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Millions face higher taxes real soon without fix

By Stephen Olemacher

Associated Press

LAST UPDATED: 11:37 a.m. HST, Dec 16, 2012

WASHINGTON (AP) — Millions of families and businesses will get hit by big tax increases a lot sooner than many realize if Congress and the White House don't agree on a plan to skirt the year-end fiscal cliff of higher tax rates and big government spending cuts.

In fact, they already have.

More than 70 tax breaks enjoyed by individuals and businesses expired at the end of 2011. If Congress doesn't extend them retroactively back to the beginning of this year, a typical middle-class family could face a $4,000 tax increase when it files its 2012 return in the spring, according to an analysis by H&R Block, the tax preparing giant.

At the same time, businesses could lose dozens of tax breaks they have enjoyed for years, including generous credits for investing in research and development, write-offs for restaurants and retail stores that expand or upgrade, and tax breaks for financial companies with overseas subsidiaries.

Even if Congress does act, last-minute changes to federal tax laws could make it difficult for taxpayers to figure out their 2012 tax bills.

"We're really expecting this upcoming tax season to be one of the more challenging ones on record," said Kathy Pickering, executive director of The Tax Institute at H&R Block. "For your 2012 returns there's so much confusion about what will be impacted."

Much of Washington is consumed by negotiations over how to address automatic tax increases scheduled to take effect next year. That's when tax cuts first enacted under President George W. Bush, and extended under President Barack Obama, are scheduled to expire. A temporary reduction in the Social Security payroll tax is set to vanish as well.

Obama wants to let the Bush-era tax cuts expire on incomes above $200,000 for individuals and $250,000 for married couples, while extending the tax cuts for people making less.

House Speaker John Boehner and other Republicans have said they are open to more tax revenue through reducing or eliminating unspecified tax breaks. But Boehner, R-Ohio, late last week moved toward the president's position, proposing raising top rates for people earning more than $1 million in exchange for deeper spending cuts, particularly in health care and other mandatory spending programs.

Obama has not accepted that offer, according to people familiar with the talks, but Boehner's offer suggests that the negotiations are being renewed after appearing stalled just days ago.

Lost in the debate is a big package of tax breaks that already expired for 2012. Lawmakers in both parties say they expect those tax cuts to be addressed in any deal to avoid the "fiscal cliff." But they don't want to deal with them separately because that would reduce pressure to reach a broader budget agreement.

The biggest tax increase facing individuals for this year is the alternative minimum tax, or AMT. The tax was first enacted in 1969 to ensure that wealthy people can't use tax breaks to avoid paying any federal taxes. The AMT, however, was never adjusted for inflation, so Congress routinely does that to keep it from imposing hefty tax increases on millions of middle-income families.

Congress last adjusted the AMT in 2010, and about 4 million taxpayers paid it 2011. Without a new adjustment for the 2012 tax year, the AMT would reach an additional 28 million taxpayers, increasing their tax bill by an average of $3,700.

The tax would affect individuals making more $33,750 and married couples making more than $45,000, according to the Internal Revenue Service.

Other expired tax breaks include deductions for college expenses, deductions for state and local sales taxes, and a $250 deduction for teachers who buy classroom supplies with their own money. The sales tax deduction is geared toward taxpayers in states without state income taxes: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming.

The tax increases could vary greatly, depending on how much money a person makes and which deductions they qualify for. For example, a single man making $65,000 who paid $6,000 in college tuition and fees would get a tax increase of $837, mainly because he would lose a deduction for college expenses, according to the H&R Block analysis.

A married couple with two young children and a $100,000 income could face a tax increase of more than $6,600, if they live in a state that doesn't have a state income tax. Most of that increase — about $4,015 — would come from the AMT. The AMT would also reduce their tax credits and they would lose a deduction for paying state and local sales taxes.

The AMT is expensive to fix. A two-year adjustment passed by the Senate Finance Committee last summer would save middle-income taxpayers a total of $132 billion in 2012 and 2013, according to the Joint Committee on Taxation, the official scorekeeper for Congress. The bill addressed many of the tax breaks that expired for 2012, and the committee passed it with bipartisan support. But the full Senate never considered it.

