- Days left

Get Ready to Pay Thousands of Dollars More in Taxes

Get Ready to Pay Thousands of Dollars More in Taxes In this tough economy, most people don't have a whole lot of spare money floating around. Yet unless Congress acts soon, millions of Americans are looking down the barrel at expiring tax breaks that could leave you sending thousands of dollars more to the IRS.

The biggest culprit: short-term extensions of tax breaks, many of which expired at the end of 2011.

Lawmakers have gotten in the habit of waiting until the last minute to extend many of these programs, but last year, they ran out of time. So now, you can't be sure how much your taxes will go up this year -- and unfortunately, there's no immediate relief in sight. Even worse, there's an even bigger looming deadline at the end of 2012 that could really crush your finances in future years.

Your Incredible Shrinking Paycheck

One big item at issue is the reduction in payroll taxes. Last year, employees got a 2 percentage point break in their Social Security taxes. Although Congress extended that break through Feb. 29, after that, the rate is set to go back up to 6.2% -- costing a family making $60,000 a year about $1,000 in extra taxes.

But a host of other lesser-known provisions could also have a big impact on your finances.

For example, if you live in a state with no income tax, you've been able to deduct sales tax that you pay -- but that option expired Dec. 31. So did a deduction for tuition and related educational expenses.

Another important tax break that's late in getting renewed -- assuming it does -- is the higher exemption from the dreaded alternative minimum tax. Originally envisioned as a way to capture at least some tax revenue from ultra-rich taxpayers who took advantage of other provisions to pay very little in taxes, the AMT now hits an estimated 3.8 million taxpayers. The number of people paying AMT would skyrocket by as much as 30 million if lawmakers don't get around to passing their annual "patch" in time -- and the extra tax bill could come to $8,000 for some of those taxpayers.

The Big Deadline

An even larger hit looms: At the end of 2012, a huge number of tax cuts from the early 2000s are set to expire:
  • The current 10% tax bracket would disappear, rising to 15%. That would cost even low-income taxpayers as much as $870 a year. Other brackets would also rise, creating cascades of higher tax bills as you rise up through the tax tables.
  • Several credits could also disappear or get cut. Credits for adoption expenses, child care, and the popular child tax credit are slated to fall sharply in 2013 and beyond. Because many people take these credits into account in figuring out how much tax to have withheld from their paychecks, workers could see refunds shrink or actually end up surprised to owe money to the IRS as a result of their reduction.
  • On the investing side, lower rates that apply to some stock and mutual fund dividends are set to go away, while rates on capital gains would rise slightly. Although many see these solely as breaks for the rich, the current provisions actually allow lower-income taxpayers to pay no tax at all on dividend and capital gain income.
Will the Worst Happen?

In past years, Congress has usually gotten around to extending tax breaks eventually. Even now that 2012 has begun, lawmakers can always go back and pass laws retroactively returning those breaks effective Jan. 1.

But as we've already seen with the payroll tax cut, an election year raises the potential for grandstanding and political tactics from legislators from every political party. That makes it far from a sure thing that you'll get relief in time to save you from a big rise in your tax bill for 2012.

For more on taxes and your money: Motley Fool contributor Dan Caplinger hates big tax bills. You can follow him on Twitter here.

Increase your money and finance knowledge from home

Introduction to Retirement Funds

Target date funds help you maintain a long term portfolio.

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


Filter by:

Face it. We all know the current taxation system is a convoluted mess and unsustainable.
All past effort's to "fix it " have only resulted in a bigger mess and now thousands of pages
of tax code that by anyone's estimation is incomprehensible. I submit the 10/10/10 plan.
No tax on the first 10 K per person in the household.
10% flat tax on all earnings after that.
10% to of all earnings after that to recognized charitable organizations. This tax plan is
designed to afford the Govt it's funds to provide it's constitutional services to the country
and get the charities back into the social services work that they were always intended to do.

February 27 2012 at 9:01 AM Report abuse rate up rate down Reply

I would like to see the tax cut for SS gone . SS is running out of money now and you cut the amount of money it takes in ?????? This is the thinking that got us where we are now. Here is the plan cut spending cut senate pay in half and get rid of thier 100 % retirement. Cut congress in half at one time when there were no phones or computers we needed all the congress men now not so much. And raise the import tax on countries that do not have the same standards our companies have .

February 13 2012 at 9:10 AM Report abuse +2 rate up rate down Reply
Harry Piels

When congress lives under the same laws, benefits, and programs as the rest of us, change will come!

February 06 2012 at 9:11 PM Report abuse +2 rate up rate down Reply
Harry Piels

They should end deductions for those who have more than two kids. Sounds cruel, but think. The only people who can afford more than two kids are the rich and the very poor (who get more in welfare payments). Most people with middle class incomes can only afford more than two on the backs of us taxpayers, through those generous deductions...ouch!

February 06 2012 at 9:07 PM Report abuse +2 rate up rate down Reply

Flat tax. The only fair way to pay. NO DEDUCTIONS FOR ANYONE.

February 05 2012 at 11:20 PM Report abuse +2 rate up rate down Reply

Obama is determined to raise taxes on all of us that still pay them 47% do not. The raises will hitthose who make between 50,000 and 100,00 the hardest. Also retirees who rely on investments they saved all their lived for will see big raises. Look out it is coming.

January 24 2012 at 9:07 PM Report abuse +5 rate up rate down Reply


January 24 2012 at 8:32 PM Report abuse +6 rate up rate down Reply


January 24 2012 at 7:39 PM Report abuse +1 rate up rate down Reply
1 reply to ATLANTIS QUEEN's comment

If the rich get hit with higher taxes, how does that help you? All that Obama is going to do with that money is pay it out to contributors like Solyndra. None of it will be used to pay down the debt which, by the way, hurts the poor and the middle class. Keep running up the debt and keep printing money and soon your money won't be worth much. If gasoline goes to $5/gal and bread goes to $4/ loaf, who does that hurt the most? Certainly not the rich.

February 18 2012 at 4:11 AM Report abuse -1 rate up rate down Reply
1 reply to grampz05's comment

We have to pay for Bush's Medicare part D, 2 wars that were off the books until 2010 and 2 huge Bush tax cuts that were suppose to create jobs and didn't. Time to pay the piper. You folks are like those who vote against state/local taxes then gripe when your car needs repairs because you hit too many pot holes on main street.

March 24 2012 at 11:27 AM Report abuse +2 rate up rate down

Got news for ya, if the price of anything goes up anymore, or they try to raise taxes, I will not pay them! An if they try to come after me for not paying, .......I'm moving the hell out of this BLOOD ******* country!! I've had it with the FEDS, STATE GOV'T, AND LOCAL GOV'T, taking every dime I get, I am also tired of paying MORE for "downsized products" of ANYKIND!! Canada or Mexico is looking pretty dam good right now!!

January 24 2012 at 7:13 PM Report abuse rate up rate down Reply

Why not Cut the size of government. Maybe we should all go on strike!!! Maybe we should all just spend less, earn less then less will be paid to the government.

January 24 2012 at 7:06 PM Report abuse +3 rate up rate down Reply
1 reply to jmtlfix's comment

what drug are you on send me some:-) The goverment spend less and the goverment will earn less does,does not help that why we have the deficiet we have.

January 24 2012 at 7:26 PM Report abuse -2 rate up rate down Reply