The Latest from Washington
As Congress returns for the coming session, quite a bit is on the table for them to consider in the tax area. There have already been discussions with the President and Congressional leaders to avert the “fiscal cliff”. As many have heard, the main issues on the table are the expiring provisions of relatively low tax rates on ordinary income and capital gains. However, there are several other issues, including business expensing incentives and tax breaks for individuals.
As has been in the news, one side wants to raise the rates for those earning over $250,000, while the other wants to keep rates as they are but would consider reducing deductions. In the end, negotiations will take place and compromises will be made that may involve not only tax matters but also spending cuts.
One interesting point in all of this is that even if nothing is done by the end of the year, the Treasury department may have the ability to freeze the withholding rates on wages. As background, the employee-share FICA tax withholding rate on employee wages has remained at 4.2% (as opposed to the 6.2% the employer pays on the same wages.) To avoid the increase of this rate by 2% scheduled to occur at the start of the year, the Treasury may have a withholding rate freeze at its disposal, thus reducing some of the potential financial impact on employees.
While attention is largely paid to the “fiscal cliff”, a more impending result of Congressional inaction may occur if the Alternative Minimum Tax (AMT) exemption patch is not enacted. For 2011, the AMT exemption amount was $48,450 for single taxpayers and $74,450 for married taxpayers filing jointly. Without a similar exemption amount put in place for 2012, an additional 28 million taxpayers will be subject to this extra tax. The IRS followed the assumption with the 2013 filing system that the patch would be in place for 2012. If that changes, and a patch is not put in place by the end of the year, the IRS themselves say over 60 million taxpayers may not be able to file their tax return until late March 2013. Hopefully those in Congress are heeding IRS warnings.
Other Tax Items of Note
- The IRS has issued the standard mileage rates for the use of a vehicle in 2013. For the business use of a car, van, pickup truck, or panel truck, the 2013 rate will be 56.5 cents per mile (up 1 cent from 2012.) Driving for medical and moving purposes may be deducted at 24 cents per mile (also 1 cent higher). Finally, the rate for service to a charitable organization remains at 14 cents per mile.
- The IRS delayed the effective date of tangible property regulations until 2014. These regulations govern whether tangible property expenses can be deducted or need to be capitalized, and largely lean in favor of capitalizing expenses.
