Tag Archives: extended

Fiscal Cliff Update

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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.

The Deadline is Approaching!

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The post this week is a quick one.  If you extended your personal tax return, it’s due a week from today, with no more extensions available.  This deadline tends to sneak up on people.

After that deadline passes, we’ll be turning to year end planning for many of our clients.  Taking an hour or two to discuss taxes this fall will make next spring a far less surprising time, and allow us to help proactively plan for year end taxes.

As always, we’re here to help.

Kids and Money

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Teaching kids to respect money and manage it well seems to be a life-long process for parents.  According to a survey conducted by the AICPA though, it’s a lesson that is not being taught at all in 3 of 10 American households, despite most parents believing it was an important one.

The National Financial Literacy Commission suggests the following when talking to your kids about money.

Start early. As soon as children are able to express a want, discuss basics like delayed gratification that are the foundation for budgeting and saving for a goal. Require children to save some of their birthday cash and money earned in after-school jobs. Give them small jobs to earn an allowance to pay for toys or other wants. Make saving fun by giving them a grocery list, and have them clip coupons and comparison shop by reviewing store fliers. Split the savings with them to reward their effort.

Speak in their terms. A child might not care about money for college and may be more interested in money to buy a toy or spend with their friends. Create teachable moments around things your children care about. Also, show them the statement for their college savings account to build an understanding of compound interest and saving toward a long-term goal. The real learning will occur when your child tries to figure out how to earn and save for a toy or other item you decide not to purchase for them.

Repeat often. The more you discuss good financial habits, the more likely your child is to make them a part of their daily life. During dinner, talk about saving for a big purchase, such as a family vacation, and how it might affect the budget. Show them your pay stub to talk about taxes and saving for retirement, and review their savings account and college account statements with them.

Walk the talk. No matter what you say to your children about money, your actions are even more important. If you cave in easily when they make a fuss over a toy at the store, you will have difficulty convincing them to delay gratification and stick to a budget.

Extending Tax Cuts – Two Approaches

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In the past week, both House Republicans and Senate Democrats have introduced bills to extend the Bush-era tax cuts, most of which have either already expired or will expire at the end of this year.

The Republicans are moving to extend the cuts for all taxpayers, while the Democrats are pushing to extend them for only those earning $250,000 or less.  Each plan faces almost certain refusal by the other side of the aisle, which leaves taxpayers in the same position they were – with expiring tax cuts and no good prospect for renewal.

We’ll keep you informed of all the latest as things develop.

Payroll Tax Cut Extension

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On February 17th, Congress passed the “Middle Class Tax Relief and Job Creation Act of 2012” and sent it to President Obama for his signature.  The act extends the 2% payroll tax cut through then end of 2012, assuring most Americans don’t see a 2% cut in their take home pay.

The act extends a prior stimulus measure which cut the amount each employee contributed to the Social Security fund by 2%.