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Year-end 2013 brings many new planning opportunities along with the traditional year-end tax planning strategies. It also brings challenges for both individuals and businesses.

There is much for taxpayers and their tax advisors to consider in taking action before 2013 ends, including the important changes made by the American Taxpayer Relief Act of 2012 (ATRA) (signed into law on January 2, 2013), the provisions in the Patient Protection and Affordable Care Act of 2010 (Affordable Care Act) (scheduled to take effect in 2013, 2014) the Supreme Court’s decision on same-sex marriage and the release of significant new IRS rules on many pressing issues.

There is also the prospect of comprehensive tax reform in 2014, which will require some “crystal ball” forecasting of what Congress may or may not do in the coming year. On top of everything, the IRS shutdown in October could delay the start of the 2014 filing season, although the long-term effects have yet to be determined.

This week-long CCH briefing explores some of the 2013 year-end planning opportunities available to taxpayers, especially as the result of provisions that are new-for-2013 and those that at the moment are scheduled to expire after 2013. Continue Reading…

Check out this infographic if you are curious about how Presidents in the last 20 years have raised or cut taxes for you.

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The deal was a last ditch effort to save automatic spending cuts and tax hikes induced by the fiscal cliff from crippling the economy; in that regard it was a success. It comes with a silver-lining though — Congress now has two more months to resolve trillions of dollars in sequestration. Embrace yourselves for the fiscal cliff, part two.

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The Joy of the Fiscal Cliff

December 29, 2012 — 1 Comment

Until today, this blog has been careful not to over-hype the cliff. We’ve written that a compromise between Republicans and Democrats was easily achievable; the numbers weren’t unmanageably different and both sides had publicly agreed to make concessions. We’ve said that our beloved congress members would never actually let a series of automatic spending cuts and tax hikes worth 5% of GDP sink the economy – they’d get it together and strike a deal eventually. We’ve likened the debate to that of the debt-ceiling, in which the drawn-out threats of defaulting on our credit were more political theatre than realistic outcomes. We’ve also argued that the “cliff” isn’t really a cliff at all, since legislation could easily be enacted past the deadline to right the ship.

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FeaturedImageThe Alternative Minimum Tax (AMT) has its own quiet corner in the world of US tax law, at least for now.  Simply put, every year anyone fling a return determines their regular tax rate and their AMT rate.  The higher of the two is what they owe.  For roughly 95% of Americans that’s the regular tax and they never worry about the AMT, but for some – typically, upper-middle income families with children, the AMT can be significantly higher.

This story begins in 1969, when 155 of the country’s wealthiest households came under the national spotlight for paying little to no income tax. Collectively, they provided for just 0.1% of total government revenue – far less than what the ultra rich contribute today (yes, even considering the plethora of cuts, deductions, loopholes etc. that have been implemented in the past few decades).  This untapped revenue source prompted legislators to create the first “millionaire’s tax,” formally known as the Alternative Minimum Tax.  The policy was created as a way to ensure that the nation’s wealthiest citizens would have to pay a minimum amount of taxes.  Soon after becoming law, the government was collecting nearly 7 times as much revenue from the ultra rich than they had been; the AMT was largely regarded as both a political and fiscal success.  The feat had one small problem though: The AMT legislation failed to index for inflation, leading the number of eligible households to slowly creep-up year after year.  Although there have been several reforms, known as “patches,” to increase the exemption levels, the most recent patch expired at the beginning of 2012.

IRS building on Constitution Avenue in Washing...

IRS building on Constitution Avenue in Washington, D.C.. (Photo credit: Wikipedia)

That means that for the moment, as far as the IRS is concerned, the AMT for 2012 has the same parameters as it did 20 years ago, in 1993, the last time congress made a permanent change to the income thresholds [1].  If that doesn’t sound too bad, consider there has been 60% inflation since then.  So, if nothing happens before the year ends then 25 – 30 million taxpayers will be in for a rather unhappy New Year greeted with higher bills and smaller reduction opportunities.  In many circumstances, the tax hike would be even larger then paying new rates via the expiration of the Bush tax cuts. Upper-middle income families with children living in high tax states would be the most vulnerable, because two tax breaks — itemized deductions from state and local taxes and personal exemptions, are disallowed under the AMT.  The scenario gets worse: IRS commissioner Steven Miller says,”If lawmakers fail to protect the middle class from having to pay the Alternative Minimum Tax by Dec. 31, next year’s tax filing season will be a mess for tens of millions of taxpayer,” [2]. On top of an onslaught of expected filing errors, they may need to halt 60 million taxpayers from filing their returns until late March.  Yikes.

