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
