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Tax Talk

The Fiscal Cliff

Joe Hockaday - Tuesday, December 18, 2012

As we approach the end of 2012, Congress and the President have begun to address the looming “fiscal cliff”. The expiration of the Bush tax cuts and mandatory spending cuts are on the negotiating table. This makes it difficult for taxpayers to plan for the future. A likely scenario could be that the top two income tax rate tiers will go up to 36% and 39.6% (from 33% and 35% for 2012). This could havoc with traditional year-end tax planning strategies such as deferring income or accelerating expenses that many taxpayers employ. For some, it might make sense to defer expenses into 2013 or accelerate income into 2012 so that they might lower taxable income in 2013 (that could be taxed at a higher rate). Until we know results of the negotiations, it is probably best to follow the news stories as they become available.

With the negotiations likely to run up to December 31st, the IRS has released a statement cautioning taxpayers that there may be a delay in the start of the 2013 filing season. Any changes in tax laws require the IRS to reprogram their return processing systems and make any changes to tax forms.

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