- Days left

How Obama's Budget Proposal May Increase Your Taxes Next Year

Will President Obama's proposed 2012 budget result in higher taxes?With new faces in Congress, President Obama knows his $3.73 trillion budget will be a hard sell. That's why he took his message to the airwaves this week, making TV appearances and issuing statements calling for "tough choices and sacrifices."

A top priority of Obama's budget plan is to hack away at the deficit, cutting it by $1.1 trillion over the next decade. Americans are concerned about the deficit -- since 2002, we've managed to dig a hole worth $1.65 trillion, an all-time record. That figure is so huge, it represents more in deficit spending than we currently have dollars circulating.

But Americans are also concerned about how they might be paying down the deficit via their taxes.Obama's proposal does include two-thirds of its deficit savings through spending cuts, including a five-year freeze on discretionary spending outside of security, which will save more than $400 billion over the next decade.

But the final third of deficit savings would come from tax increases. The tax deal that was negotiated in December 2010 was meant to be temporary -- most of the tax cuts in the deal are limited to two years. It's no surprise, then, that Obama opposes extending most of those cuts beyond 2012. His budget doesn't include making the 2001 and 2003 tax cuts for families earning more than $250,000 a year permanent; that means those high-income families would see a tax-rate increase in 2013.

Tied closely to the boost in rates is the return of the PEP (personal exemption phase-out) and "Pease" limitations. Under PEP, personal exemptions for high-income taxpayers were reduced as adjusted gross income (AGI) increased, while the Pease provision reduced itemized deductions at the top of the brackets. Obama's proposal would limit the amount that high-income taxpayers could claim for charitable contributions, mortgage interest, state and local tax payments and other itemized deductions.

Also on the chopping block: tax savings under the current federal and gift tax structure. In December 2010, Congress pushed through an increase in the personal exemption amounts for federal estate tax purposes that allows families to pass $3.5 million per person -- or $7 million per married couples -- without paying federal estate tax. The tax deal also decreased the corresponding tax rate to near historic lows, at a flat 35%. President Obama would eliminate those tax breaks on federally taxable estates by lowering the exemption amounts and increasing the tax rates.

Finally, Obama's budget would tackle certain corporate tax breaks. Among them is the elimination of tax cuts granted to oil, gas and coal companies. That would save individual taxpayers an estimated $46 billion over 10 years.

But don't start planning for tax increases (or spending cuts) yet. Both parties have voiced their dissatisfaction with the proposed budget. Democrats are angry over deep cuts in spending to social programs while Republicans claim the cuts aren't tough enough. Expect both parties to dig in their heels over the coming weeks as they try to strike a balance between reining in spending and holding the lid on taxes.

Increase your money and finance knowledge from home

Economics 101

Intro to economics. But fun.

View Course »

Basics Of The Stock Market

Stock Market 101 - everything you need to know but were afraid to ask!

View Course »

TurboTax Articles

Cities with the Lowest Tax Rates

The total amount of tax you pay reaches far beyond what you owe the federal government. Depending on where you live, most likely you're required to pay additional taxes, including property and sales tax. The disparity between the amount of tax you pay in a low-tax city and that in a high-tax city can be dramatic. Living in any of these 10 cities could save you a bundle, although the exact amount may fluctuate based on your income and lifestyle choices.

Cities with the Highest Tax Rates

Much ado is made in the press about federal tax brackets, but cities can carry a tax bite of their own. Even if you live in a state that has no income tax, your city may levy a variety of taxes that could eat away the entire benefit of living in an income tax-free state, including property taxes, sales taxes and auto taxes. Consider all the costs before you move to one of these cities, and understand that rates may change based on your family's income level.

Great Ways to Get Charitable Tax Deductions

Generally, when you give money to a charity, you can use the amount of that donation as a deduction on your tax return. However, not all charities qualify as tax-deductible organizations. While there are many types of charities, they must all meet certain criteria to be classified by the IRS as tax-deductible organizations. There are legitimate tax-deductible organizations in many popular categories, such as those listed below.

A Freelancer's Guide to Taxes

Freelancing certainly has its benefits, but it can result in a few complications come tax time. The Internal Revenue Service considers freelancers to be self-employed, so if you earn income as a freelancer you must file your taxes as a business owner. While you can take additional deductions if you are self-employed, you'll also face additional taxes in the form of the self-employment tax. Here are things to consider as a freelancer when filing your taxes.

Tax Deductions for Voluntary Interest Payments on Student Loans

Most taxpayers who pay interest on student loans can take a tax deduction for the expense ? and you can do this regardless of whether you itemize tax deductions on your return. The rules for claiming the deduction are the same whether the interest payments were required or voluntary.

Add a Comment

*0 / 3000 Character Maximum