wise taxpayer may have to
consider more than one tax strategy
this year, running the numbers under
two or more scenarios. By staying
informed and being prepared to act
as events unfold, you can minimize
your 2012 and 2013 tax liability.
Brace yourselves for market
volatility and increased taxes in the
coming weeks and be sure to check
www.LAKECPA.com
frequently
for the latest tax law changes as well
as tax-cutting strategies. Now is the
time to start planning so you pay no
more tax than the law requires.
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brilliantly.
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