President Obama Warns That More Tax Increases Could Be On The Horizon

After five weeks and approximately 4,000 webinars, Americans are finally getting up to speed on the tax changes emerging from the year-end fiscal cliff deal. But if the President has his way, we may find soon be back at the drawing board, trying to make sense of a new batch of tax increases.

While the late-December negotiations accomplished the necessary task of addressing the expiring Bush tax cuts, the other half of the fiscal cliff – the scheduled cuts in spending that were slated to take effect on January 1, 2013 – were merely postponed, with the sequester now scheduled for March 1^st.

On that date, approximately $85 billion in spending cuts will kick in, and if nothing changes, $110 billion in annual cuts will take effect on October 1^st and continue for the next eight years. These cuts would hit defense spending hard as well as other domestic programs, such as education, housing, and Medicare.

Just as we saw with the fiscal cliff deal, however, neither political party wants the sequester to take effect as scheduled, as the indiscriminate cuts would deal a harsh blow to the still-recovering economy.

In a statement issued earlier today, President Obama proposed delaying sequestration in the near term in the hopes that Congress could use the additional time to compose a viable budget. The President would buy some time with a mix of alternative spending cuts and yes…you guessed it…additional tax revenue.

Specifically, the President stated that he would be willing to cut spending on social programs so long as they are done “hand-in-hand with a process of tax reform so that the wealthiest individuals and corporations can’t take advantage of loopholes and deductions that aren’t available to most Americans.”

The President offered no additional details, leaving those who follow this sort of thing to wonder exactly what type of loopholes might be on the chopping block. But if you look to the President’s previous but as-of-yet-unfulfilled tax proposals, and further consider that the stated goal of the current administration is to trim an additional $1.5 trillion from our deficit over the next decade in order to stabilize our debt, some big tax changes may be afoot. Changes like these: Read the full article to see the changes.

 

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The Tax Fight Continues

The tax fight isn’t over.
source: http://abcnews.go.com/blogs/politics/2013/02/the-tax-fight-continues/

Don't give up the fight,
even though the tax man may seem like this guy!

After Congress passed and President Obama signed a bill to allow automatic tax hikes on high incomes, Democrats and Republicans are fighting about taxes yet again.

In separate interviews over the weekend, Obama and Senate Majority Leader Harry Reid both said they will push for more revenue increases as part of another deal to avoid the looming “sequester” — automatic budget cuts that will take effect March 1, barring agreement on other deficit-reduction measures.

Both suggested closing tax “loopholes” as a way to raise more cash for the government.

“There’s no doubt we need additional revenue, coupled with smart spending reductions in order to bring down our deficit,” Obama said in an interview with CBS’s Scott Pelley. “Can we close loopholes and deductions that folks who are well connected, and have a lot of accountants and lawyers, can take advantage of, so they end up paying lower rates than say, a bus driver or a cop?”

Reid told ABC’s George Stephanopoulos that “without any question,” more revenue needs to be part of a follow-up deal.

“The American people are on our side,” he said. “The American people don’t believe in these austere things. We believe that the rich should contribute. We believe we should fill those tax loopholes — get rid of them, I should say. And that’s where we need to go.”

Republicans, needless to say, do not agree.

When the Senate reopened for business on Tuesday, Minority Leader Mitch McConnell devoted most of his speech to bashing the idea of new taxes instead of spending.

“If you were to listen to the Democrats, you would think that all our problems would be solved by raising taxes on private jets or energy companies,” McConnell said, arguing that tax hikes — even the so-called “loopholes” Democrats want to target — will drive jobs overseas. “They don’t want the facts to get in the way of a good political talking point.”

“That issue is closed,” Michael Steel, spokesman for House Speaker John Boehner, told ABC News. “President Obama got the tax hikes he wanted last month.  Washington has a spending problem, and that’s what President Obama and Senate Democrats need to address.”

It’s not that Republicans are totally opposed to closing tax “loopholes.” The conservative Club for Growth, which backs Republican primary candidates who support anti-tax policies, says it supports what Obama and Reid are pushing — but only as part of a broader deal on tax reform.

