December comes every year, but for some reason Congress seems to forget and procrastinates until the last minute to set the tax rules for next year. This year is not much different than the past because it includes typical long-standing tax incentives that are up for renewal annually, such as the AMT patch.
However, the “Fiscal Cliff” makes this year even more “special” and uncertain for taxpayers. There is a full range of tax incentives and tax rate increases due to take effect January 1st. CNBC estimates that the average middle class family will see their taxes go up by $1,900 next year if no tax deal is reached, so the impact is not just on the wealthy.
So, what will be the deal? It is impossible to know for sure which specific tax deduction will pass through the “system” and which one will get the ax. But, it is our firm’s opinion that it is likely taxes will go up for the top earners and remain similar for the rest. It may “look” different, for political gain purposes, but the bottom line dollar impact for the majority of people will likely be about the same.
And, when will the deal be done? As crazy as it seems, it is quite possible nothing will be passed until the middle of the first quarter of 2013. If that is the case, it will probably have a retroactive feature back to January 1st. Of course, the longer the deal gets dragged out, the more people and businesses hold off on making financial decisions.
I might argue that the constant uncertainty is worse than the looming threat of higher tax rates because it is crippling the ability for our economy to move on. People and businesses want to know what to expect so they can plan accordingly. Of course, the ever-increasing complexity of the tax system does not help. Every day, I listen to people afraid to take action because they just don’t understand the tax rules. So, I am idealistically hopeful the tax deal includes longer-term provisions and simpler rules.
It is understandable you may be feeling anxious about how the tax deal will affect your financial situation. Unfortunately, there really is not much most people can do until the deal is done. So, try your best not to sweat it and enjoy your holidays. Eventually, we will know the deal and can move on.
Contact our office at 515-284-1011 or firstname.lastname@example.org to start moving on with your financial and tax planning needs for 2013.