BY Thomas Krywinski
Another grueling tax season has passed, and it was more difficult than the previous one. Thanks to increased disclosure filing requirements for Schedule D, brokerage statements that came later than usual and the mere fact that there was an extra day due to leap year made this year”™s season seem longer and much more of a challenge. It”™s great to have it behind us, but now is the time ”“ believe it or not ”“ to start looking toward next year.
There are several key tax provisions that have expired this year, as well as others that will expire after Dec. 31. With the presidential election, the chance of getting changes made before November is unlikely.
The provisions that expired Dec. 31, 2011 will certainly hit most taxpayers in their wallet if they are not extended another year. The largest tax provision would be the higher Alternative Tax Exemption or AMT patch. In 2011, a taxpayer filing a joint return was allowed an AMT exemption amount of $74,450. Without an extension of this tax provision, that same AMT exemption amount would decrease to $45,000, which is of course a tremendous drop. And with an AMT tax rate of 26 percent, this could cost taxpayers approximately $7,500, as well as increase the number of taxpayers affected by the AMT.
Several other popular tax breaks that have expired are direct IRA payouts to charity, the Research and Development Tax Credit, the college tuition deduction and the write-off of $250 of supplies for teachers. In addition, for taxpayers who live in low- or no-income tax states, the use of state sales tax as an itemized deduction has expired.
But that is what has already expired. The bigger issue lies with the tax provisions that will expire at the end of December. These issues need to be addressed before they expire, and will play a role in a President Barack Obama”™s and Republican candidate Mitt Romney”™s respective campaigns.
The biggest issue looming is the sunset of the Bush tax cuts, which would eliminate the lower income tax rates. Currently, the highest tax rate is 35 percent, but will increase to 39.6 percent with the expiration of these tax cuts. In addition, the 15 percent maximum tax rate for long-term capital gains would be eliminated and increased to 20 percent. Finally, qualified dividends currently taxed at 15 percent would be taxed at ordinary income rates that could be as high as 39.6 percent.
The bottom line is this ”“ without legislation to keep these tax rates, people should expect to see higher tax bills in 2013.
In addition to tax rates increasing, the repeal of the personal exemption and itemized deduction phase-outs will be back. So not only will people pay a higher rate, but they will not have the same deductions as in the past, increasing their taxable income.
Finally, the tax rates for estate and gift taxes will increase. Currently, the maximum tax rate is 35 percent, but this will rise to 55 percent. Also expiring would be the larger exemptions and the ability for a surviving spouse to take the late spouse”™s unused exemption.
So buckle your seat belt for 2012 ”“ this will be a wild ride. Especially if those in charge in Washington D.C. don”™t extend many of these important tax provisions.
Thomas Krywinski is certified public accountant and partner in the Shelton office of BlumShapiro. He can be reached at tkrywinski@blumshapiro.com.
