Notice that the question is: "How will the fiscal cliff deal affect me," not "Will the fiscal cliff deal affect me?" That's because the latter question is irrelevant -- it will affect you.
As an IRS registered tax preparer and accountant, I have been watching the events very closely. I have to; I keep getting calls asking me when, how, and why Congress has taken so long to address the issues they have known about for no less than four years. While that is not a question I can answer, I can tell you that you will not go unaffected.
The American Taxpayer Relief Act (ATRA) extended most of the Obama stimulus plan tax cuts and the Bush tax cuts that were set to expire on Dec. 31. However, there were many changes that were made and other tax provisions were allowed to lapse.
One tax relief package that was allowed to lapse was the Temporary Employee Payroll Tax Cut of 2010, which reduced the employee portion of the Social Security payroll tax from 6.2 percent to 4.2 percent. The payroll liability break was put in place to boost the economy. Since we have recovered oh-so-very well from the recession, Congress, in its wisdom, decided it was time to retire the "holiday," as it was commonly called. As a result, anyone who receives a paycheck or self employment income will be affected. Essentially you will find less money in your pocket per check.
While many, more significant tax breaks were extended, a few were slightly modified. Because the IRS needed to prepare the necessary forms for filing our taxes, they were as impatient to see what Congress would do as the rest of the country. It was not possible for them to anticipate every potential extension, change,or lapse that might have resulted from Congress' decisions.
The time it took Congress to seriously sit down and deal with the issue had many IRS form leaders anticipating the worst.
Unfortunately, the late decision will result in several issues this tax season, which might delay refund checks. The final law required the IRS to update forms and instructions as well as make critical processing system adjustments before it can begin accepting tax returns.
Regrettably, Congress has made no move yet to extend the tax season deadline to accommodate the changes that it made and the forms which now need to be modified. This will force a majority of taxpayers to wait until later to even begin getting their taxes prepared -- while not having any longer to finish.
The good news is that Congress managed to permanently fix the Alternative Minimum Tax hole. The IRS will be able to accept tax returns affected by the late AMT patch as well as the three major "extender" provisions for people claiming the state and local sales tax deductions, higher education tuition and fees deductions, and educator expenses deductions by Jan. 30.
However, a great many forms will not even be available until late February or March because they require modification.
Several of these missing forms are business forms, and businesses are required to file by March 15. This in turn forces all business owners and partners to wait until they have their documents (i.e. K-1) before they can file their personal taxes.
I am anticipating a very stressful mid-March through April 15 for all taxpayers.
A majority of my clients use one or more of these still-to-be modified forms. The most common ones that will cause a late filing rush are:
1. Earned income tax credit (EITC)
This credit was extended and improved; however, the form will undergo revision due to the chances. Because it is very popular, I expect that the IRS will prioritize it and it will be included in an earlier batch of revisions.
2. General business credit
This credit will affect all businesses with losses and their ability to elect a carry-forward or carry-back.
3. Depreciation and amortization
This will affect business owners whether or not you have incorporated.
4. Work opportunity credit
This credit is for businesses with qualified new hires.
5. Qualified plug-in electric and electric vehicle credit
Believe it or not I had clients take advantage of this credit last year.
6. Qualified adoption expenses
They reduced the maximum credit for the adoption expenses you incurred. In addition, the adoption tax credit will no longer be refundable, a true tragedy in my opinion.
Several of the "green credits" have been extended: residential energy credit, energy efficient home credit, energy efficient appliance credit, and the alternative motor vehicle credit, just to name a few. There were no improvements made to these credits, however, which do not yet incentivize us to be as green as Congress supposedly wants us to.
The IRS further acknowledges that these delays in forms and law changes will affect us all by announcing that they will not publish a deposit schedule this year (not that they weren't at least a week late on everything last year). There will be no estimated timeframe refunds at all.
The IRS is pretty much assuming that we are all going to do our taxes wrong, miss a form, need to recalculate the math, or attempt to amend our taxes when we finally receive the correct forms. Not to mention they have to update all their computer systems that troll our forms looking for red flags which cause those lovely audits. Your tax refund will be delayed because they will be scrutinizing everyone's returns.
What's more is that many of these issues have not been resolved but rather postponed to either the end of the year or to 2017, so in 11 months and again in four years, we will be basically back where we are now, biting our nails and paying more in both time and money so that Congress can play the same procrastination game.
While this all sounds very frustrating, one solution would be for Congress to at least extend the tax season by postponing Tax Day. If you are as concerned about getting your taxes in on time as I am, call or write your congressman today.
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