President Obama seems to be boasting that families coming under the middle-class category will not be paying more than $2000 extra as taxes during the year. This is correct for taxes on income; however, the President fails to mention, that there is allowance in the deal for the cut on payroll taxes to expire. More taxes will be paid this year by 77% taxpayers, which is almost $1200 extra by those who earn $75,000 to $100,000, and this income range falls into the middle class, as defined by Obama.
English: United States President Barack Obama signs into law the American Recovery and Reinvestment Act of 2009 as Vice President Joe Biden looks on. (Photo credit: Wikipedia)
President Obama says the deal is going to reduce the deficit. However, there is going to be an increase in deficit by around $4 trillion during the next decade, as there are extensions to the tax cuts provided by the Bush administration, which comprises of one percent top taxpayers. There will be a “deficit reduction” by the deal, only in comparison to a situation, if the Bush cut on taxes were extended to everybody.
All the talk by President Obama of preserving tax cuts for the middle class in the deal to prevent the fiscal cliff seems to create the impression of people paying same amount in taxes for the year, except people who are wealthy. However, that is quite incorrect. Obama has left out in his analysis that temporary reduction of couple years payroll taxes of Social Security has been permitted to expire. This will result in many people paying more taxes in the year.
End of Tax Breaks: All You Need To Know About the Expiring Tax Breaks
There seem to be changes in the IRS tax code every single year. The only advantage they have is that they keep accountants employed.
It is important that you stay informed about tax code changes regardless of whether you use computer software to do your taxes or you have your accountant do it for you. Knowing changes in the tax code will help you to file the right returns and get your refund quickly.
The first tax breaks to go are Bush Tax Cuts that gave high income earners huge tax deductions. They are expected to expire towards the end of 2012. The expected changes will affect:
When Bush tax cuts are phased out, people will have to pay higher taxes when they retire. Taxpayers who benefited from Bush tax cuts should convert to a Roth IRA, as this will allow them to pay taxes upfront and enjoy their full retirement benefits when they retire. This will save them the hassle of filing income tax returns in their old age.
Converting to the new Roth will be costly for taxpayers who benefited from Bush Tax cuts in 2010. Generally, they will have to pay up to 35 percent tax rate on a rollover. This rate may increase after these tax cuts expire.
Homeowners who lose their homes to foreclosures, a short sale, or had their debt reduced through mortgage restructuring will have to pay taxes on the difference between the actual debt and the new debt, or between the outstanding balance on the mortgage and the sum recovered from a short sale.
There are many other changes that will affect education and health care among other industries.