Anyone who pays U.S. income taxes ought to be watching the fiscal cliff and AMT talks very carefully. Today’s Wall Street Journal summarizes what’s at stake:
All the other tax increases that you hear so much about, such as the “expiring Bush tax cuts” apply to income earned in the future–in 2013. But the AMT is different: If Congress doesn’t act, taxpayers will owe it on April 15, 2013, when they file tax returns on their 2012 income.
Don’t underestimate the potential size of AMT. If you have many deductions (own your own home, live in a high tax state, or have many exemptions), you’re right in the AMT’s crosshairs, and could wind up with a huge tax surprise this April if Congress doesn’t approve a “patch.” Huge: the average taxpayer who gets an AMT surprise would get hit with about $5000 in extra taxes.
Another especially dangerous area is FICA – everyone’s payroll tax could increase by 2% of their income in January. This will hit entrepreneurs in the form of increased self-employment taxes.
Changes in tax rates have huge consequences for entrepreneurs. After all, the IRS is our partner – it receives a share of our profits. I find it is somewhat discomfiting not being sure how much of a share of our profits the IRS is going to help itself to next year.
The WSJ has a nice web page set up covering the fiscal cliff and AMT talks. Keep an eye on it.