Some accountants are encouraging clients to grab deductions while the deductions are still there. At the risk of generalizing, financial advisers, depending on the goals of their clients, are generally encouraging them to ride out the situation and remember they’re in it for the long haul.
“You should never allow your taxes to determine your investment decisions,” said Rome Mayor Evie McNiece, CPA, owner
of Accounting Solutions, 1101 E. Second Ave. “Estate taxes, depending on what happens, can be a major tax liability for some folks,” McNiece said. “Right now, if you itemize and you have medical expenses, it’s subject to 7.5 percent of the adjusted gross income. Next year if everything goes through, it’s going to be 10 percent, so if you have a lot of medical expenses, accelerate them into 2012 and have that available to you.”
Randy Bowen with Owens and Bowen CPA, 251 Technology Parkway, said he’s telling his clients not to panic. “There’s so much we don’t know,” Bowen said. “We know what’s going to happen if they don’t change the rules. If they don’t do anything we go back to the tax structure we had during the Clinton presidency. We survived that before.”
A whole series of tax credits are subject to expire at the end of 2012. The Child Tax Credit, $1,000 for each qualifying child; the Child and Dependant Care Credit for working parents to have someone take care of their minor child, a credit that can be as much as 35 percent of qualified expenses, could be reduced or completely eliminated.
The Earned Income Tax Credit for low- to moderate-income individuals and families may be cut back to lower levels.
The American Opportunity Tax Credit, which allows parents and students to qualify for help with college expenses, a maximum of $2,500 per student, also could be phased out.
McNiece also suggested that companies looking at major equipment purchases might consider paying for it now. “A lot of the depreciation, what we call Section 179, may be at a lower level,” McNiece said.
Bowen said that going over the cliff would put a lot of spending restrictions on Congress. “It appears to me that they don’t know how to restrict their spending,” Bowen said. “While it may cost us a little tax money I think the vast majority of Americans are willing to pay a little more taxes to get us out of debt so long as Congress doesn’t spend our money unwisely.”
That’s a questionable caveat.
Don McDonald, owner of McDonald Wealth Management, 715 Avenue A, said he’s gotten very few calls from his clients. “We have discouraged anybody from making any additional purchases,” said McDonald. “We’re postponing making those purchases until after the first of the year, more preferably until we know that there is some certainty.”
Whether it’s certainty in taxes, income taxes or payroll taxes, certainty of health care costs, McDonald said Americans are tired of the squabble. “We know the squabble occurs. We’re just tired of hearing it,” McDonald said. “Whatever it is; just do it.”
Charles Norris, with Edward Jones-Financial Advisors, said most folks saving for retirement or living in retirement are not altering their long-term strategy based on short-term circumstances. “We’re really focused on long-term strategy and what our goals are because after this is gone there is going to be something else in the headlines,” Norris said.
“In our opinion, it’s not wise to play politics with your portfolio, because the outcome is unknown unless you have a crystal ball, and none of us have that,” Norris said.
If Washington doesn’t strike a deal, taxes for the average family making between $50,000 a year and $75,000 a year could go up as much as $2,400.
Without a deal, capital gains taxes would increase by as much as 20 percent for the top four income brackets and by as much as 10 percent for those in the 15-percent tax bracket.
Qualified dividends would be taxed like regular income as opposed to capital gains and would be subject to a top tax of 39.5 percent unless the Administration and Congress reach a new agreement.