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Tax Hikes Have Already Happened: Will Congress Help You Dodge Them?


Millions of taxpayers are afraid about the fiscal cliff of tax hikes scheduled to happen at the beginning of next year. What many of those people don't realize, though, is that some big tax increases have already taken effect this year. And without Congress moving quickly to take action, those hikes could add thousands to your tax bill come next April.

Earlier this month, right before taking off for a five-week vacation, the Senate Finance Committee passed a bill that potentially would get struggling taxpayers off the hook. But skeptics note that the bill, as written, has little chance of getting through the House of Representatives, and in an election year, every attempt at progress is likely to face stiff opposition.

When a 'Millionaire's Tax' Hits the Middle Class

The biggest threat to many taxpayers is the alternative minimum tax. The AMT was initially created to make sure that ultra-rich Americans paid at least a minimum amount of tax every year, rather than using deductions and other loopholes to avoid paying any tax at all.

But over the years, the AMT increasingly has snared more workers, including some people who are squarely in the middle class. In particular, people who live in states that impose high income and property taxes could easily find themselves stuck with a bigger bill thanks to the AMT.

The big problem with the AMT is that it's not indexed for inflation. As a result, Congress has to revisit the issue every year. This time around, it didn't bother taking care of the problem before 2012 began, which could potentially add as much as $8,000 to tax bills for millions of taxpayers.

Taking Care of Business

The Senate proposal would solve the problem for both 2012 and 2013, raising the AMT exemption from $45,000 to $78,750 for joint filers in 2012 and $79,850 in 2013. It would also extend some other favorable provisions, including the ability to make tax-free charitable contributions from IRAs and a deduction for qualified tuition expenses.

But, even though the Finance Committee approved the bill overwhelmingly, it still faces an uphill battle. A controversial provision to extend tax credits for wind energy projects could prove to be a lightning rod for debate and hold up passage.

As painful as Congress's procrastination is, there's little that taxpayers can do but wait and see what happens. As the nation's fiscal situation becomes more uncertain, you can expect situations like this to become all too common.

For more on taxes:

Motley Fool contributor Dan Caplinger expects to be in the line of AMT fire this year. You can follow him on Twitter @DanCaplinger.

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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.

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Heard that our government thinks that $39,000.00 to $111,000.00, is middle class. That being the case, every member of Congress should have to live on the same $39,000.00 without perks - just like their fellow American Citizens. They should show us how it is done!! Our government has enough money to pay for half of the Illegal Aliens, College however American Citizens, must pay the full amount. Is this what the President means when he talks about being fair? What the Middle Class needs is a "Middle Class " Party, as neither the Democrat or Republican Parties, work for the Middle Class; they are Bought & Paid For By Special Intrests! Time For The Middle Class To Have A Party They Could Pay-Off To Work For Them. Fair Is Fair!!!

August 23 2012 at 3:34 PM Report abuse rate up rate down Reply

When you don't pay taxes it sure is easy to bitch and moan for others to pay more. Interesting study today came out revealing the more liberal you are is the less amount of your income you give to charities. Combine that with on average Republicans pay more taxes, makes it apparent why the liberal dependents want the Republicans to pay more of their earned income to afford the lifestyle of those that do absolutely nothing for theirs... liberals.

August 20 2012 at 1:37 PM Report abuse +3 rate up rate down Reply
2 replies to styles1107's comment

Right on styles, right on! You better believe they want you to pay more in taxes. Pay more so all the scum on welfare can sit in around the air conditioned comfort of their free Section 8 housing, watching Jerry Springer on the free cable TV, talking to their "friend girls" on their free phones, while "they chaps" go to school and get free breakfast and free lunch. Pay more so these dirty animals can get it all for free; free healthcare, free food, free utilities, free cars, free clothes, free school supplies, free everything! Think of it as the reparations you owe this whole subculture of filth that provide absolutely nothing of value to society. It’s your fault they are oppressed and as such they SHOULD get everything for free. Keep on working, baby, work until you drop so they don't have to.

August 20 2012 at 3:14 PM Report abuse +3 rate up rate down Reply
1 reply to ilm9p's comment

we said this many,many times that all the freebies,generational welfare BS are reperations for THEIR IMAGIONARY GARBAGE.
and of course,only THEY HAVE THE CORNERSTONE on forced labor.--no one ELSE.

August 20 2012 at 10:29 PM Report abuse -1 rate up rate down

Stop lumping all people into one group. I would say nearly everyone in Hollywood is considered to be a liberal and they are by far the highest earning people in America. They sure pay their fair share of taxes so your assumption that they pay none is utter nonsense.

August 22 2012 at 12:28 PM Report abuse rate up rate down Reply