Fiscal Cliff prompts major tax changes

1STOCK Economic News DollarsHOUSTON – They called it the fiscal cliff, but the wrangling in Washington all boiled down to changes in how Uncle Sam will dip into taxpayer pockets in 2013.
Tax preparers and accountants all across the country are gearing up for another busy tax season with the new rules. But local CPAs Jason Brooks and Tom Byrne said most accountants had already checked into how the tax laws might change before the year-end vote in Washington.
“We had known for some time these changes were coming, or could be coming,” said Jason Brooks, CPA with Watkins, Ward & Stafford in Houston. “We had a pretty good idea of how things would work out. The problem was taxpayers – our clients – didn’t know what was going to happen and didn’t know how to plan.”
Byrne, of Byrne CPA Firm, PA, pointed out accountants must take tax law training each year to stay abreast of new rules and regulations and are familiar with the changes for 2013.
Brooks said one of the major changes for individual taxpayers is the new Social Security tax rate.
“The Bush Social Security tax cuts were passed several years ago and they expired,” said Brooks. “What this means is the Social Security deduction part of your check will now be 6.2-percent. The Bush era tax cuts had reduced it to 4.2-percent.”
Employees who make $30,000 a year will now pay $1,860 to Social Security up from the $1,260 they paid last year or about $600 more. Those making $20,000 a year will pay $400 more this year for Social Security. Those making $50,000 a year will take home $1,000 less this year.
The changes will affect those living on a tight budget the most.
Byrne said there are lists of hundreds if not thousands of new taxes and tax credits.
“For 90 percent of the people out there, there are some good changes,”said Byrne. “For those with income of more than $250,000 or up through $450,000 there are some significant changes that could cause them to pay much more in taxes.”
One of the good changes is if you are paying for your child’s college tuition and books, you could get some of that money back. Parents can deduct 100-percent of the first $2,000 and 25-percent of the next $2,000 they pay.
Parents claiming their children as dependents will also receive a $1,000 tax credit. But, if your child turns 17-years-old this year, you will lose that extra money.
Byrne said many of the Bush era tax credits were temporary and have now been made permanent. He said taxpayers should be better able to predict their taxes next year.
Brooks said the changes have had an impact on small businesses, too.
“The new health care law goes into effect this year and if you are married and file jointly and make more than $250,000 you will pay more,” said Brooks. “This does affect a lot of smaller mom-and-pop businesses where the owner is also the employee.”
And both Brooks and Byrne cautioned that individuals and small business owners need to talk in detail with their accountant and tax preparers about their concerns.
“Tax laws are very complex and they do change practically every year, just more so this year,” said Brooks. “People just need to be careful so, first, they don’t get in trouble with the IRS and, second, so they don’t pay more taxes than they have too.”
Byrne agreed.
“Everybody’s tax situation is different and what your neighbor gets or what a similar business owner tells you he gets may not apply to you,” said Byrne. “The new laws are so specific and different income is taxed at different levels.”

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