“We’d have to see what the legislation looks like. If it’s eliminating the sequester and just closing a bunch of loopholes without any tax reform, we’re opposed to it,” Barney Keller, the group’s spokesman, told ABC.

If it seemed that the tax part of the “fiscal cliff” was over, it isn’t: With Democrats pressing for revenue increases and Republicans pressing for only spending cuts, it appears both sides are where they were before the last agreement was passed and signed.

 

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Small businesses face tax certainty but political uncertainty

Source: http://www.nbcnews.com/business/economywatch/small-businesses-face-tax-certainty-political-uncertainty-1B8035042

Jeff Schneider recently had his busiest November and December ever, as the tax preparer’s small business clients clamored for information about how the fiscal cliff negotiations could impact their taxes.

“It was unbelievable,” said Schneider, who runs SFS Tax and Accounting in Port St. Lucie, Fla.
The last-minute deal to avert the fiscal cliff left clients at least knowing what their tax bills would look like.
But Schneider said he’s still hearing some gripes amid the continued political bickering over the debt ceiling, spending cuts and other issues. That’s despite the fact that some also are talking about expanding their businesses or opening new locations.

 “When you talk to people they tell you face to face that the economy stinks, but they’re talking more politically than economically,” said Schneider, whose clients include doctors, dentists, a pawn shop and even an oxygen bar.

It’s no secret that Americans are fed up with all the political squabbles over taxes, spending and the federal debt load. For some small-business owners, the frustration is also tinged with fear: They’re worried that Congress’s inability to find common ground will hurt the economic recovery, and cut into their business.
Bill Dunkelberg, chief economist with the National Federation of Independent Businesses, said one in four businesses told the small business trade group in December that it was a bad time to expand because of political uncertainty. That’s despite other signs that the economy is slowly improving in areas like housing and
employment.

He said many small businesses also reported that their top problems involved issues like uncertainty about government policy and health care costs.

“The things you think businesses should worry about were way down on the list,” he said. “Government dominates the top part of the list.”

Taxes aren’t the only issue it says has the potential to hurt small businesses. The small business trade group has been a staunch opponent of President Barack Obama’s health care plan, the Affordable Care Act. The group was a lead plaintiff in the Supreme Court lawsuit that sought to halt the plan.

Dunkelberg said it’s too early to say whether concerns about political and government issues will ease in January, now that the fiscal cliff issues are resolved. Congress is still wrangling over other issues, such as the nation’s borrowing limit and possible federal spending cuts. Both could hurt small businesses owners who contract with the government or otherwise rely on government spending.

But some say that for many small business owners they work with, the fiscal cliff negotiations were the major potential distraction because it most directly impacted their taxes.

 “When finally the compromise was struck, I think there was an overall sigh of relief that at least there was something that had happened,” said Kim Loewer, a tax practitioner who runs Loewer and Associates in Weyridge, Vt. “The uncertainty had gone away.”

Now that many of the mom and pop shops he works with know what their tax liabilities are, Loewer said they are able to better plan for things like hiring and expansion.

 In general, Loewer said his clients – who run the gamut from consultants to retailers – are mostly reporting that business is going well.

“I don’t hear as much about where the economy is heading anymore,” he said. “I think that right now, from my clients’ point of view, we have seen an uptick in the economy (and) their businesses are doing better this year.”

Schneider, the tax preparer in Florida, said he is expanding the advertising and social media efforts for his own small accounting and bookkeeping business. That’s on the theory that spending more on marketing will draw in more clients even when the economy isn’t as strong.

He’s even called in his wife, an interior designer, to help fight the effects of the recession and weak economic recovery.

“I made her feng shui my office so I could get rid of the bad vibes,” he said.

