The tax code allows a taxpayer to plan his financial affairs so as to pay the least amount of tax that is legally owed. This allows individuals to take advantage of favorable tax provisions.
But the lack of bipartisanship engaged in by Congress is making it harder and harder for individual taxpayers to plan effectively. Congress does this by delaying the passage of key tax provisions until the end of the tax year.
This has a domino effect. You can’t plan your financial transactions to effectively take advantage of what is rightfully due to you under the tax code. Further, IRS cannot issue the proper tax forms in a timely manner, which delays the start of the tax-filing season. Then, those taxpayers who are owed a refund must wait a longer period of time to get back the money they’re owed. As a result, businesses, where the refunds are spent or invested, must wait a longer period of time before the funds are available to them.
So what is on the line for 2012? The following are all included in the proposed Family and Business Tax Cut Certainty Act of 2012 (which so far has provided no certainty), which made it out of committee on August 2nd.
First and foremost is the alternative minimum tax (AMT) patch. Since this tax is not indexed for inflation, each year more and more taxpayers are subject to the higher taxes under the AMT rules. Each year or two, Congress “fixes” this problem by passing a temporary patch. So, again this year, we wait to see if we will escape the dreaded AMT.
We are also waiting to see if teachers can again deduct amounts they spend out of pocket for school supplies. Seems like this one should be a no-brainer.
Other items included in the bill that have yet to be extended are:
- A deduction for qualified tuition and related expenses
- An election to deduct state and local sales taxes instead of income taxes
- The ability to consider mortgage insurance premiums as interest
- Parity for mass transit and parking benefits
And we are rapidly coming up on year-end.
IRA owners must take their RMD before the end of year cut-off date at the institution holding their IRA. Any RMD that is not timely taken is subject to a penalty of 50% (that is not a typo) of the amount not taken. When the IRA owner does a direct transfer of the RMD amount (or any amount up to $100,000) to a qualifying charity, that amount does not have to be included in the IRA owner’s income. This is a win-win situation. The account owner gets to take a distribution that is tax free, the charity receives funds it can use to benefit society, and the government doesn’t have to provide as much support to society since charity has picked up some of the tab.
Congress is waiting until after the Presidential election to consider this bill. Its passage will be somewhat dependent on who wins in November.
- There are several tax breaks for individuals that expired at the end of 2011
- Congress proposed legislation in August to extend some of them
- Congress most likely will not act on this legislation until after the November elections
-By Beverly DeVeny and Jared Trexler