Fiscal cliff: Be prepared for tax changes
Local tax preparers getting ready for possible changes
Wednesday, December 26, 2012 10:00 AM
Local taxpayers may face issues when filing taxes next year - including delayed filings and a longer wait for tax refund checks - in part to government gridlock related to the looming "fiscal cliff."
Tax professionals in Jefferson County watch national headlines as negotiations in Washington, D.C., near the "fiscal cliff" deadline of Dec. 31 hoping for insight to the changes that may hit taxpayers next year.
Even though exact tax provisions seem to be uncertain at this point, everyone should be prepared for some tax changes Jan. 1, whether new regulations are passed by Congress or not, professionals said.
Jean Bryan, co-owner and enrolled agent for H & R Block in Madison, warned taxpayers that the Internal Revenue Service will most likely delay initial tax filings until Jan. 22 or later, which is nearly a week later than usual.
"It's going to take it a while," Bryan said of the filing process next year.
She expects tax forms from the Internal Revenue Service to be delayed, which will in turn cause delays in filings and refund checks.
"All the software has to be approved (by the IRS)," Bryan said. "Our hands are tied."
Many people depend on refund checks at the beginning of each year, she said, including paying off the balance for Christmas gifts or winter heating bills. With a later filing date expected, refunds wouldn't be available until the end of January or possibly the beginning of February at the earliest.
"To me, it's messing up the working class," Bryan said, "I've seen this in the past, and it's not pretty."
Evelyn Rowlett, enrolled agent with The Tax Factory in Madison, said all employees throughout the United States will also notice an increase in taxes for Social Security on Jan. 1 whether Congress reaches any agreements by Dec. 31 or not.
"One of the big differences is the 2 percent tax," Rowlett said. "Right off the bat, everyone is going to notice a difference."
Another change that could come with new legislation relating to the "fiscal cliff" is the Alternative Minimum Tax, she said, or an extra tax that prevented people with high incomes from using special tax benefits to avoid paying a fair share of taxes. That tax, which didn't factor in inflation, now applies to taxpayers with lower incomes.
Bryan noted mortgage insurance deductions and sales tax deductions may change should the government not make any progress with the "fiscal cliff" by the end of the year. Married couples may also face a "marriage penalty" of paying more in taxes when filing jointly than two single taxpayers should the current tax regulations not continue.
"If you're married it's going to affect you," Bryan said. "If you have education credits, it's going to affect you."
Other revisions to tax codes could include cuts to child tax credits from $1,000 to $500. Teachers could possibly lose a $250 adjustment on their taxes for out-of-pocket expenses for school supplies. Instead, teachers will have to provide itemized deductions to receive any tax credit, Rowlett said. In a worst-case scenario situation where no advancement is made before Dec. 31, taxes would increase to the rates prior to the implementation of tax credits that began in 2004.
While some of the tax changes may not take effect until people file a 2013 tax return, other changes may be retroactive for the 2012 tax year, she said.
Still, people from each tax bracket should prepare for the effects of the decisions.
"There's a lot of things in there," Bryan said of the possible tax provisions. "It's really going to be bad for a lot of people."
Yet this isn't the first time the government has waited until the last minute to pass tax regulations before the end of the year. A few years ago, provisions for itemized deductions and first-time homeowner credits caused prepared returns to wait on approval of last-minute legislation, Rowlett said.
"We've had stumbling blocks in the past," Bryan said. "(The 'fiscal cliff') is still probably bigger than most people realize."