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You Can Get $10,000 Per Child In College Tax Credits, Thanks To The Fiscal Cliff Deal

Source: http://www.forbes.com/sites/troyonink/2013/01/16/american-opportunity-tax-credit-pay-for-college-and-pay-less-tax/

Now that the fiscal cliff tax deal has given the  American Opportunity Tax Credit (AOTC) an additional five years of life, it’s time for parents of both college students and high school juniors and seniors, to learn about how this valuable tax break works.  The credit reduces your federal tax bill dollar-for-dollar by up to $2,500 per year for each eligible college student for whom you pay qualified tuition expenses. It can be claimed on behalf of an undergraduate for four years—that’s a $10,000 tax subsidy, over four years. And if you have more than one child in college at the same time, you can claim more than one credit. This break  had been set to expire at the end of 2012, but the fiscal cliff deal extended it for tax years 2013-2017.

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Post-Fiscal Cliff Changes in Federal Tax Law to Affect Small Business Owners

Source: http://www.newsobserver.com/2013/01/07/2586891/beyond-the-cliff-a-tricky-path.html

By Virginia Bridges - vbridges@newsobserver.com

 

Frustration, relief and confusion.
Those are the emotions of small business owners in the wake of the “fiscal cliff” deal that defined some key tax provisions for businesses and individuals, but left a lingering cloud of uncertainty.

A week ago, Congress prevented the nation from falling off the so-called fiscal cliff with a bittersweet compromise. Triangle business owners said they were relieved that the provision included a permanent fix for the estate tax, but they complained about the immediate sting from the decision to not extend the 2 percentage point reduction in the Social Security payroll tax.

“ ‘What do we do? What is really there?’ ” are questions that small business owners are asking, said J.A. Lesemann Jr., managing member of the Huntersville firm Lesemann & Associates and chair of the N.C. Association of Certified Public Accountants.

Lesemann suggests that business owners advise their employees that the payroll tax holiday is over. In 2011 and 2012, workers’ Social Security payroll taxes were reduced to 4.2 percent, down from 6.2 percent. Meanwhile, employers continued to pay 6.2 percent of the now total 12.4 percent of an individual’s total wages.

Business owners and their advocates expressed concern about tax increases on higher income earners and the delay on deciding on spending cuts to address the debt ceiling.

“As long as the federal government does not have a plan to reduce spending and address the deficit, small business owners are very concerned in very close future months that the plan that Congress proceeds with will include tax increases,” said Gregg Thompson, the state director for the National Federation of Independent Businesses.

Mary Brogan, spokesperson for the National Small Business Association, said the lingering national debt could have a chilling effect on growth as businesses hesitate to take on additional employees or debt.
“Consumers, business-to-business transactions, I think everybody is going to tighten things up,” Brogan said.
Accountants for small businesses, however, touted components of the deal that will allow some owners to make retroactive expense deductions, encourage the purchase of new equipment and extend some small business tax credits.

Payroll tax worries
Many small business owners expressed concern about the immediate impact of the payroll tax increase, but they said it would take a while to understand how other aspects of the legislation would impact their bottom line.

“(The payroll tax) is going to hurt my employees. It is going to hurt me. It is going to hurt everyone,” said Brian OliverSmith, CEO of Urban Planet Mobile, a Durham company that provides mobile digital education products.

OliverSmith is also worried about the impact of increasing taxes on individuals and families earning more than $400,000 and $450,000, respectively.

Businesses such as Urban Planet Mobile expand with the assistance from other business owners, Oliver Smith said, “So if you tax them too aggressively, that goes away.”

Brogan said the lowered tax threshold impacts a limited but important group of business owners – those who are more likely to expand and hire new employees. The limit creates a fairness issue for businesses that pass through income to owners.

Certain shareholders will face a maximum 39.6 percent tax rate, whereas a Wal-Mart or an AT&T is going to be close to a 35 percent tax rate, Brogan said.

S corporations, businesses in which shareholders report profits and losses on individual income tax returns, might want to think about a change in structure, but will face other tax challenges as different entities, accountants said.

“It is kind of that conundrum that they are in,” said Tim Robinson, an accountant with Raleigh firm Hughes Pittman & Gupton. “Which is better?”

