Fiscal Cliff & Taxmageddon or Fear Mongering? Probably the Latter…

A couple of weeks ago we wrote about the “Fiscal Cliff”, tax provisions set to expire at the end of 2011, and, as of right now, they are not applicable to 2012 Federal returns.

With the upcoming presidential election, congress still has no plan to act on extending the Bush era tax cuts. Each presidential candidate has said he has plans for tax revisions, usually including capping itemized deductions and decreasing fraud with regard to refundable tax credits that cost the taxpayers billions of dollars each year.

A total of 58 individual and business Federal tax provisions expired at the end of 2011.  Soon-to-expire tax credits include the following.

• $250 Educator Expense Deduction
• Tuition and Fees Deduction
• Itemized Deduction for Sales Tax
• All personal nonrefundable tax credits allowed when calculating Alternative Minimum Tax
• Nonbusiness Energy Property Tax Credit reported on Form 5695, Part I
• 5 year depreciation for farming business machinery and equipment
• 15 year straight line depreciation allowed for qualified leasehold restraint and retail improvements
• Tax-free distributions from IRAs for charitable purposes
• Contributions of capital gain real property made for conservation purposes (50% limitation applied instead of 30% limitation)

Provisions that changed significantly for Tax Year 2012 returns:

• Alternative Minimum Tax (AMT) exemption amounts revert to what they were in tax year 2000
• Maximum Section 179 Deduction amount has been reduced to $139,000 for 2012
• Bonus Depreciation percentage is reduced to 50% for 2012
• Adoption Credit
  • Will revert to being a nonrefundable credit with any excess being allowed to be carried forward for 5 years
  • Maximum credit is reduced to $12,170 per child

*Keep in mind, these changes really aren’t that drastic. If they were that drastic, the ones set to expire would never have been put in place.  Some media sources are mongering fear. Yes, some of the changes will affect you, but not much, probably not even noticeably. Let me know the next time you cash out your IRA and give it all to charity.

It is the writers opinion that all tax credits be verifiable and nonrefundable to avoid fraud, and promote proper tax facilitation and filing. Too often, refundable credits are given out erroneously and are never able to be retrieved.

The next few months will be very interesting, very interesting, indeed.