The AMT adjustment also includes a rule that affects the way tax credits are calculated for millions of taxpayers, even if they don't have to pay the AMT, the IRS said. These taxpayers may not necessarily face a tax increase, but there could be delays in processing their returns.

Congress has always adjusted the AMT in the past, and the IRS is preparing as if lawmakers will do so again, acting IRS Commissioner Steven T. Miller said in a recent letter to members of Congress. If lawmakers don't address the AMT, about 60 million taxpayers, nearly half of all individual filers, would have to wait until late March — if not later — to file their returns while the IRS reworks its systems, Miller said.

"Essentially, IRS has said it will be chaos — chaos! — trying to make it work," said Rep. Sander Levin of Michigan, the ranking Democrat on the tax-writing House Ways and Means Committee.


Associated Press writer Jim Kuhnhenn contributed to this report.

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thepartyfirst wrote:
Everybody should pay their fair and lawful taxes period.
on December 16,2012 | 10:48AM
HD36 wrote:
The US is the largest debtor nation in the history of the world. It's a mathematical certainty the dollar will collapse.
on December 16,2012 | 11:31AM
serious wrote:
What the heck is fair share??? You sound like the President who's never had private employment in his life, never wrote an employers check never had to worry about meeting a budget. All he does is write more checks for the middle class--whoever they are????
on December 16,2012 | 11:48AM
WKAMA wrote:
I'm not sure you know what you are talking about. The President doesn't write checks.
on December 16,2012 | 02:03PM
false wrote:
You are right he just issues Executive Orders.
on December 16,2012 | 08:01PM
sumoroach wrote:
Where is the budget? He just spends without looking and know he is in a corner and blames everyone else but himself!
on December 17,2012 | 03:22AM
HD36 wrote:
Why aren't they talkikng about cutting government jobs?
on December 16,2012 | 10:50AM
serious wrote:
HD36--I presume you voted for Linda and Romney??? Probably not because here all the ballots are auto D--D's are our welfare people, our union workers. Remember when the committee for base closures was going to close down Pearl navy? Reason they were--well Union--imcompetent?? Linda went to WA to fight to keep it open--what did our D--delegation do???? And now who's our new Senator????
on December 16,2012 | 11:52AM
HD36 wrote:
We're here at this cross road because they kicked the can down the road last year. The Federal Decficit is over $16 trillion dollars. Even if we taxed everyone %100 , we still couldn't pay it off because the unfunded liabilities, social security, and medicaid, increase the debt over $55 trillion dollars. There is no way we can pay off the debt. It's a mathematical certainty. The only two alternatives are to declare a default, or print our way out. They have chosen the later, as the Federal Reserve has decided to buy $40 billion in long term treasuries in order to keep interest rates low. For if the rates rise even %1, the government couldn't even pay the interest on the debt. So, they've decided to punish savers, and devalue the dollar. Fortunately, the world is putting up with exported inflation and buying US treasury bonds. For how long is the real question.
on December 16,2012 | 11:26AM
gtracer66 wrote:
So let me get this straight. If you are single the limit is $200,000 but if you are married it goes to $250,000 ($50,000 more). I guess that means that a married woman is only worth 1/5 what a man is worth. Shouldn't a wife's income be equal to that of the husband? Hmmm! Now who is declaring a "War on Women". Come on ladies, write Congress and get this straight. LOL
on December 16,2012 | 11:50AM
st1d wrote:
hawaii residents will be hit the hardest during probates. when homes turn over to the next generation, no one will be able to afford the inheritance taxes. thank you, mr president.
on December 16,2012 | 12:17PM
Grimbold wrote:
This comment has been deleted.
on December 16,2012 | 12:45PM
bumba wrote:
100% agree! How's this - if you are on welfare and give birth, you MUST give up your baby to the State. That way the baby gets cared for and the welfare mom gets nothing.
on December 16,2012 | 01:53PM
wizard417 wrote:
on December 17,2012 | 04:20AM
Tanabe wrote:
Less than 2 weeks to go until the nation is screwed. ALL elected officials should be fired for letting it get this far.
on December 16,2012 | 05:15PM
false wrote:
The great Tulsi will save us.
on December 16,2012 | 08:06PM
peanutgallery wrote:
Yeah. OK.
on December 17,2012 | 05:11AM
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