Taxpayers and their accountants are on the verge of an historic event. We will see what may be the largest and most dramatic tax changes of our lifetime. The Bush era tax cuts evaporate on December 31, 2012 and the calendar is rolled back. Along with budget sequestration, this will make for a hair-raising winter. In this edition of our Dental Services Practice Financial Check-Up, Susan Harris outlines what to expect and how to prepare for this event. Our goal is to work with you to minimize the impact of this expiration.
On a separate note, thank you to all who participated in our recent client survey. Several respondents asked for invoices that were more descriptive and easier to understand. We want you to know we have taken that to heart and are looking into ways to improve. Thank you for taking the time to provide this feedback so we can better serve you. I hope you enjoy this edition of Dental Check-Up.
The Bush era tax cuts were implemented in 2001 and 2003 and reduced individual, estate, capital gains and dividend tax rates, resulting in more than 30 major changes to the tax code. These tax cuts all will expire at the end of 2012 unless Congress acts to extend some or all of them. In 2010, Congress extended these tax cuts for two more years, but unlike then, our Congress is now confronted with a variety of obstacles. They have the daunting task of balancing the needs of a still fragile economy, an entitlement system in need of an overhaul and an estimated cost of $2.84 trillion over 10 years to extend all of the Bush era tax cuts. To be prepared for at least some tax increases, we must look at which tax rates and credits will change if no action is taken by Congress and what impact this will have on individuals.
Personal Income Tax Rates jump from the current maximum of 35% to 39.6%
Marriage Penalty is reinstated
Capital Gains tax rates revert to 20% and
dividends are taxed as ordinary income
Alternative Minimum Tax will affect anyone making more than $45,000 (married filing jointly)
Education Sunsets mean that college students will no longer receive large tax credits
Pease Limitation reduces itemized deductions
Additional cuts include Section 179 and bonus depreciation, child tax credits, student loan deductions, credit for dependent care and contribution limits on Coverdell savings accounts
Estate Tax Rates increase from 35% to 55% and exclusion amounts snap back to $1,000,000 from the current $5,000,000.
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About Bo As chair of Elliott Davis’ Dental Practice, Bo helps dentists improve how they manage daily financial and operational challenges. With more than 32 years of public accounting experience, he focuses on tax, audit and consulting services for dental practices and construction clients.
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