Fiscal Cliff Deal – 77 Percent Of All Americans Set To Pay More Taxes

Fiscal Cliff Deal

The President has claimed that the Tuesday night fiscal cliff deal will reduce middle class taxes in America. However, taxes for most Americans will increase in 2013. The tax relief that has been built into the package will add nearly $4 trillion per year for the next 10 years to the existing $16 trillion debt. The fiscal cliff deal passed by the Senate and the Congress will not stop the Social Security payroll tax cut from expiring. This means that more than 75 percent of American households will face a higher federal tax liability in 2013.

President Barack Obama signs the executive ord...
President Barack Obama signs the executive order creating the Middle Class Task Force at the White House. (Photo credit: Wikipedia)

Tax Policy Center’s analysis indicates that families with annual income between $40,000 and $50,000 will have to pay $579 extra middle class taxes in 2013. For those earning between $50,000 and $75,000, the liability will increase by $822. Individuals earning more will have to shell out higher taxes. The Bush era tax rates for individuals earning less than $400,000 and couples earning less than $450,000 have been extended. Those earning more will pay tax at a higher rate.

The highest tax rate will increase from 35 percent to 39.6 percent. Those who fall in the highest tax bracket will have to pay a higher rate of investment taxes at 20 percent. Obama’s health care law could also increase the tax outflow of high income families. Investments of individuals earning more than $200,000 per year and couples earning more than $230,000 per year will attract a new 3.8 percent tax.

According to Tax Policy Center, families with annual income between $500,000 and $1 million will have to pay $14,812 extra tax in 2013. Those earning more than $1 million will have to shell out an additional $170,341. Obama tried very hard to include the payroll tax cut for 2011 and wanted to extend it through 2012. However, Democrats and Republicans were not keen and both agreed to let the cut expire.

Wages as high as $113,700 pay a 12.4 percent Social Security tax. Employers pay half and workers pay the other half. The latter’s share was cut from 6.2 percent to 4.2 percent for 2011 and 2012. This will result in middle class taxes savings of about $1000 a year.

The fiscal cliff Congressional battles have just begun. Over the next few weeks, fiscal cliff agreements relating to debt ceiling and automatic spending cuts affecting the Pentagon will be hammered out. Democrats will continue to push for tax hikes while Republicans will demand spending cuts and entitlement reforms.

Arizona Experiences Increase In Small Business Hiring

TurboTax 2012

The most recent Intuit Payroll Small Business Index for October revealed that, despite a downward trend nationwide, Arizona small businesses increased hiring for the second consecutive month.

The nationwide figure decreased by 0.05 percent, while Arizona saw a 0.13 percent increase. Overall, small businesses in the United States created 10,000 fewer jobs.

The decline in nationwide figures began in May. Small businesses added 150,000 from the beginning of March 2010 until the end of May 2012

The total recovery amounts to 85,000 jobs after a decrease of 65,000 jobs since May.

Roads and freeways in metropolitan Phoenix
Roads and freeways in metropolitan Phoenix (Photo credit: Wikipedia)

According to Inuit, the software company that makes TurboTax 2012, any enterprise with fewer than 20
employees qualifies as a small business.

The data analyzed came from approximately 170,000 customers using Intuit’s Online Payroll. In addition to making Turbotax, Intuit created Quicken software for bookkeeping.

In September, revenue recorded by small businesses decreased 0.3 percent. Of all the industries the Index monitors, none recorded an increase in revenue this month.

The biggest decline  was in the construction industry, which fell 0.8 percent, with accommodation and food services, professional services and retail all showing a 0.5 percent decrease.

Revenues across the nation have fallen 2.5 percent since this past February, which would be a 4.3 percent decrease for the year if the trend continues.

In October, employees saw their salaries decrease an average of $2,791, a decline from $2,794, or 0.1 percent, for September. The period covering August to September saw an increase of $17 in employee salaries.

Hourly employees worked an average of 24.7 hours each week with a total of 107.1 hours for October, down 42 minutes, or 0.7 percent from the 107.8 hours reported in September.

Apple Keeps Cash Overseas Because Of High Taxes At Home

Due to high taxes, Apple plans to continue holding its cash overseas, company says

Apple will in the next three years spend around $45 billion as part of a program launched on Monday that will see shareholders get the first dividend since 1995.

However, that money will not come from the $64 billion held by the company in foreign countries. This is because the government charges a very high tax rate for repatriating money.

Peter Oppenheimer told analysts and investors during the Monday conference that the company does not want to incur the cost of repatriating foreign cash at the moment.

Apple together with other tech giants like Microsoft and Google hold more than $1 trillion in foreign countries are pushing for a tax holiday.

