Tax preparers are urging filers to start planning early to deal with the new tax provisions now that Washington has narrowly avoided the “fiscal cliff.”
Harold Newman, enrolled agent and owner at Newman Tax and Resolution in Temecula said most agents should have their computer systems ready to roll with the new updated laws and his will be ready by Wednesday, Jan. 9.
“Get in early, if you are missing anything then you still have time to prepare,” said Newman who also recommends people start setting themselves up for next year.
“What and how much you can itemize will be a big change this year,” said Newman.
Taxpayers who itemize heavily may discover their tax rate may not have risen but their threshold to qualify for deductions is higher, said Newman.
The 2009 expansion of tax breaks for low-income Americans includes: the Earned Income Tax Credit, the Child Tax Credit, and the American Opportunity Tax Credit will be extended for five years. The Alternative Minimum Tax will be permanently repaired to avoid raising taxes on the middle-class.
Higher income Americans will see two limits on tax exemptions and deductions. The first limit is the Personal Exemption Phaseout will be set at $250,000 and the itemized deduction limitation that kicks in at $300,000.
Cuts to doctors under Medicare will be avoided for a year but the exact spending cuts remains unclear.
Federal unemployment insurance will be extended for another year, benefiting those unemployed for longer than 26 weeks. In California, the extension benefits 400,000 individuals who were at risk of losing all benefits.
“The unemployed may qualify for deductions in their job search such as fees paid to sign up for a job search engine,” said Newman.
Newman said the information on the new laws show businesses will get temporary business tax breaks for research and development, railroad track maintenance, wind energy, mining rescue team training and Indian employment for another year as well as tax credits for restaurants and new markets.
Farmers will also get a nine-month farm bill fix, avoiding sky rocketing prices to dairy.
“All tax payers will see a decrease in their paychecks due to a two percent increase in Social Security tax,” said Newman. A person making $50,000 a year will see an average of $20 taken each week to fund Social Security.
Individuals making $400,000 or more and couples making $450,000 or more will see an increase in their tax rate to 39.6 percent, up from 35 percent.
There is great news for married couples. Newman said the Tax Relief Act of 2010 that extended several tax reduction and savings provisions to benefit married couples became permanent.
Employers can celebrate knowing Section 179 was also continued for 2013. Section 179 offers small businesses a great opportunity to maximize purchasing power. Most of the equipment businesses will purchase, finance or lease qualifies for the deduction.
“Section 179 allows employers who want to purchase equipment to grow their business to reduce their net taxable income this is good news for businesses,” said Newman.
Newman wants to remind taxpayers that we are not out of the woods. By late February and early March, the Treasury Department will run out of options to cover the nation’s debts. If the United States cannot cover their debts, the government could begin defaulting on government loans. To avoid default according to economic forecasts, Congress may have to raise the legal borrowing limit or debt ceiling or possibly start a global recession.
Michelle Mears-Gerst is a local writer and regular contributor to SWRNN.