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December 17, 2012

Millions face higher taxes soon without fix

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.

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