The article linked here is an excellent example of the impact the impending fiscal cliff will have on the average middle class family, as wages stay flat but costs of food and insurance, as well as income taxes increase.
Despite the threat of the fiscal cliff causing another recession, economists believe that Congress will act soon to prevent potential economic devastation. The end of the 2001 tax cuts coupled with the $1 trillion budget cuts that are set to go into effect in the new year could be devastating. The budget cuts are part of the debt ceiling deal from 2011. Most likely Congress will act, either in the lame duck session after the November election or in early 2013, to either extend the current tax cuts or enact different ones. However, until something is passed, and set in stone, small businesses are likely to continue holding back on hiring and investing. A time of fiscal uncertainty is generally not a good time to be spending.
Congress needs to find $1.2 trillion by the end of the year to avoid the potential sequestration cuts that are scheduled to take effect. In other words, Congress needs to cut the Federal budget by $1.2 trillion. However, to do so would require devastating cuts across the board, having a detrimental impact on all aspects of the government, including defense, national security, and core government functions.
According to the Congressional Budget Office, the estate tax increases that will go into effect on January 1st will potentially bring in $500 billion, over the next 10 years. The Democrats want these increases to go into effect in order to avoid the massive cuts. But the Republicans do not want these tax increases (and others) to go into effect. With opposing positions, and the lack of compromise between the two parties evident over the past few years when it comes to significant budget decisions, it will be interesting to see how this plays out over the next three months.
The article linked below has a good description of the recent history of the estate tax and the impact of the increases that will potentially take effect on January 1st.
Congress is getting ready to recess until rafter the November elections. Meanwhile, there is much unfinished business involving the Bush-era tax cuts that are set to expire at the end of 2012. Currently, there are no measures that will address any of these provisions.
Estate taxes in 2012. For 2012, individual estates are entitled to an exemption of $5.12 million. Amounts in an estate exceeding that amount are taxed at a 35% rate. This exemption amount has gradually increased over the past 10 years.
Estate taxes in 2013. Beginning January 1, 2013, the exemption amount for individual estates will revert to $1 million, with excess amounts being taxed at a 55% rate. Those are the same rates that were in effect in 2009. These rates are changing because the current estate tax laws are expiring at the end of 2012.
Congress may act to prevent the expiration of the current laws. However, time is quickly running out. They are about to recess for 6 weeks in advance of the November elections. There will also be a Thanksgiving recess and a winter recess.
It is possible that the next Congress will convene in January without any of these tax matters having been addressed. If that is the case, they will have to decide whether to pass new laws, whether these laws should be retroactive, and how to treat estates created between January 1, 2013, and the date any new law is enacted.
The best way to get ahead of Congress is to establish a personal comprehensive estate plan. Don’t wait to see how the law evolves. Act to protect your interests and your family before it is too late.
Announcing the opening of Leslie Paul Law PLLC!
Leslie Paul Law will open for business on September 15, 2012.
Practice areas focus on estate planning and small businesses. I will also offer legal services for other transactional matters.
Contact me for an appointment or consultation using the contact form on this website.