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Higher Taxes in 2013? You're Already Paying Them for 2012

By Stephen Ohlemacher

WASHINGTON -- 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 movement suggests that the negotiations are being renewed after appearing stalled just days ago.

Alternative Minimum Tax: The Problem That Keeps Coming Back

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.

How those tax increases impact individuals would 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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While are president,an intellectual and moral incompetent, vacations in Hawaii on taxpayers' money, the political farce in Washington continues. . All, while 85% of God fearing Americans are being ruled by a minority of 20% Secular Liberals who intend to change our nation from a nation under God to a nation under Obama. But that majority voted for Obama and sold their souls for thirty pieces of silver and proved their moral incompetence and hypocracy. It has been said that the people get the government they deserve. Truer words were never spoken, and," there will be much weeping and nashing of teeth!"

December 24 2012 at 1:04 AM Report abuse rate up rate down Reply

I don't think many people realized that capital gains, dividends and carried interest were taxed at such low rates until Romney ran for president, so the rich can blame him if they don't like it.

In some areas of the country, $250,000 a year doesn't go very far, but we have to remember that the increased tax would only apply to income over $250,000, after allowed deductions. Most people earning that much in expensive areas have heavy deductions for mortgage interest and property taxes so would probably have to make at least $350,000/yr. before they are affected.

December 18 2012 at 10:32 PM Report abuse +2 rate up rate down Reply

No wonder Bush didn't go to the RNC. He holds the record for the highest poverty rate since the 1960s.

Obama holds that title now.

December 18 2012 at 12:48 PM Report abuse -1 rate up rate down Reply

Obama holds that record now and also for more people living in poverty.

When Bush left office in 2008, the number of poor Americans had jumped to 39.8 million (the largest number in absolute terms since 1960.) Under Bush, the number of people in poverty increased by over 8.2 million, or 26.1 per cent. Over two-thirds of that increase occurred before the economic collapse of 2008

I can go to leftwing websites and post that garbage too.
The 2008 recession belongs to Pelosi and Reid.

December 18 2012 at 12:45 PM Report abuse -1 rate up rate down Reply
1 reply to obamasafiasco's comment

And under Obama there are more people living in poverty and over 23 million under or unemployed.

December 18 2012 at 12:47 PM Report abuse -2 rate up rate down Reply
1 reply to obamasafiasco's comment

How how sad Teapy darling. You appear to be incoherent doll.

December 18 2012 at 1:19 PM Report abuse -2 rate up rate down

It was Obama and the democrats who proposed a bill to stop giving tax cuts to corporations who out source American jobs. The republicans blocked it.

So that's why Obama APPOINTS THE EMPEROR of outsourcing jobs Jeff Immelt as his job czar.

Teabrainless strikes again. LOL. You do better when you post with your mitchnobraincells screen name.

December 18 2012 at 12:41 PM Report abuse -1 rate up rate down Reply

While millions of people will be wondering where their next meal will come from the Obama's will be off on their 40 + million dollar vacation paid for by the taxpayers.

December 18 2012 at 12:39 PM Report abuse -1 rate up rate down Reply

How do you know I have a free cell phone and live in a section 8 apartment?

That's common knowledge.

December 18 2012 at 12:37 PM Report abuse -1 rate up rate down Reply

I will be waiting for your apology!!!!
LMFAO!!!!!!!!!.........you'll be waiting a long time for that..............LMFAO!!!!!!!!!!!!!

Why is that another one of your screen names.

December 18 2012 at 12:34 PM Report abuse -2 rate up rate down Reply

Bush still holds the record for outsourcing jobs over 3 million jobs outsourced in the past decade.

Obama claims he against outsourcing, another ploy he used to get votes, then why is his APPOINTED job czar Jeff Immelt the emperor of outsourcing jobs overseas. Not only is Obama a fiasco he's a hypocrite too.

December 18 2012 at 12:32 PM Report abuse -1 rate up rate down Reply

The GOP is the party of the 1%.
So is Obama Pelosi and Reid. They are all the 1%

December 18 2012 at 12:24 PM Report abuse rate up rate down Reply