CHICAGO, Oct. 31, 2012 /PRNewswire-USNewswire/ -- As the end of the year grows closer, so does the uncertainty surrounding the "fiscal cliff" and tax planning for the future. A wide array of tax credits and cuts, which were mostly enacted during President Bush's administration, are set expire December 31, 2012 unless Congress takes action soon. If not renewed, the expiring credits and cuts could cost households an average of $3,500 in higher taxes next year and leave less cash in your wallet. The Illinois CPA Society wants to make sure you're aware of the ones that may hit you the hardest so you can plan ahead:
Payroll Tax Holiday Disappears – In place for the past two years, this tax break, which was always meant to be temporary, helped put more cash in consumers' pockets – about $19 a week – by decreasing the amount of tax that came out of paychecks in an effort to boost the economy. When it expires at the end of the year, workers could see a 2 percent tax increase in their Social Security withholdings, which means lower take home pay.
Alternative Minimum Tax (AMT) Kicks In – Over 31 million families may find themselves subject to AMT payments, up from 4 million last year. AMT, which is essentially an extra tax people have to pay on top of the regular income tax, was originally meant to keep people with very high incomes from using special tax benefits to pay little or no tax. Unfortunately, it now applies to millions of average-income taxpayers because the applicable income levels were never adjusted for inflation. With legislation exempting these taxpayers from paying AMT in 2010 and 2011 set to expire, millions of regular Americans could be paying thousands more in taxes beginning in 2012.
Child Tax Credits Decreases – Parents eligible to take the Child Tax Credit may see it slashed in half to $500 from $1,000. To be eligible, you must be the parent or legal guardian of a child under 17 who you claim as a dependent on your tax return. This standard deduction is meant to reduce your federal income tax for each dependent child and helps to ease the costs children may incur over the course of the year.
Bracket Rates Tighten – Both single and joint-filers could see tax bracket rates increase in 2013, no matter where your Adjusted Gross Income (AGI) falls on the schedule. For example, if your income places you in a 10% rate bracket in 2012, the same income will put you in a position to be taxed at 15% in 2013. Married filers will also see the return of the "marriage penalty," which narrows brackets for married couples, as well as the elimination of a doubled standard deduction that was available in 2012 to increase their deduction amount. All of these hits mean that both single and married couples can expect to pay more in 2013.
Capital Gains Tax Increases – A capital gain is any profit you make when selling an asset, including stock, bonds or real estate, and may also be referred to as investment income. In 2012, these profits weren't taxed at all, but 2013 may bring a minimum 10% percent tax, costing individuals thousands of dollars.
Although not a done deal, the scheduled expiration of these credits and breaks could wreak havoc on your finances if you don't plan ahead. In the event that Congress doesn't act to extend the deadlines, now is a good time to educate yourself and prepare for what may be coming down the pipeline. Planning is imperative and working with a CPA can help you better understand your options, such as changing your withholdings or accelerating income into 2012 from 2013, to plan ahead. Use the Illinois CPA Society's free online Find a CPA directory at www.icpas.org to find a professional in your area.
About the Illinois CPA Society
The Illinois CPA Society, founded in 1903, is the fourth largest state CPA Society in the nation, with more than 24,000 members. It is the premier professional organization that represents CPAs in Illinois. During its over 100 years of existence, the Society has advanced the highest ethical and financial standards of the profession, and has been a leader in educating the public on financial issues.
SOURCE Illinois CPA Society