Tax Attic

Jerry Coon
Jerry Coon

Mercifully, Congress wrapped up making changes to the 2012 tax return tax week when they passed the American Taxpayer Relief Act of 2012. Everything seems to be a struggle in Washington. At least, it seems to have been that way for all of my life and before. I’m only 60 but I’m pretty confident in saying the struggles didn’t start the day I was born. For those of you who have seen the movie, “Lincoln”, you watched some pretty epic arguments taking place on the floor of the House of Representatives 150 years ago. The politicians of that day were very adept at insulting one another and calling each other names but, in the end, they were still doing the same thing as the politicians of today; insulting each other and calling each other names. When you have read about the Constitutional Congress meeting in 1787 to create our Constitution, you understand quickly there was a lot of emotion on the floor and the struggle was immense. How immense? Rhode Island refused to even participate in the Constitutional Congress. Of the 55 delegates present, only 39 would sign their name to the final document. 16 or almost 30% of the delegates were so unhappy with either certain provisions included in the Constitution or certain provisions not included in the Constitution that they would not put their name on it. Those must have been profound differences of opinion. Imagine passing on a chance to put your name for all posterity on such an enduring and endearing document as our Constitution. Of course, I am looking at this through the prism of 225 years of history. The United States of America and the Constitution were not sure things back then but time has proven the wisdom of the 39 signers.

By extending a number of provisions that had expired on 12/31/2011, the American Taxpayer Relief Act of 2012 provides continuing tax relief to taxpayers for the 2012 year. Basically, the Bush Tax Cuts were extended permanently for single taxpayers with incomes under $400,000 and joint filers with income under $450,000. The deduction for state and local sales taxes was extended. Taxpayers have the choice of deducting the larger of state and local sales taxes or state and local income taxes. This particularly helps taxpayers in states without an income tax, such as Texas or Florida. The tuition deduction was extended. Taxpayers with children in college will be able to deduct up to $4,000 of qualifying educational expenses. The educator’s classroom expense deduction was extended. Qualifying educators will be able to deduct up to $250 of out-of-pocket classroom expenses as an adjustment to income. The mortgage insurance premium provision was extended. Qualifying mortgage insurance premiums can be deducted as mortgage interest on a taxpayer’s Schedule A, Itemized Deductions. The rule allowing taxpayers age 70 ½ or older to make up to $100,000 of contributions directly to a charity from an Individual Retirement Account has been extended. The ATRA allows taxpayers to make contributions during January, 2013 to be re-characterized, for this purpose, as made on December 31, 2012. ATRA also allows taxpayers who took a distribution during December 2012 to transfer those funds to a charity by February 1, 2013 and receive the favorable tax treatment. The Alternative Minimum Tax was fixed permanently. Without this fix, it is estimated that over 30 million taxpayers would have been affected in 2012 by the AMT. In the full 157 pages of the ATRA, there are scores of other minor provisions that were extended for a variety of years.

However, even taking into account all of the tax breaks and cuts that were extended, the fact is that 77% of all Americans will pay more tax in 2013 because of one action not taken by the ATRA. The ATRA did not extend the 2% payroll tax holiday that all wage earners enjoyed in 2011 and 2012. As of January 1, 2013, all wage earners will have an additional 2% of payroll tax withheld on wages and all self-employed taxpayers will owe an additional 2% of self-employment tax on their net business profit. For taxpayers earning $50,000, they will have an additional $1,000 or $19.23 per week withheld from their paychecks in 2013. For taxpayers earning $75,000, their net pay will decrease by $1,500 or $28.85 per week and taxpayers earning $100,000 will see a decrease of $2,000 or $38.46 per week. I’m certainly hoping that the price of fuel doesn’t keep climbing or we could be getting a double whammy this year.

Since that money is entirely allocated to the Social Security system, it doesn’t affect the budget figures that Congress put together other than this key point. In 2011 and 2012, we were given the 2% tax break but Congress had enacted a provision that kept the Social Security system whole. That means Congress was running up debt to cover the 2%. I’m not sure how much that total amounted to but it had to be substantial. In 2013, Congress doesn’t have to cover that debt by printing money because we are covering that money ourselves. Eventually, we will have to start paying down the now 16 trillion and growing debt. Contrary to the beliefs of most of those in Washington today, we can’t let it keep growing. The federal government just can’t keep on getting bigger and spending more money; no matter how they are spending it. It does have to stop growing first, though, before we can ever start to work on paying it off. The discussion of not running a deficit, when it gets to the serious discussion stage, will result in some real name calling. We will have to see who the next George Washington, next Thomas Jefferson, next James Madison, next Benjamin Franklin, or even relatively unknown Constitution signers such as Jared Ingersoll of Pennsylvania or William Few of Georgia turn out to be. We need a few great ones like Washington, Jefferson, Franklin and Madison to step forward but we also need lots of regular guys and gals like Ingersoll and Few. There have to be followers as well as leaders. The leaders we have right now apparently are not overly concerned about debt. Who knows, maybe Rick Snyder has a place in the coming drama. For all of the Lame Duck shenanigans he pulled in Lansing, you have to notice that Michigan has a balanced budget and the economy is getting somewhat better. I’m sure that Mr. Snyder has made some life-long enemies but he has also stopped some of Lansing’s destructive fiscal policies. Who’s up for voting for Mr. Snyder for President?

Reporting on some sad news, my good friend, Roger Allen, passed away last Saturday. Roger did his best to keep writing his weekly column despite the myriad of health problems he had encountered these last few years. I enjoyed reading his column, including his jokes, corny as many of them were, and his home spun advice. Roger was one of a kind and I will miss him. My condolences go out to all of his family. This is Jerry Coon signing off.


Jerry Coon is an Enrolled Agent and

a Registered Tax Return Preparer.

He owns Action Tax Service on

Northland Dr in Rockford.

Contact Jerry through his website:

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