On the plus side
Despite the concerns, business owners, their advocates and accountants applauded some aspects of the changes.

The legislative compromise includes a fix for the estate tax exemption, which was scheduled to drop to $1 million, but will remain at $5.12 million. The maximum tax rate will rise 5 percentage points to 40 percent after reaching that $5.12 million threshold.

The fix is key for Mike Strowd, co-owner of Maple View Farm in Hillsborough. If something happened to Strowd, and his two daughters inherited half the farm, they would probably have to sell some of the land to pay the tax.

“Then you wouldn’t have enough property for Maple View to exist,” Strowd said.
Increased allowable expensing under Section 179 of the tax code and the extension of the bonus depreciation could be a huge benefit for small businesses, Robinson said.

Limits for Section 179, which allows small businesses to deduct qualified equipment purchases, dipped from $500,000 in 2011 to $125,000 in 2012. The threshold was scheduled to drop to $25,000 in 2013. The fiscal cliff package bumped allowable expenses back to $500,000 in 2013 and 2012, retroactively.
The bonus depreciation, which allows businesses to recover up to 50 percent of the cost of qualified purchases, was also extended through 2014.

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Read more here: http://www.newsobserver.com/2013/01/07/2586891/beyond-the-cliff-a-tricky-path.html#storylink=cpy

Morning Bell: 13 Tax Increases in 2013

Source:http://blog.heritage.org/2013/01/08/tax-changes-2013/

The cliff is steep,
and the deal is even more so!

New Year’s Day was tough for taxpayers. Thirteen tax increases kicked in.

The deal that Congress and President Obama struck that finally—but only partially—avoided the fiscal cliff resulted in seven tax increases.

Those hikes combined with six tax increases from Obamacare that also began on New Year’s Day.

13 Tax Increases That Started January 1, 2013 Tax increases the fiscal cliff deal allowed:

1. Payroll tax: increase in the Social Security portion of the payroll tax from 4.2 percent to 6.2 percent for workers. This hits all Americans earning a paycheck—not just the “wealthy.” For example, The Wall Street Journal calculated that the “typical U.S. family earning $50,000 a year” will lose “an annual income boost of $1,000.”

2. Top marginal tax rate: increase from 35 percent to 39.6 percent for taxable incomes over $450,000 ($400,000 for single filers).

3. Phase out of personal exemptions for adjusted gross income (AGI) over $300,000 ($250,000 for single filers).

4. Phase down of itemized deductions for AGI over $300,000 ($250,000 for single filers).

5. Tax rates on investment: increase in the rate on dividends and capital gains from 15 percent to 20 percent for taxable incomes over $450,000 ($400,000 for single filers).

6. Death tax: increase in the rate (on estates larger than $5 million) from 35 percent to 40 percent.

7. Taxes on business investment: expiration of full expensing—the immediate deduction of capital purchases by businesses.

Obamacare tax increases that took effect:

8. Another investment tax increase: 3.8 percent surtax on investment income for taxpayers with taxable income exceeding $250,000 ($200,000 for singles).

9. Another payroll tax hike: 0.9 percent increase in the Hospital Insurance portion of the payroll tax for incomes over $250,000 ($200,000 for single filers).

10. Medical device tax: 2.3 percent excise tax paid by medical device manufacturers and importers on all their sales.

11. Reducing the income tax deduction for individuals’ medical expenses.

12. Elimination of the corporate income tax deduction for expenses related to the Medicare Part D subsidy.

13. Limitation of the corporate income tax deduction for compensation that health insurance companies pay to their executives.

Each of these 13 tax increases will slow the economy, meaning that businesses will create fewer jobs. Fewer jobs will make it even more difficult to land a job than it already is for the more than 12 million Americans looking for work.

President Obama demanded these higher taxes. Obama’s tax increases, in Obamacare and through the fiscal cliff deal, will not curb deficits and debt, because growing spending is driving America’s budget crisis. Congress needs to immediately turn its attention to the actual cause of our deficit and debt problem: too much spending. The proper way to address this problem is through reforms to entitlement programs.

