There won’t be many changes to tax policy that will affect 2012, but that doesn’t mean taxes will be in the background. It is clear that taxes will be one of the major battle grounds in this year’s presidential election, and the election will determine which method of deficit reduction will be used — reduced spending or more taxation. Further, there are three major looming tax-related events that will converge at or near the same time over the next year. They are: the expiring Bush tax cuts, the tax changes proposed in the President’s 2012-13 fiscal year budget and corporate tax reform. Also, we’ll see mandatory changes resulting from last fall’s Budget Control Act, which take place in 2013, and the 2014 taxes related to the health insurance mandates.
Bush tax cuts and the President’s budget
Perhaps the best example of how the battle lines have been drawn can be seen in the President’s budget for fiscal year 2013, which calls for tax reform by allowing most of the Bush-era breaks to expire, elimination of deductions at the 28% level for certain income levels and a minimum 30% tax rate for high earners over $1 million (the Buffett rule). All of these are items that have been staunchly opposed by Republicans.
Corporate Reform
Disagreements define many topics in Washington and, in this election year, this is a leading one. You know it’s serious when not only the Democratic President has a plan for reform, but also the Republican candidates.
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And what does the business community say about corporate reform? It appears there is strong sentiment for change according to a joint survey last year by Duke University/CFO Magazine. Of the nearly 500 finance directors surveyed, nearly half say the system needs a complete overhaul, and almost the same percentage is in favor of some type of reform. Only 6% were satisfied.
This may not be breaking news, but what is interesting is that many business leaders have indicated a willingness to give up some tax breaks in order to lower the top corporate rates to the 25%-28% range. Why? Complexity, uncertainty and competition. You can be certain that tax reform, both corporate and individual, will be a major part of 2012 tax issues.
Extension of tax breaks …sort of
As you know, Congress officially extended the employee payroll tax cut through the end of 2012 along with unemployment benefits, and they once again deferred a scheduled fee cut for Medicare doctors.
What about the expired tax breaks?
In a somewhat surprising move, none of the other popular expiring credits in 2011 were extended such as bonus depreciation, the AMT patch or the work opportunity tax credit. Plus, the equipment expensing deduction, for now, has reset to lower amounts. What happens next? It’s uncertain, but the tax-extender issues are almost certainly stalled until after the election.
Looking for your tax refund?
The IRS recently addressed problems it has experienced with its new electronic filing software. The Service says it has “caught up“ with the delay it experienced in processing tax refunds which was caused by a glitch in its new software designed to prevent identity theft.
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The information contained herein is general in nature and is not intended as legal, accounting or tax advice or opinion as provided by National Write Your Congressman. The reader should seek professional guidance prior to taking any action based upon this information. National Write Your Congressman shall have no obligation to inform the reader of any changes in tax laws or others which may affect the information provided.
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