Most of the discussion surrounding fiscal cliff negotiations has focused on tax rates. However, there is another very large issue looming: the need for an Alternative Minimum Tax (AMT) patch.
Last year, approximately 4 million taxpayers paid the AMT. Unless the fiscal cliff compromise includes a patch, adjusting AMT indexed levels, the number could jump to as many as 32 million taxpayers facing increased tax liability for tax year 2012.
Another complicating factor is a potential delay to the start of filing season for some taxpayers. If Congress does not pass an AMT patch, the IRS will need to reprogram its processing systems to reflect the absence of an AMT patch. This could result in a delayed start to tax season for up to 100 million taxpayers. The delay could be up to a month, or longer.
As tax season approaches, it will be important to not just look at your tax rate, but also consider the fact that under the AMT, certain deductions are disfavored and you may get hit by the flat 28% rate the AMT imposes.
Ho Ho Ho! In celebration of the season, my office will be closed today and tomorrow for observation of Christmas. I will be back in the office on Wednesday the 26th to help address the people of southwest Oklahoma’s tax and estate planning needs. However, on the 27th, I have to be in Oklahoma City all day, so if you are unable to reach me over the holiday or on the 27th, be patient and I will try to ensure all your needed tax planning is done prior to the end of the year.
If you are able to read this post, then we made it through the supposed Mayan apocolypse prophecy. However, that date was set hundreds of years ago. You really need to look at two more important dates now and ensure that you have completely prepared for them.
The first is only three days away: Christmas. Have you purchased all your gifts for your loved ones yet? In addition, I hope you are able to take time and remember the reason for the season.
The second date you need to plan for is nine days away: New Year’s Day or The passing of the fiscal cliff. On this date, several dozen tax laws are going to change and almost every American will be subject to higher taxes. Have you taken the steps to ensure you are prepared for the coming taxes?
As we approach the end of the year, it is a time to remember that charitable donations have to made in the year you want to take the deduction. So if you want to save some on taxes this year, you need to complete your gift prior to the end of the year. A few reminders:
For clothes and household items, the items must be in good used condition. If you wish to make a deduction over $250, you should have an appraisal or receipt from the charity to which the items were donated.
For money donations, it is best to have the check cleared prior to the end of the year. This would include credit card transactions that show funds were actually received by the charity.
You need to ensure that the organization to which you give is qualified. Only deductions to qualified organizations are tax-deductible. If you extend help to someone in need, that is just a gift and does not qualify as a charitable deduction under the tax laws.
Lastly, deductions are only allowed as taken as itemized deductions on Schedule A for individuals. This means that a charitable deduction, while beneficial to the organization, may not be tax beneficial to the donor. For it to be tax-wise to take itemized deductions, a single individual needs to have more than $5,800 in deductions ($11,600 for a married couple). In addition to charitable donations, qualified itemized deductions include state and local taxes, medical expenses that exceed 7.5% of Adjusted Gross Income (AGI), Investment expenses that exceed 2% of AGI, and casualty losses that exceed 10% of AGI.
Merry Christmas and keep those in need in your thoughts and prayers.
Here we are two days prior to the last day Congress can act and there still is no agreement on the fiscal cliff. At this point, the released negotiations seem to point to tax increases on those earning at least $1,000,000 per year, lapse of the payroll tax cut, and full implementation of the Obamacare fees and tax increases.
You may notice that this released agreement does not address capital gains rates, taxation of dividends, corporate taxation, gift taxes, estate taxes, or wealth transfer taxes. At this point, even worse than “going off the fiscal cliff” will be enacting a bill where no one has read the provisions. Congress needs to learn that “haste makes waste” and actually look at a comprehensive reform to the tax code and spending crisis that faces this nation.
If you have not already taken steps to plan your taxes, I encourage you to do so. I am advising all my tax and estate planning clients to prepare for the worst and pray for the best. As everything is still being negotiated, that is the best advice available at this time.