Deductions May Be Fading Fast
Regardless of who wins the election.
Recall the bad old days of the Clinton administration – years in which many individual taxpayers’ itemized deductions were limited and not allowed in full – the infamous “3% limitation”. Thankfully, that rule gradually disappeared over the years in which the “Bush tax cuts” prevailed. It went away in full for tax year 2010, but brace yourself – something similar is rumored to be on the way back.
Romney has suggested a cap on overall deductions of anywhere between $17,000 and $50,000 for most folks. And we hear that one of Romney’s advisors – Martin Feldstein, former chairman of the Council of Economic Advisors – has suggested a cap on the total value of deductions equating to 2% of one’s adjusted gross income, figuring that such a cap would raise tax revenue by $278 billion, or a 30% increase in the total projected income tax revenues for 2011.
Obama, also, likes the idea of a cap on itemized deductions in a manner which, according to the Research Institute of America, would effectively reduce the tax benefit from such items for taxpayers who are subject to marginal tax rates above 28%.
The Simpson-Bowles plan (Obama’s select commission whose mission was to come up with revenue proposals) contained various similar proposals – Obama has so far ignored all of this group’s ideas.
Bottom line, though, is that the way things are shaping up, you can get ready to kiss some of your tax deductions bye-bye, no matter who takes the oath next January 20. And the reality is that you probably won’t know what the rules will be, even by this coming New Years Eve, and perhaps not even until well after inauguration day.
The message? For most folks, grab whatever deductions you can in 2012.
Which reminds us – a recently released book by Steve Moore (of Wall Street Journal fame) entitled, “Who’s the Fairest of Them All? – The Truth about Opportunity, Taxes, and Wealth in America” could not be more timely. Contrary to the incessant blathering by Obama (that millionaires and billionaires – you’ve heard him use those terms? – don’t pay their fair share), Moore counters that, “the United States is actually more dependent on rich people to pay taxes than even many of the more socialized economies of Europe. According to the Tax Foundation, the United States gets 45 percent of its total taxes from the top 10 percent of tax filers, whereas the international average in industrialized nations is 32 percent. America’s rich carry a larger share of the tax burden than do the rich in Belgium (25 percent), Germany (31 percent) France (28 percent), and even Sweden (27 percent).”
CONSULT YOUR TAX ADVISOR – This article contains general information about various tax matters. You should consult your CPA regarding the implications to your own particular situation.
Jeff Quinn, the author of this article, is a shareholder in Ashley Quinn, CPAs and Consultants, Ltd., with offices in Incline Village and Reno. He can be reached at 831-7288, welcomes comments at firstname.lastname@example.org, and invites readers to consider his other commentary at http://blog.nolo.com/taxes.