So while congress haggles and the media obsesses over the fiscal cliff and expiration of the Bush era tax-cuts, let’s home some lawmakers remember the AMT could make that New Years Day hangover last a LOT longer.

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JDKatz, P.C. is a full-service law firm focused on tax law and estate planning. We are dedicated to minimizing your existing liability and risks while providing valuable tax planning to streamline your tax issues in the future. Please call us at 301-913-2948 to schedule an appointment to meet with one of our trusted attorneys.

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The Bush Tax Cuts have been the spotlight of fiscal cliff negotiations. Sure, there are plenty of other bargaining chips on the table, but none is more spoken of than what to do with the expiring 2001/03 Bush era tax cuts. It’s not a yes/no debate, either; with President Obama winning re-election only one thing is certain – they will expire for some income earners, or no deal. The question then is for what income thresholds, for how long, and what specific deductions should be rid of and for whom. Amidst this negotiation is the larger question of what effect different plans will have on the economy, and the answer is something both sides use to support their arguments.

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Election season is under way; one issue that is at the forefront of both Mitt Romney and President Obama’s campaign is how to manage the end of the Bush tax cuts.  It’s also no secret that potentially bigger tax bills for the wealthy is the sticking point in the current national battle over what’s to become of U.S. individual rates in 2013.

The Institute on Taxation and Economic Policy (ITEP) and Citizens for Tax Justice (CTJ) looked at the Republicans’ and Obama’s plans for the Bush tax cuts, the moniker that’s still sticking to the variety of tax reductions enacted by President Bush in 2001 and 2003 that had been extended by Obama extended in 2010 through the end of this year.

Essentially, the GOP wants to keep everything as is. Obama would continue some of the cuts, but wants the income tax rate to be higher for married couples making $250,000 a year ($200,000 annually for single filers).

Tax cut plans’ state-by-state effects: In addition to coming up with the 1.9 percent national average of folks who would see higher tax bills under the Obama plan, the two Washington, D.C.-based tax policy research groups also analyzed the effects on taxpayers in every state and the nation’s capital.

Taking the biggest tax cut hits: Which states’ taxpayers would see the biggest tax bills under Obama’s plan? As expected, that would happen in states with large higher income populations, but the order of the locales might surprise you.

The states in which more than 1.9 percent of their residents would lose some of their current tax cuts are:

  • District of Columbia, 4 percent
  • Connecticut, 3.6 percent
  • New Jersey, 3.2 percent
  • Massachusetts, 2.8 percent
  • New York, 2.6 percent
  • Illinois, 2.4 percent
  • New Hampshire, 2.4 percent
  • Virginia, 2.4 percent
  • California, 2.3 percent
  • Maryland, 2.3 percent
  • Washington, 2.3 percent
  • Texas, 2.3 percent
  • Colorado, 2.2 percent
  • Florida, 2.2 percent
  • Alaska, 2.0 percent
  • Nevada, 2.0 percent
  • Wyoming, 2.0 percent

And the states where residents wouldn’t see that much difference in the two tax plans? Only 0.9 percent of West Virginians and just 0.8 percent of Mississippi residents would lose any tax breaks under Obama.

Check out how you and your neighbors would fare under each scenario at CTJ’s interactive tax plan comparison map.

JDKatz, P.C. is a full-service law firm focused on tax law and estate planning. We are dedicated to minimizing your existing liability and risks while providing valuable tax planning to streamline your tax issues in the future. Please call us at 301-913-2948 to schedule an appointment to meet with one of our trusted attorneys.