It is five days until Christmas and ten days until we go over what economists have dubbed as the “Fiscal Cliff”. Unfortunately, even the best Christmas procrastinator is more prepared at this point than Congress and the President for their respective deadlines.
The Fiscal Cliff is made up of the expiring Bush tax cuts and spending cuts that effect everything from military to entitlements. They also include other expiring provisions such as the Social Security tax cut of 2%. But one of the many tax changes Congress has to deal with will affect us this year. Congress has yet to fix the Alternative Minimum Tax for 2012.
As sure as Christmas, Congress always passes a short term patch to the AMT to prevent middle class taxpayers from being hit with this complicated tax on the “rich”. However, they have been slow to discover a long term solution. This year, AMT is wrapped up in the Fiscal Cliff negotiations for a grand bargain on taxes and spending. This is not good news for the usual last minute AMT fix.
So how will this affect you? According to Michael Cohn at Accounting Today, this could delay tax season until March for over 100 million tax payers. If Congress and the President do not patch the AMT before the end of the year, the IRS will need to reprogram their computers to account for the change. This would push back tax season for those affected until March, according to the IRS.
Who is affected? Without the AMT patch, married couples with incomes over $45,000 and singles with income over $33,750.
The AMT is particularly difficult for average tax filers because it requires that the tax return be computed a second time with reductions in various itemized deductions. There are also AMT credits if income fluctuates between years, and you could be stuck with an unexpected tax bill on April 15th if you did not account for AMT when paying in taxes throughout the year.
Another negative outcome could be a retroactive AMT fix. If Congress and the President cannot come together on a grand bargain and do not patch the AMT in a separate bill in 2012, but then resolve everything retroactively in 2013, the IRS will need to program and reprogram their computers. This could lead to long delays in return processing and even longer delays for refunds.
The best thing you can do is contact your Congressmen and Senators and share your concerns on the fiscal cliff and all the different aspects of it.