Understanding the Fiscal Cliff
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JamisonMoneyFarmer CPA Rachel Taylor discusses the major "fiscal cliff" items like the expiration of particular tax cuts, shifts in alternative minimum tax, increased Medicare taxes, new spending cuts, tax extenders, and the expiration of payroll tax cut prior to the 2012 Election.
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Understanding the Fiscal Cliff
- 1. The Fiscal Cliff Certified Public Presented by Rachel Taylor, CPA Accountants ----------------- Business Consultants
- 2. The Fiscal Cliff Defined: 1. Expiration of particular tax cuts 2. Shifts in alternative minimum tax 3. Increased Medicare taxes 4. New spending cuts 5. Tax extenders 6. Expiration of payroll tax cut Certified Public Accountants ----------------- Business Consultants
- 3. 1. Expiration of Tax Cuts •Bush-Era tax cuts (2001/2003) •Reduced tax rates •Reduced taxes on long term capital gains •Reduced taxes on qualified dividends •Increased child tax credit •Obama-Era tax cuts (2009) •Expanded earned income credit •Expanded child tax credit •New American Opportunity Credit for tuition Certified Public Accountants ----------------- Business Consultants
- 4. 2. Shift in Alternative Minimum Tax • The AMT “patch” is scheduled to expire. • The reduced AMT exemption will cause more people to pay AMT. Certified Public Accountants ----------------- Business Consultants
- 5. 3. Increased Medicare Taxes • New taxes on high income taxpayers (earning over $250,000) • An additional .09% Medicare tax on earnings above $250,000. • An additional 3.8% Medicare tax on capital gains, dividends, and interest income over Certified certain thresholds. Public Accountants ----------------- Business Consultants
- 6. 4. New Spending Cuts • Provisions from the Budget Control Act of 2011 are slated to go into effect. • Includes military and Medicare budgets. Certified Public Accountants ----------------- Business Consultants
- 7. 5. Extenders • Other various short- term tax provisions that Congress regularly extends. • Includes individual and business credits. Certified Public Accountants ----------------- Business Consultants
- 8. 6. Payroll Tax Cut • The social security tax rate cut will expire. • It was intended to be short term. Certified Public Accountants ----------------- Business Consultants
- 9. Benefits to Fiscal Cliff? • Forces a decrease in the deficit – by half a trillion dollars ($500,000,000,000) • Future tax breaks? Certified Public Accountants ----------------- Business Consultants
- 10. Effect of the Fiscal Cliff on Taxes • Taxes will rise by $500 billion in 2013. Almost 90% of taxpayers will see taxes rise. • Middle income taxpayers will pay $2,000 more. • High income taxpayers (top 1%) will pay $120,000 more. • Low income taxpayers (less than $20,113/year) will pay $412 more Certified Public Accountants ----------------- Business Consultants
- 11. Effect of the Fiscal Cliff on Businesses • Job loss estimated at 2.14 million. • Decrease in gross domestic product could lead to another recession. • Decreased hiring and spending as a result of uncertainty. • Loss of bonus depreciation Certified and decreased Section 179 Public Accountants expense. ----------------- Business Consultants
- 12. Effect of the Fiscal Cliff on Real Estate Markets • It depends on what happens, and how long it takes. • Commercial real estate could suffer Certified Public sooner than residential. Accountants ----------------- Business Consultants
- 13. What can Congress do? • Option 1: Nothing. • Option 2: Congress can act during the “lame duck” session. • Option 3: Congress can act after the new year. Certified Public Accountants ----------------- Business Consultants
- 14. What is Likely to Happen? Politicians disagree on certain aspects of the tax increases: • The Bush-era tax cuts for high income taxpayers. • The expanded credits including earned income credit and child tax credit. • The increased tax rates on capital gains and dividends. Certified Public Accountants ----------------- Business Consultants
- 15. What if Romney is elected? • If Republicans have good representation in Congress, it is likely that no action will be taken during the lame duck session. • It is likely that Republicans want to continue tax breaks, including those for the wealthiest households. Certified Public Accountants ----------------- Business Consultants
- 16. What if Obama is elected? • Partisanship will likely continue especially if Republicans make gains in Congress. • The Democrats have asked upper income families (earning more than $250,000) to pay more by way of increased rates. Certified Public Accountants ----------------- Business Consultants
- 17. Things to Consider… • The looming deficit is a problem. • The economy is sensitive. • Consumer confidence is improving but still Certified fragile. Public Accountants ----------------- Business Consultants
- 18. Want to Know More? Read the analysis from the Tax Policy Center entitled “Toppling Off the Fiscal Cliff: Whose Taxes Rise and How Much?” Certified Public Accountants ----------------- Business Consultants
- 19. Trusted advisors serving quality clients. Certified Public Accountants ---------------- Rachel Taylor 205-345-8440 JMFCPAs Business rtaylor@jmf.com www.jmf.com info@jmf.com Consultants