The impending threat of sequestration, or the across-the-board federal budget cuts and tax hikes known as the “fiscal cliff,” is giving year-end income tax stories a different twist this year. And with barely a month for consumers and small businesses to make tweaks and adjustments — with one eye on Congress and the White House, which may yet pull off a last-minute deal.
So, you might want to start planning a package that will give your audience tips for handling the various scenarios which may emerge vis a vis 2013 tax laws and beyond. For an idea of some possible pathways, check out this recent report (Congressional Budget Office report [PDF] ) on the economic impact of various permutations of tax and government spending changes.
The uncertainty is driving moves by corporations, small businesses and individuals. For example, a number of large publicly traded companies, like Wal-Mart, Wynn Resorts and the health care company HCA have changed the way they pay dividends, moving tax liability into 2012 for fear that 2013 rates will jump. As the Time article points out, taxpayers generally want to defer income, rather than accelerate it, but not this time around. Clearly you’ll want to check in with any dividend-paying companies in your region to see if they will follow suit.
Similarly, this Corn & Soybeans Digest article warns farmers — who generally pull expenses from the coming year into the current year’s budget, to get more write-offs — not to prepay seed costs and other items in case they need greater deductions next year. And here’s an article for Accounting Today in which an analyst advises companies to take advantage of credits that may expire, by, for example, hiring qualified veterans before year-end to get the Work Opportunity Tax Credit. (The Time article above also suggests that consumers pre-pay college tuition before year-end, to cash in on another expiring education credit.)
You should check in with CPAs and accounting firms that handle corporate and small-business clients and ask how their advice diffes this year compared to years with less uncertainty. What are the consequences if a company or individual prepares for a fall off the fiscal cliff that doesnt happen? What moves can be addressed by an amended tax return, and which are irrevocable once made? Also, tune into the Small Business Administration’s year-end “tax chat” at 1 p.m. EST on Nov. 28; click here for details.
Also, noting the report for farmers, check in with trade groups that represent key sectors in your area; they and their lobbyists will be able to chime in on the tax effects on their constituents.
As to personal finances, check in with several enrolled agents — tax preparers with special credentials and training — on tips for individual and joint filers, including money-saving strategies to implement now and planning for next year. The National Association of Enrolled Agents has a database searchable by state, ZIP code and other criteria; it provides the name and e-mail address of EAs.
And as a personal finance story, this goes beyond income taxes; extended unemployment benefits are at stake as well. The Washington Post reports that as many as 2 million Americans could lose benefits if Congress doesn’t authorize additional spending. Your state’s labor department should be able to pinpoint the number of enrollees slated to lose benefits soon. How will their purchasing power dwindle and ripple through the economy, from apartment rentals to grocery spending?
And remember, it sometimes comes as an unwelcome surprise to those currently on unemployment pay that they owe taxes on that income. It’s probably not an issue for single filers if that was their only pay in 2012; they’ll be below the threshold for owing taxes anyway. But for joint filers, where the jobless checks are combined with a partner’s income, or for single filers who were employed at good wages for part of the year, the unemployment benefits could create a tax liability that they’ll scramble to pay.