Millions face higher taxes soon without fix; big package of tax breaks already expired
WASHINGTON — Millions of families and businesses will get hit by big tax increases a lot sooner than many realize if Congress and the White House don't agree on a plan to skirt the year-end fiscal cliff of higher tax rates and big government spending cuts.
In fact, they already have.
More than 70 tax breaks enjoyed by individuals and businesses expired at the end of 2011. If Congress doesn't extend them retroactively back to the beginning of this year, a typical middle-class family could face a $4,000 tax increase when it files its 2012 return in the spring, according to an analysis by H&R Block, the tax preparing giant.
At the same time, businesses could lose dozens of tax breaks they have enjoyed for years, including generous credits for investing in research and development, write-offs for restaurants and retail stores that expand or upgrade, and tax breaks for financial companies with overseas subsidiaries.
Even if Congress does act, last-minute changes to federal tax laws could make it difficult for taxpayers to figure out their 2012 tax bills.
"We're really expecting this upcoming tax season to be one of the more challenging ones on record," said Kathy Pickering, executive director of The Tax Institute at H&R Block. "For your 2012 returns there's so much confusion about what will be impacted."
Much of Washington is consumed by negotiations over how to address automatic tax increases scheduled to take effect next year. That's when tax cuts first enacted under President George W. Bush, and extended under President Barack Obama, are scheduled to expire. A temporary reduction in the Social Security payroll tax is set to vanish as well.
Obama wants to let the Bush-era tax cuts expire on incomes above $200,000 for individuals and $250,000 for married couples, while extending the tax cuts for people making less.
House Speaker John Boehner and other Republicans have said they are open to more tax revenue through reducing or eliminating tax breaks. But Boehner, R-Ohio, opposes Obama's proposal to increase tax rates on high earners.
Lost in the debate is a big package of tax breaks that already expired for 2012. Lawmakers in both parties say they expect those tax cuts to be addressed in any deal to avoid the "fiscal cliff." But they don't want to deal with them separately because that would reduce pressure to reach a broader budget agreement.
The biggest tax increase facing individuals for this year is the alternative minimum tax, or AMT. The tax was first enacted in 1969 to ensure that wealthy people can't use tax breaks to avoid paying any federal taxes. The AMT, however, was never adjusted for inflation, so Congress routinely does that to keep it from imposing hefty tax increases on millions of middle-income families.
Congress last adjusted the AMT in 2010, and about 4 million taxpayers paid it 2011. Without a new adjustment for the 2012 tax year, the AMT would reach an additional 28 million taxpayers, increasing their tax bill by an average of $3,700.
The tax would affect individuals making more $33,750 and married couples making more than $45,000, according to the Internal Revenue Service.
Other expired tax breaks include deductions for college expenses, deductions for state and local sales taxes, and a $250 deduction for teachers who buy classroom supplies with their own money. The sales tax deduction is geared toward taxpayers in states without state income taxes: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming.
The tax increases could vary greatly, depending on how much money a person makes and which deductions they qualify for. For example, a single man making $65,000 who paid $6,000 in college tuition and fees would get a tax increase of $837, mainly because he would lose a deduction for college expenses, according to the H&R Block analysis.
- Nevada gambling regulators to weigh new...
- CNN hires fired Trump campaign manager...
- Rio Olympic organizers unveil village where...
- Clinton failed to hand over key email to...
- The newscasters who have made the most cameos...
- Agent: LeBron James to skip Rio Olympics
- Rescuers search rubble in east China after...
- Britain will leave the 28-nation European...
- Immigration ruling called hurtful, a... 75
- In need of help, Trump finds few... 39
- Big ruling for abortion rights in... 35
- Love won't go to GOP national convention 34
- The pro-life plan that could reverse... 33
- Did Trump really just become a... 31
- Trump, in Scotland, links Brexit vote... 26
- Will 'Brexit' vote help Trump in Utah? 26