The ‘Fiscal Cliff’

Expiration of Bush-era tax cuts, changes for 2013 and upcoming deadlines

With the new calendar year approaching, it is important to review the expiration of the Bush-era tax cuts – the “Fiscal Cliff,” changes for 2013 tax year, and upcoming 2012 deadlines.

The Bush-era tax cuts, more than 150 tax provisions, are scheduled to expire at the end of this year. This could result in a much higher tax liability on your 2013 income tax return. As we near the edge of this “Fiscal Cliff”, several changes are looming, including, but not limited to, the following:

• Return of the marriage penalty (reduction of standard deduction and increase in rates);

• Minimum three percent across the board tax increase for most taxpayers;

• Increase in the capital gain tax rate;

• Limits on itemized deductions;

• Increase in the number of estates subject to the estate tax.

At this point, there is much uncertainty as to where the chips will fall – the President and Congress are attempting to reach agreement on a plan that will not only reduce the deficit, but that will also address the impending fiscal crisis.

In addition, the following changes are in store for Jan. 1, 2013:

• The payroll tax cut for employee’s share of Social Security is set to expire Jan. 1, 2013. The rate is set to increase back to the 6.2 percent;

• 0.9 percent Medicare Surtax on earned income of high-income earners;

• 3.8 percent Medicare Surtax imposed on unearned (net investment) income for high-income earners;

• Threshold for deducting health related expenses increases from 7.5 percent to 10 percent of AGI for most filers;

• Depreciation: The rules for depreciation change significantly in 2013 unless Congress takes action to modify the law. During the 2012 calendar year, bonus depreciation is at 50 percent of the cost of new assets, but at this time it is to be eliminated in 2013. Additionally, Section 179 expensing limit is $139,000 for tax years beginning in 2012, but decreases to $25,000 for tax years beginning in 2013;

• Standard mileage rate increases to 56.5 cents per mile.

Upcoming Due Dates:

• Contributions to your Traditional IRA or Roth IRA for the 2012 year can be made until April 16, 2013.

• If you make estimated tax payments for your individual income tax return, don’t forget the due date for making the fourth quarter payment is January 15, 2013.

• If your business issues Forms W-2 or Forms 1099, be sure to have copies to the recipients by January 31, 2013. (Note: Employers who will issue fewer than 250 W-2 forms for the 2012 wages are not yet required to include the health insurance premium as an amount on Box 12 of the Form W-2.)

• FAFSA: If you will be filing the Free Application for Federal Student Aid (FAFSA), now is the time to start preparing.

Starting Jan. 1, 2013, students may complete and submit FAFSA forms to apply for financial aid.

If you don’t already have one, now is the time to apply for a PIN number. This enables you to submit the form online.

Visit the http://www.fafsa.ed.gov website, and browse the help area for more information.