Fast on the heels of the election has been news about the “fiscal cliff” and several tax breaks that are set to expire at the end of 2012 if Congress does not act.

Here are a few things that may affect you:

Payroll tax reduction. The Social Security (FICA) payroll tax reduction we had for 2 years expires and will revert back to 6.2%.

Alternative minimum tax: No “patch” has been put into place. The AMT exemption will drop from $74,450 to only $45,000 meaning 27 million more Americans will be subject to AMT.

The tax on long-term capital gains (from the sales of a stock or mutual fund) will increase from 0% to 10% for lower income and from 15% to 20% for higher income.

The tax on qualified dividends will increase from 15 percent to your ordinary income rates (top rate of 39.6 percent).

The child tax credit will decrease from $1,000 per child to only $500 per child. Many of you with children under age 17 will feel this one!

The adoption tax credit: reduced to $5,000 from $12,650. The adoption tax credit will not refundable, but you can carry forward unused credit.

The American Opportunity tax credit (for college expenses) will be cut from $2,500 to $1,500 per student.

Coverdell Education Savings Accounts ( a college savings account) contributions will be limited to only $500 per student per year, not the $2,000 per student we’ve been used to.

Deduction for sate sales tax instead of state income tax is eliminated.

Deduction for mortgage insurance premiums (PMI) is a thing of the past

Charitable contributions from IRA accounts expired

For high income Americans (income over $200,000 single or $250,000 married filing joint)

• The Medicare rate will increase to from 1.45 percent to 2.35 percent .
• An additional 3.8% tax on investment income (interest, dividends, capital gains, rents, royalties and annuities)

The estate tax rate will revert to 55% and the exemption amount will decrease to $1 million from $5 million.

I’ve listed the tax provisions that will affect most of my clients. There are over 60 expiring tax provisions, but I focused on those affecting my clients and omitted things like: Special depreciation for cellulosic biofuel plant property or The American Samoa economic development credit! 🙂

If you think any of these expiring tax provisions may affect you, please consult your tax professional.

If you are one of my clients feel free to email or call me.

Carol Topp, CPA

In celebration of April 15, the traditional tax due tax, and April 18 the tax due date for 2011, I thought you’d like “Taxman” with Eric Clapton and George Harrison

Let me tell you how it will be
There’s one for you, nineteen for me
‘Cause I’m the taxman
Yeah, I’m the taxman

Should five percent appear too small
Be thankful I don’t take it all
‘Cause I’m the taxman
Yeah, I’m the taxman

(If you drive a car car) I’ll tax the street
(If you try to sit sit) I’ll tax your seat
(If you get too cold cold) I’ll tax the heat
(If you take a walk walk) I’ll tax your feet

Taxman!

‘Cause I’m the taxman
Yeah, I’m the taxman

Don’t ask me what I want it for
(Ah, ah, Mr. Major)
If you don’t want to pay some more
(Ah, ah, Mr. [..])
‘Cause I’m the taxman
Yeah, I’m the taxman

If I reduce it, can you sleep
(Ah, ah, Boris Yeltzin)
Get back [..] V.A.T.
(Ah, ah, Mr. Bush)
‘Cause I’m the taxman
Yeah, I’m the taxman

If you get a hat hat, I’ll tax your hat
If you get a cat cat, I’ll tax your cat
If you wipe your feet feet, I’ll tax your mat
If you walk away away, I’ll tax your [..]

Now my advise to those who die
(Taxman!)
Declare the pennies on your eyes
(Taxman!)
‘Cause I’m the taxman
Yeah, I’m the taxman.

And you’re working for no one, but me
(Taxman!)

Yes, I’m the taxman
Yeah, I’m the taxman

From the National Association of Tax Professionals;

• The April 18 filing deadline for Form 1040 returns remains in effect.
• Tax payments will be processed as usual.
• Returns filed on paper will not be processed until after the government resumes normal operations. This will delay refunds on paper filed returns.
• E-filed returns will be processed as usual with no delay in refunds
• Taxpayers who have an appointment scheduled with the IRS (audit, collections, appeals or Taxpayer Advocate cases) during the period of the shutdown should assume the appointment has been canceled. These appointments will be rescheduled when normal IRS operations resume.

Business as usual for CPAs and tax preparers!

Carol Topp, CPA