News Column

'Fiscal Cliff' a Taxing Issue

Dec. 21, 2012

Jim Osborn

taxes

There's a lot of head scratching going on when Columbus accountants are meeting with their clients for year-end tax planning as Washington talks continue in hopes of striking a deal to avert the "fiscal cliff.''

"I feel like I can't help my clients,'' said Jan Schmeits of Columbus, a certified public accountant who is busy this month advising clients on tax and estate planning if abrupt economy-jarring tax increases for all taxpayers are triggered Jan. 1.

"I tell my clients, 'this might happen or that might happen, then ask, what do you want to do?,' '' Schmeits said. "They're kind of lost."

President Barack Obama and House Speaker John Boehner are running out of time as they try to negotiate a bipartisan agreement and get it passed through Congress by the end of the year

A toxic mix of huge tax increases and slashing budget cuts to the Pentagon and other federal agencies begins to take effect Jan. 1 if no deal is reached to avoid the cliff.

Economists generally agree that unless they are defused, the steep tax hikes and budget cuts probably would shove the economy back into recession.

"Everybody is worried, especially the farmers,'' said Columbus CPA Linda Price, who has been fielding calls from her upper-income clients who will feel the sting most from rising taxes.

The higher-income earners are typically the people who are most apt to be closely following the progress being made on proposals for dealing with the fiscal cliff, Price said.

"I've been doing more pre-tax planning this year to give clients a head's up on what to expect in the spring of 2014 when they file their 2013 taxes,'' she said.

Accountant Tom Grubaugh is just as wobbly about the outcome of fiscal cliff talks as his clients.

"I don't know what Congress is going to do,'' Grubaugh said. "I don't have a crystal ball. Everybody is nervous."

Estate taxes are in the mix for reaching a deal.

Obama would also let estate taxes revert to a 45 percent rate, after the first $3.5 million of an estate is exempted. Boehner backs a plan for a 35 percent rate and $5 million exemption.

If no deal is reached by Jan. 1, estates would be taxed at 55 percent with a $1 million exemption.

A big change in the budget-reduction proposals is the estate tax, especially in light of the huge escalation in ag land prices in recent years, Schmeits said.

With current area land values, a farmer who owns 800 acres would be in the $10 million estate range, Schmeits said. Farmers' surviving family members would have to sell the land to pay the estate taxes, he said.

"How many farmers do you think we have around here who own 800 acres?" Schmeits asked. Estate tax changes could result in a glut of land being put up for sale, driving down prices land values, he said.

Many farmers are concerned about estate taxes and increases in Medicare taxes associated with implementing Obama's Affordable Care Act, Price said.

In his latest proposal, according to an Associated Press report, Obama would freeze income tax rates for taxpayers making $400,000 or less and raise them for people making more.

Boehner would allow income tax rates to rise for people making more than $1 million per year and would hold rates where they are for everyone making less. The top rate on income exceeding $1 million would go from 35 percent to 39.6 percent.

Previously, the Republican House leader opposed allowing any tax rates to go up; Obama wanted higher taxes for individual income above $200,000, or $250,000 for couples.

Obama is offering to reduce cost-of-living increases for Social Security recipients. Republicans have been seeking this as a key to long-term deficit reduction. But many congressional Democrats oppose it. Government pensions and veterans' benefits would also get smaller cost-of-living increases.

In addition, taxpayers, especially low- and middle-income families, would pay more because of changes in the way that tax brackets are adjusted for inflation.

Obama rejects Republicans' plan to raise the eligibility age for Medicare from 65 to 67. Boehner now says raising the eligibility age is not essential to a deal.

Obama wants to limit cuts in Medicare and other health care programs to about $400 billion over 10 years; Republicans want to overhaul Medicare to save even more money.

Obama wants a deal that would raise the amount the government is allowed to borrow to cover the next two years, to avoid another debt showdown with Congress until after the 2014 midterm elections.

Previously, Obama had demanded permanent authority to increase the debt ceiling without congressional approval. Republicans want Congress to be part of the decision-making process so they can demand budget-cutting in exchange for additional borrowing.

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Distributed by MCT Information Services



Source: (c) 2012 Columbus Telegram (Columbus, Neb.)


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