Individuals and businesses in California can likely look forward to continued uncertainty with regard to taxes. Congress has continued to postpone any in-depth discussion of tax law and will likely do so until after the presidential and state elections in November. As a result, California residents are probably asking a slew of tax-related questions with regard to 2012 and 2013.
For example, will the payroll tax be implemented beyond its recent and temporary extension? And what about the Bush-era tax cuts, which were extended through 2012? If those tax cuts eventually expire, will the maximum tax rate for capital gains increase from 15 percent to 20 percent?
Will wealthier Americans eventually face a higher tax rate? Or will changes be made to the personal exemption phase-out, signifying a relief for wealthier Americans?
Will there be changes in how estate tax is implemented? Some people speculate that the current $5 million exclusion will be reduced to $3.5 million, while the top rate will go up to 45 percent.
In any case, 2012 will likely bring more scrutiny from the IRS for Californians, since both the federal and state governments will seek to increase collections to raise revenue.
In fact, one tax advisory firm recently conducted a survey indicating that 61 percent of respondents claimed that federal tax dispute activity had increased in the past year. 37 percent of the respondents claimed that state tax audits increased in the areas where the companies do business. The respondents said they expect this trend to continue on both the state and federal levels.
Additionally, new requirements for reporting foreign assets mean the IRS will continue to focus on overseas accounts.
In short, California residents will want to stay abreast of changes in tax law in 2012. The California Society of CPAs reported that 67 tax benefits were set to expire with 2011, and readers will want to know how best to navigate what is clearly a shifting tax climate.
Source: nuwireinvestor.com, “Tax Traps of 2012,” Joe Mont, Jan. 10, 2012