Taxes were a big topic of debate during the 2012 presidential campaign. We saw different plans and proposals, charges from the opposing candidates, and promises to help all taxpayers out with a better tax system. Whether or not you voted for President Obama, he has been re-elected as president for another four years, and that will likely have a large impact on low-, middle- and high-income tax returns, both in the short term and longer term.
So let us summarize the major provisions of President Barack Obama's tax plan as were highlighted during the campaign.
• Cut taxes for the majority of taxpayers (or at least prevent taxes from going up) • Raise taxes for taxpayers with incomes greater than $200,000 (250,000 if married filing jointly) • Institute or continue a host of tax breaks including:
- Make the AMT "Patch" permanent and index the exemption amount annually for inflation
- Limit itemized deductions and some exclusions, such as municipal bond income, to 28 percent
- Make the American Opportunity Tax Credit permanent
- Make the current refundable Additional Tax Credit rules permanent
- Keep current capital gains tax rates of up to 20 percent and make dividends taxable at ordinary income tax rates
- Make the estate tax exemption $3.5 million in estate assets ($7 million for couples) and index annually for inflation
- Change the estate tax rate to 45 percent
- Corporate tax rates of 28 percent from 35 percent, and scale back corporate tax preferences
- Reform current international tax rules
- Expire the current Social Security tax break and increase the Medicare tax rate 0.9 percent for individuals who make $200,000 ($250,000 for married couples) and assess a Medicare tax of 3.8 percent on investment income in excess of $200,000 ($250,000 for married couples)
- Enact the "Buffet Rule" ensuring households making $1 million or more do not pay less taxes than middle-class families
- The current earned income tax structure becomes permanent with the additional credit amount for families with three or more children and the higher income eligibility for joint filers
- "Make permanent the 10, 15, 25 and 28 percent rates; child credit expansions; and changes affecting tax implications of marriage"
- "Restore 36 and 39.6 percent statutory income tax rates" for those whose income is greater than $200,000 ($250,000 for married couples)
- "Restore phase outs of personal exemptions and itemized deductions for taxpayers making more than $200,000 ($250,000 for married couples)"
- Maintain the 2010 health reform legislation
- Pay for itself and even raise revenue
In summary, there will be many changes in the tax system in the days and weeks to come, but most certainly by calendar year end affecting your 2012 tax return.
Now that the election dust has settled, it will be important to watch what tax changes actually happen and when. Although the above tax considerations have been proposed, getting them through a divided Congress intact will be another task indeed. We will likely see many smaller adjustments, compromises, and refinements, with the final outcome possibly looking vastly different than the above proposals. Still, rest assured, tax changes are coming and they are coming soon.