Like sands through the hour-glass, this is the "Fiscal Cliff" of our lives. Political soap operas are prevalent in Washington, D.C., but the recent fiscal cliff crisis has been exacerbated by the deadline on December 31, 2012.
The fiscal cliff refers to automatic tax increases, spending cuts and budget deficit actions beginning in 2013. The fiscal cliff talks have also distracted many middle class taxpayers from other tax increases due to Obamacare!
In other words, the cost of your grandmother's walker may cost more next year!
The Patient Protection and Affordable Care Act (Obamacare) has several tax increases taking effect after December 31, 2012, and these taxes will shift the financial burden to many middle class families.
Taxpayers can itemize their tax deductions if those tax deductions exceed the standard tax deduction amount. The Standard Deduction amount increases every year and is based on how you file, for example Single, Married, and Head of Household and Married, filing separately. Currently, the IRS allows you to deduct only the amount of total medical care expenses for the current year that exceed 7.5 percent of your adjusted gross income.
Starting January 1, 2013, you can only deduct the total medical care expenses that exceed 10 percent of your adjusted gross income! Note: Taxpayers over the age of 65-years-old old can continue to use 7.5 percent until 2016.
Here's an example:
Jane Q. Smith files a tax return as single and has an adjusted gross income of $50,000.
Medical care expenses, including (but not limited to) medical devices, doctor fees, fees for drug addiction services and transportation costs that exceed $3,750 would be deductible.
Medical care expenses, including (but not limited to) medical devices, doctor fees, fees for drug addiction services and transportation costs that exceed $5,000 would be deductible.
That's a difference of $1,250! If Jane is in a 25 percent tax rate which will increase to 28 percent in 2013 if the fiscal cliff is not averted, her taxes could increase to $350.
After December 31, 2012, there will be an excise tax (basically a sales tax) of 2.3 percent on the sale of certain medical devices by manufacturers, producers or importers. The manufacturer is responsible for reporting and paying the tax, but the tax will most likely be passed on to the final consumer.
I am actually a fan of some form of comprehensive health care, but it's also important for people to know the potential tax increases associated with Obamacare. No one ever thought your grandmother's walker or cane could cost more because of a new health care law! The irony!
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