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Anne Powelson Anne Powelson
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Stumbles ahead of the tax cliff

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 Negotiations for the 'fiscal tax cliff' concern mostly 2013 tax rates, deductions and credits. But there are several stumbling blocks ahead affecting 2012 taxes; the taxes to be filed starting in January.

Alternative minimum tax: The alternative minimum tax (AMT) is an alternative tax system. Originally designed to assure the wealthy paid their fair share of taxes, the AMT burden now falls mostly on the upper middle class. In 2011 the exemption amount for the AMT was $48,450 for individuals; $74,450 for those filing jointly. For 2012, the exemption amounts are significantly lower: $33,750 for individuals and $45,000 for those filing jointly. If your income is above that level, the only way to find out if you owe the tax is to complete Form 6251, Alternative Minimum Tax for Individuals, and compare the taxes owed with the result from your ordinary (form 1040 series) tax return. The AMT limits certain deductions, does not allow for individual exemptions and disallows many credits including child tax credit and college tax credits. As a result, those most likely to be affected by the AMT are filers who itemize state taxes, medication or miscellaneous deductions, and those with multiple children.

Tax provisions which expired in December 2011: These provisions include the front page adjustments for both educator expenses(up to $250) and tuition deduction (up to $4,000) as well as a refundable adoption credit and deducting state sales tax in lieu of state income taxes. Many of these have been on the chopping block many times and given a reprieve at the last minute. Will that happen again this year? Only time will tell.

Delays in filing tax returns: The IRS does not write tax code, it enforces tax code written by Congress. So what does the IRS do when final decisions on the tax code haven't been made? It waits on releasing tax forms. When tax code is changed at the last minute tax forms, tax instructions and the software used by the IRS to process returns need to be changed. This takes time and often affects when filing begins for entire classes of filers. In 2010, filers who planned to itemize were not allowed to file until Feb. 14. In 2008, filers claiming college credits, child care credits and three less-used credits were delayed from filing, again until Mid-February. In 2007, as well as being delayed, those claiming the tuition deduction or educator expenses needed to modify lines on their form 1040s to show they were taking these adjustments.

In 2013, the earliest date for electronic filing will be Jan. 22, five days later than last year. In addition, the IRS cautions that last minute changes are likely to delay filing for millions of taxpayers.

With an expected last minute patch to the AMT, and possible other changes, this will be yet another tax season to monitor IRS announcements carefully to be sure you don't miss out on any last minute changes. Even if we miss the cliff, it's likely to be a rough ride.


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