As we near the end of the year, there are a large number of things still in flux, mostly related to the so-called “Fiscal Cliff” of tax increases and spending cuts. Congress and the President are negotiating to avoid the Cliff, since most believe allowing the country to “go over” would push the economy back into recession.
What does this mean to you, you might ask? Below is a list of the benefits that are already expired for 2012 (or will expire at the end of this year) unless Congress acts to reinstate them. This is just a partial list of the items most likely to effect the average taxpayer.
- The 10% tax bracket for the lowest income Americans moves to 15%.
- The highest tax bracket will move from 35% to 39.6%
- Interest and dividends will be taxed at ordinary income tax rates, rather than a maximum tax rate of 15%
- Capital gains will be taxed at a maximum of 20%, rather than the current maximum of 15%.
- Nearly 26 million more Americans will pay the “Alternative Minimum Tax” or AMT, which eliminates many tax deductions otherwise available and uses only two tax rates – 26% and 28% – to calculate Federal tax.
- Adoption benefits provided by employers to assist employees with the cost of adoption will no longer be excluded from taxable income.
- Tax-free tuition assistance provided by employers to their employees of up to $5,250 will not be allowed.
- The 2% reduction of the employee’s portion of Social Security will expire, essentially reducing take-home pay by 2% for those earning up to $113,700.
- The up-to $4,000 deduction for tuition and fees will not be allowed.
- Mortgage insurance premiums will no longer be allowed as a deduction.
- State and local sales taxes will not be allowed as a deduction in place of state and local income taxes, a provision that effects mostly those in states with no state income tax.
We’ll keep an eye toward Washington, and when there is a resolution to the Fiscal Cliff questions, we’ll bring you a full explanation.