There have been heated debates on the hill regarding the issue. Kevin Brady, a Republican from Texas is the main sponsor of a bill which has 109 co-sponsors. Critics say that giving tax breaks to companies with overseas operations is like rewarding the rich for not paying their taxes.

Initially, the Obama administration supported the proposal. However, his tax reform blueprint launched last month is totally against the idea.

While Apple does not usually discuss such matters in public, Monday’s conference was specifically meant to get the message across to Congress.

Oppenheimer claimed that corporate tax of 35 percent paid by companies when bringing foreign earnings home was an economic disincentive.

Oppenheimer further said that the company has already expressed its view to the Obama administration and Congress.

CEOs Press Congress And Obama For Lower Taxes And Smarter Regulation

Dozens of CEOs freshly out of their meeting with the Blue Dog Coalition have worked through a Business Roundtable lobbying meeting to reveal their proposals for boosting the economy today.

Their plan, known as Taking Action for America, is calling for a balanced federal budget, reform of regulations at the federal level and a lower tax rate for corporations that would use a territorial tax system as well as other changes.

President of Roundtable, former governor of Michigan, John Engler (R) and the contingent of CEOs met with President Obama Tuesday evening and are scheduled to meet with Timothy Geithner, Treasury Secretary today.

Jim McNerney is chairman of Roundtable as well as CEO of the Boeing Co. and says the purpose of the meetings is to focus on re-energizing the economy that has been slow in growth in order to put Americans back to work.

According to McNerney, the country cannot be successful in attempts to repair the economy if businesses and the government remain divided, and as long as the government remains divided due to partisan politics.  McNerney says that the changes should not wait until after the elections in November to act on these proposals, including lower taxes.

Dow Chemical Co. president and CEO, Andrew Liveris, says that the country cannot afford inaction from the nation’s capitol.

Members of the Roundtable, who are CEOs of the nation’s largest corporations, stress that smart regulation does not mean doing away with all regulations.  However, the group has identified some of the regulations considered costly to businesses and overly complex.

President and CEO of Procter & Gamble, Bob McDonald chairs the tax and fiscal policy committee of Roundtable and claims that the US corporate tax will be highest in the world within the next three weeks as Japan chooses to lower its rate.  Obama has recently released a proposal to lower the corporate tax rate from 35% to 28%.  The CEOs however are pushing for lowering the rate to 25%.

McDonald says that it is time to stop the talks and get something done.

Capital Gains Ignorance Leads To Catastrophic Losses

The IRS regards almost every asset you use or own for business or personal reasons as a capital asset. Such items include your personal residence in addition to any furniture or stocks and bonds held in your own name. Net profit or loss from the sale of such commodities is either a capital gain or loss.

All capital gains must be accurately and fully reported on federal tax returns.

Deductible capital losses are limited to investment property.

Capital gains and losses may be categorized as either “short-term” or “long-term.”

Applicable net capital gain taxes are typically lower than other taxable income rates. Maximum 2001 tax year tax rates for most individuals is 15%. Low-income individuals’ tax liability may be as low as 0 % on all or part of net gain. Special capital gains categories may attract tax liabilities of 25 to 28 percent.

Capital losses which exceed capital gains are deductible to offset other income such as salaries or wages. Annual deductible amounts are limited to $1,500 and $3,000, depending on your filing status.

If net capital losses exceed the allowable annual deductible amounts, you may rollover part of the unclaimed sum by deducting it on the next year’s tax return. The IRS will then regard it as though it was actually incurred during that tax year.

Form 8949 – Sales and Other Capital Asset Dispositions will be required to compute capital losses and gains. Taxpayers must list all details of capital asset disposition on this form and transfer the net figure to Form 1040 Schedule D.

Planning For Tax Changes

Potential changes in the tax laws proposed by President Obama mean that right now is a great time to start budgeting for your 2012 taxes.  One major change will be a change for those in the highest tax bracket from fifteen to nearly forty percent as part of sweeping increases in taxes collected from high-income individuals in the next ten years.

The plan calls for high taxes on earnings from dividends, a departure from earlier policies that protected earnings on this type of income.  The White House feels that the system for taxing investment earnings is one of the most unbalanced part of the current tax code, and this measure is one step to help fix the issue.

For those planning for their 2012 taxes, this means that individuals and couples need to begin looking at their investment income from previous tax years and determining whether they will be subject to these increased tax rates.  Setting aside additional money from a monthly or yearly budget to cover this potential tax increase is the best way to offset the effect of higher rates without suffering tax-time shock.

The overall goal of President Obama’s tax changes is to reduce the federal budget deficit that has plagued the US during this economic downturn.  While this change is not expected to eliminate the deficit entirely, it is part of a long term plan to use tax money from wealthy Americans to reduce the tax burden on lower income workers while still raising needed revenue.