President Obama promised the American people a “balanced approach” of tax increases and spending cuts to reduce deficits and debt. He has achieved the tax increase portion of that approach. Now Congress needs to force him to follow through on the spending cuts portion.

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The Lopsided Fiscal Cliff Deal: All Tax Hikes, No Spending Restraint

Republicans were just rolled – yet again. Throughout the 2012 presidential campaign, and up until New Year’s Eve, President Barack Obama kept insisting that any solution to the U.S. “fiscal cliff” required what he called a “balanced approach” — meaning that forthcoming federal budget deficits should be narrowed partly by tax hikes (on “millionaires and billionaires”) and partly by spending restraints. Of course, we all know that Mr. Obama and the Democrats wanted only tax hikes, while the Republicans mainly wanted only spending restraint.

In the November election, we know Democrats won the White House, while the GOP won the House of Representatives. Thus a “balanced” result seemed justified. But instead, the so-called “fiscal cliff” deal that was struck last week in Washington, approved by the Senate (89-8) and House (257-167) alike, was lopsided: it entails all tax hikes (on the rich and middle class alike) and no spending restraint.

How can this be? Find out the rest of the story by visiting the original article here: http://www.forbes.com/sites/richardsalsman/2013/01/08/the-lopsided-fiscal-cliff-deal-all-tax-hikes-no-spending-restraint/

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Tax Increases Loom after ‘Fiscal Cliff’

Taken from: http://blogs.wsj.com/wsjam/2012/11/21/tax-increases-loom-after-fiscal-cliff/

Almost all American households would take a financial blow next year—and low-income families would be among the hardest hit—if the White House and Congress fail to solve the “fiscal cliff” of big tax increases and spending cuts set to start Jan 2.

A married couple making between $20,000 and $30,000 a year would go from receiving, on average, a $15 tax credit to owing $1,408, according to research by the Tax Policy Center, a joint venture of the Brookings Institution and the Urban Institute.

These taxpayers would be part of the roughly 90% of American households that the Tax Policy Center estimates would face higher tax bills for 2013 if Washington cannot craft a deficit-reduction plan to replace the fiscal cliff—the $400 billion in tax increases and $100 billion in spending cuts slated to take effect next year.

The tax increases stem from the fact that various tax cuts and other tax measures all were passed on a temporary basis and are set to expire. Most of the increases would result from the expiration of Bush-era tax cuts, which would cause marginal rates to rise. Simultaneously, several temporary tax breaks pushed by President Barack Obama after the financial crisis also would end. The Wall Street Journal’s John McKinnon joined WSJTM’s Andrew Colton to discuss the impact the pending ‘Fiscal Cliff’ could have on the American household.

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Tax loopholes alone can't solve fiscal cliff - Lauren French - POLITICO.com

Here is an interesting post that shows the gravity of the fiscal cliff we're about to fall down.

Raise revenues and reform the Tax Code? Easy — just eliminate all the tax loopholes, right?

Good luck with that.

“Eliminating loopholes” sounds a lot better than “raising rates”: The tax rate is what I pay, and a loophole is what the other guy gets.

But the biggest loopholes in the U.S. Tax Code — generally referred to as tax expenditures — aren’t just the tricks of the trade for millionaires with offshore bank accounts. For the vast majority of Americans, they’re just how things work: You don’t pay taxes on your health insurance or Medicare benefits; you contribute tax-free to your 401(k); and your mortgage interest pushes down your tax bill each year.

And even if you dump the biggest of the set, these tax perks don’t even come close to closing the deficit. At best, the top 10 would pull in an extra $834 billion a year, according to Joint Committee on Taxation figures. Considering the hole lawmakers are trying to fill is several trillion dollars large, it’s clear they wouldn’t even come close.

Here are the 10 biggest tax loopholes — and the reasons why most of them will survive the fiscal cliff.

Read more: http://www.politico.com/news/stories/1112/84065.html#ixzz2CmkrHiNc

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