Sandra Block, Money Power: Congress unliked but taxes improve
BY SANDRA BLOCK Money Power
Sunday, March 03, 2013
3/03/13 at 4:10 AM
A recent survey found that members of Congress are more unpopular than head lice. But grant them this - they may have made it easier to do your taxes, at least in the short run.
The new tax law passed earlier this year ties up a lot of loose ends that have made it difficult for people to plan for the tax implications of everything from investing to estate planning to adopting a child. But come December, taxpayers should be able to make year-end moves to lower their 2013 tax bills without worrying that last-minute legislation will upend their strategies.
For the majority of taxpayers, marginal rates will remain the same. Taxpayers in the 10-percent and 15-percent tax brackets will continue to benefit from a 0-percent rate on long-term capital gains. Several child-friendly tax credits, such as the one for adoption-related expenses (worth up to $12,970 in 2013), were made permanent.
Congress also put a permanent patch on the alternative minimum tax; it won't help those who already have to pay it, but it will prevent millions from tumbling into the AMT abyss from now on.
Taxpayers in the top tax bracket will pay higher rates on income, dividends and long-term capital gains. And new phaseouts of deductions and personal exemptions will boost marginal rates for taxpayers with adjusted gross income of $250,000 or more ($300,000 for married couples).
But the law also provides relief for upper-income taxpayers concerned about protecting their estates. The new law set the exclusion at $5 million and indexed it to inflation after 2011 (in 2013, the exclusion is $5.25 million).
Before you get too complacent about tax planning, it's important to remember what the law didn't do. It was primarily a stopgap measure to prevent an across-the-board tax increase that threatened to nudge the economy back into recession. It did nothing to resolve profound disagreements in Congress over government spending cuts, the debt ceiling and reforms to Social Security, Medicare and Medicaid.
Nor did the legislation do anything to improve the Byzantine nature of the tax code. In her annual report to Congress for 2012, Nina Olson, the IRS taxpayer advocate, declared the code's complexity the most serious problem facing taxpayers. For upper-income taxpayers, the new law makes tax preparation even more complex, says Jonathan Traub, managing principal for Deloitte Tax.
Comprehensive tax reform that would reduce or eliminate deductions and credits - possibly in exchange for lower tax rates - offers the promise of deficit reduction and a simpler tax code. With Congress still deeply divided, though, a broad overhaul in 2013 is unlikely.
Original Print Headline: Congress unliked but taxes improve
Sandra Block is a senior associate editor at Kiplinger's Personal Finance magazine. To send her a question or comment, go to tulsaworld.com/kiplingerfeedback.
