Hearing talk of a “Fiscal Cliff” or “Taxmaggedon”? Don’t panic. Our TurboTax tax experts break it down for you so you can understand if any of these tax law changes will affect your taxes and if so, what you can do about it.
Let’s start with the facts.
Every year, a small portion of the IRS tax code expires, requiring Congress to pass laws to extend them. This year is no exception. There are a handful of tax laws that will expire if they are not extended by December 31.
So what’s on the table?
Alternative Minimum Tax (AMT) Patch
The AMT was originally created as a special tax for the wealthiest taxpayers. Today the AMT usually hits taxpayers who have a household income over $75K and are married with more than two kids.
This is where a lot of the hubbub is coming from because unless the AMT is patched by Congress by the end of the year, an estimated 26 million households will, for the first time, face the AMT, which threatens to add an average of $3,700 onto taxpayers’ bills for the current tax year.
But the reality is that, historically, Congress has patched the AMT every year, since 1969, without fail.
The “Tax Extenders” refer to a broad set of temporary tax laws. Here is a short list of the higher-impact tax deductions and credits that are included in the “Tax Extenders” package currently on the table:
Tuition and Fees Deduction: This tax deduction allowed some college students or parents to deduct education expenses related to schooling, including tuition, books and other supplies. TurboTax data shows that about only 2% of our taxpayers claim this tax deduction.
Residential Energy Property Credit: This tax credit increased the energy tax credit for homeowners who made certain energy efficient improvements to their existing homes. TurboTax data reveals that only an estimated 4% of our taxpayers claim this tax credit.
Educator Expense Deduction: This is a $250 tax deduction available to teachers K-12, who purchase classroom supplies. TurboTax data shows that only about 3% of our taxpayers claim the Educator Expense Deduction.
While only a small percentage of TurboTax customers claim these tax deductions and credits, be assured that no matter what is decided, TurboTax will be fully up to date with the latest tax laws shortly after decisions are made.
Bush-era Tax Cuts
As the name implies, the “Bush Tax Cuts” were tax cuts first passed in 2001 under George W. Bush and then extended in December 2010 by President Obama
The tax deductions and credits included in the Bush Tax Cuts do not impact your 2012 taxes. They won’t come into play for another year, when you file your 2013 taxes. What you could see next year is changes to your paycheck, starting in Jan. 2013, due to changes in 2013 tax brackets.
So when will we know for sure? No one knows. But it’s not uncommon for tax laws like these to not be extended until midnight on Dec. 31.
That’s why, at TurboTax, we plan ahead so we’re prepared for any outcome. TurboTax will be up to date and ready for taxpayers within a matter of days of changes to the tax code.
And if you have questions, TurboTax CPAs are here for you year-round to answer your tax questions, helping you understand what these changes may mean to you and your family.