Let’s face it – as we gear up to close out 2012, we’re facing difficulties we’ve never faced before. Two words: fiscal cliff.
Even the politicians can’t agree on what happens if we do go over the so-called cliff and honestly, aren’t we all about ready to push those politicians over the cliff? While we can’t do that – or at least, we can’t do that and not get into a lot of trouble – we can prepare as best we can for tax season. That’s a more proactive approach and one that won’t include jail time for assaulting an elected official. Here’s what we found out –
Delayed Tax Season
If lawmakers are unable to solve the fiscal cliff, there exists a very real probability that tax season will be delayed. This, according to Barbara Weltman, is what is worrying many tax preparers. As she explains,
Unless we get answers really soon, the tax filing season won’t start at the beginning of January, because the IRS can’t do tax forms, and tax-prep companies can’t prepare anything.
That means employers are going to be left wondering what to do – they will, at a minimum, have to make adjustments to payroll taxes and they won’t even be able to do that until new tax rates are figured. And speaking of tax rates, remember that payroll taxes, income taxes, dividends, capital gains – all of those taxes are going up. The tax breaks for children and college loans will be altered too. In fact, it’s unlikely a single American taxpayer won’t be affected to some degree. And there’s not anything any of us will be able to do until something gives. We just don’t know what that “something” will be.
Also, if you’re like many Americans, you look forward to that tax refund every year. That too will almost surely be delayed.
There could be yet another temporary fix, but Americans have grown weary of lawmakers who keep shoving the problems aside until the next crisis, and in these cases, deadlines that jeopardize the economy in its entirety. If they do put a band aid on it, they would have to agree on a few things. Spending cuts and tax cut extensions being the two most significant. Then, of course, ideally they’d be back at it as soon as the holidays were over. No guarantees there, either, though.
Some are now saying that a deal will be worked out before they break for the holidays (although some lawmakers have vowed not to break until a formal and permanent deal is worked out – again, we’ll see). The deal would mean big changes to various entitlement programs and the tax policy. Concerns about this are that the big changes a deal like that would mean – would puts us back at square one: hurrying up and waiting. Taxpayers would have to be let it in on these changes so that they know how to file their taxes.
OK – aside from all of this negative news, the question is, what can each of us do right now as we’re waiting?
Understand that until the details have been cemented, the best you can do is anticipate how they might affect your own bottom line.
Taxpayers who deal with paid professionals should talk to them now – don’t wait,
says Weltman. There are a lot of questions you’re sure to have. What will your new tax rate be? Will you still have deductions? If so, are they the same or will they change? What about your child tax credits? Those are all important questions that you can at least prepare for so that you’re sitting on go when the details are hammered out.
Investors have their own considerations. Small business taxes, estate taxes, dividends – there’s no shortage of questions with no answers from that end. Word is now, lawmakers are considering deductions we have traditionally been able to take on our homes – specifically, they’re considering mortgage interest. We won’t know how that plays out until, well, we know how it all plays out.
Do it Yourself
Ah, and then there are those of us who insist on filing our own taxes. We love the idea of handling the federal government all by ourselves, right? Well, this time, there’s not much we can do except watch it all play out. The IRS will surely release all of the necessary documentation once they know what changes take place. Taxpayers will then be able to apply those various changes to their unique circumstances. The one consistent warning we’re getting is that there’s a possibility of a big tax hike and that could result in big changes in how we view money and savings – and it can happen literally overnight.
Will it all come to this? It’s possible, but it’s more possible that there will be less traumatic changes instead. Still, they’re changes and ones that must be handled accordingly. And if you think about it, we always knew it was likely some kind of changes were coming anyway. What we didn’t consider, at least initially, was the amount of uncertainty.
So what have you done to prepare for all of this uncertainty? Share your thoughts with us.