Here's what the 'fiscal cliff' would cost you
Photo credit: iStock | There are many questions regarding how the fiscal cliff would affect the Hudson Valley.
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Cartoonists visit the 'fiscal cliff'
Worried about the "fiscal cliff"?
Here's the advice of one Hudson Valley accountant.
• Sell losing positions in stocks to offset gains before Dec. 31.
• If you are in the midst of selling a business or investment real estate property, close before the end of the year, if possible.
• And, oh, yes, enjoy life.
Phil Leib, an accountant who operates out of White Plains, says higher taxes are coming, inevitably.
"The government's budget is like a balloon -- ever expanding," he said. "If you squeeze on one end, the balloon has to ... expand."
Just for starters, Leib figures that capital gains taxes are likely to go up no matter how the current political deadlock in Washington plays out. One Senate tax bill proposed by Democrats would raise taxes on capital gains -- such as appreciation in stocks -- from 15 percent to 20 percent. But that's roughly the increase most investors will face if no deal is struck.
Investors can always use losses on investments like stocks to offset gains, and that's one reason why Leib advises taking losses now. With tax rates probably going up, the strategy is particularly appealing in 2012 and could gain extra momentum, he said.
If the deadlock continues and the economy goes over the figurative cliff, high-income taxpayers -- who abound in parts of Westchester County -- likely would continue paying the alternative minimum tax, which was devised to stop the wealthy from using tax shelters like oil well investments to avoid paying any tax at all. Alternative minimum tax rates start at 26 percent and rise to 28 percent for those earning $175,000 or more.
But there are "fiscal cliff" implications for the alternative minimum tax as well. The Internal Revenue Service has warned that unless Congress applies its annual "patch" adjusting income thresholds for the alternative minimum tax, the number of households paying that tax likely will jump from about 4 million to about 33 million nationwide in the 2012 tax year.
Those households' tax bite would climb by an average of $3,700, according to the Tax Foundation.
In New York, 3.4 million New Yorkers would be required to pay the alternative minimum tax versus 500,000 currently, according to state Comptroller Thomas DiNapoli.
New Yorkers also would have to shoulder a 47 percent increase in payroll taxes, amounting to $7.7 billion in 2013, if no "fiscal cliff" deal is struck, according to DiNapoli. During the Great Recession, the Social Security payroll tax was cut by 2 percentage points to 4.2 percent. That holiday is expected to end, whether there is a deal or not, but the final outcome is unpredictable.
So how does all of this play out on the household bottom line?
According to the Tax Foundation's "fiscal cliff" calculator, a married couple with one dependent under 17 earning $100,000 a year would have paid $16,225 in taxes in 2011, including payroll tax. With no "fiscal cliff" deal, that family will pay $5,725 more.
Bump the family's income to $150,000 and the "fiscal cliff" tax hike becomes $6,449. Move the income level to $200,000 and the hike is $8,351, enough to take your significant other on a round-trip flight to Tahiti with about $4,000 left over for hotels and mai tais, according to Expedia.com.
In the end, Leib said, the President Barack Obama's Democratic administration and the Republican-controlled House of Representatives will reach a deal, though it may not happen by Jan. 1.
"It will come down to the wire," he said. "They might even do it after the 1st, but they'll come up with a deal."
Even with a heavier tax burden, Leib said that the country's resilient economy will continue to grow.
"America seems to absorb any shock to its system because it's motivated by greed, and that wins over communism and any other system," he said.
Leib's advice is to write the IRS a bigger check and feel good about it.
"Enjoy life," he said. "You can't evade. It's taxes and death."
