Aa
Good luck estimating your new tax rate!
FORTUNE -- The legislation that edged our country away from the alleged "fiscal cliff" isn't named properly. Instead of calling it the American Taxpayer Relief Act of 2012, Congress should have called it the Accountant Full Employment Act of 2012. That's because the legislation, which supposedly doesn't increase taxes for anyone other than "the rich" with adjusted gross incomes of $400,000 for a single filer and $450,000 for a married couple, made an already incomprehensible tax system even more incomprehensible.
Then again, there's the bright side—at least for some people: accountants. They're in the one industry that needs lobbyists a lot less than other industries do, because they can just stand by and watch Congress and the President screw up the tax code year after year.
"If the tax system were simple, I wouldn't have a job," quips Roberton Williams, the Sol Price fellow at the Tax Policy Center.
Neither would someone considerably less famous: Carl Schwartz, senior tax partner at Rosenberg Rich Baker Berman & Co. of Maplewood, N.J. Schwartz, my long-time accountant, has shown me over the years that without expert help, I have absolutely no idea how much I pay in taxes on each extra dollar of income that I make.
Theoreticians say this "marginal tax rate" drives taxpayer behavior. But good luck in figuring it out yourself, even with online tax calculators.
If you consult the tax tables, my wife and I, whose income falls between the $250,000 that President Obama says makes us rich and the $450,000 level in the new legislation, pay the IRS 33 cents of each additional dollar of "earned income" that we make, and 20 cents for each added dollar of long-term capital gains and qualified dividends.
But if you consult Carl Schwartz, who used my 2011 income numbers to estimate this year's taxes, our marginal rate is considerably higher. And really difficult to calculate.
Schwartz says my wife and I are in something called the "phaseout" bracket of the alternative minimum tax. Rather than paying our 33% stated rate or the 28% stated AMT rate, our marginal rate is actually 35%.
Because of the long-standing Medicare tax of 1.45% on employees' earned income and another 0.9% added this year because I'm a high earner and someone has to pay for Obamacare, my marginal rate is 37.35%.
If I got a raise of $150,000 or so—boss, are you listening?—my marginal tax rate on earned income would drop. I think. And my marginal rate on investment income would certainly drop sharply.
My rate on dividends and long-term capital gains this year isn't the stated 20% maximum. It's 27%, thanks to the AMT phaseout. Like other high-income types and outright rich types, I'll also fork over an additional 3.8% on some of my investment income (or maybe all of it) to help pay for Obamacare.
I'm far from alone in having to deal with the incomprehensible (to non-accountants) impact of the AMT phaseout bracket. According to Bob Williams of the Tax Policy Center, married couples with alternative minimum taxable income (whatever on earth that is) of between $150,000 and $473,200 are affected this year. He doesn't know how many of those couples there are. But I think it's fair to say that it's a good part of the middle- and upper middle classes.
The one good thing is that because I pay AMT, I'm not affected by the provision in the cliff avoidance legislation that reduces the value of personal exemptions and itemized deductions.
I'm not complaining about the amount of tax I pay. What bothers me is the convoluted way it's calculated and collected. Raise my stated rate and make things simple, please don't torture me.
Too bad we can't hire Apple to redesign the tax code. It would be high-priced and might break after two or three years, but it would sure be pretty while it lasted. And average people would be able to understand it without having to get Bob Roberton or Carl Schwartz to help them out.
SOURCE: http://finance.fortune.cnn.com/2013/01/07/fiscal-cliff-taxes-2/?hpt=po_c2
Then again, there's the bright side—at least for some people: accountants. They're in the one industry that needs lobbyists a lot less than other industries do, because they can just stand by and watch Congress and the President screw up the tax code year after year.
"If the tax system were simple, I wouldn't have a job," quips Roberton Williams, the Sol Price fellow at the Tax Policy Center.
Neither would someone considerably less famous: Carl Schwartz, senior tax partner at Rosenberg Rich Baker Berman & Co. of Maplewood, N.J. Schwartz, my long-time accountant, has shown me over the years that without expert help, I have absolutely no idea how much I pay in taxes on each extra dollar of income that I make.
Theoreticians say this "marginal tax rate" drives taxpayer behavior. But good luck in figuring it out yourself, even with online tax calculators.
If you consult the tax tables, my wife and I, whose income falls between the $250,000 that President Obama says makes us rich and the $450,000 level in the new legislation, pay the IRS 33 cents of each additional dollar of "earned income" that we make, and 20 cents for each added dollar of long-term capital gains and qualified dividends.
But if you consult Carl Schwartz, who used my 2011 income numbers to estimate this year's taxes, our marginal rate is considerably higher. And really difficult to calculate.
Schwartz says my wife and I are in something called the "phaseout" bracket of the alternative minimum tax. Rather than paying our 33% stated rate or the 28% stated AMT rate, our marginal rate is actually 35%.
Because of the long-standing Medicare tax of 1.45% on employees' earned income and another 0.9% added this year because I'm a high earner and someone has to pay for Obamacare, my marginal rate is 37.35%.
If I got a raise of $150,000 or so—boss, are you listening?—my marginal tax rate on earned income would drop. I think. And my marginal rate on investment income would certainly drop sharply.
My rate on dividends and long-term capital gains this year isn't the stated 20% maximum. It's 27%, thanks to the AMT phaseout. Like other high-income types and outright rich types, I'll also fork over an additional 3.8% on some of my investment income (or maybe all of it) to help pay for Obamacare.
I'm far from alone in having to deal with the incomprehensible (to non-accountants) impact of the AMT phaseout bracket. According to Bob Williams of the Tax Policy Center, married couples with alternative minimum taxable income (whatever on earth that is) of between $150,000 and $473,200 are affected this year. He doesn't know how many of those couples there are. But I think it's fair to say that it's a good part of the middle- and upper middle classes.
The one good thing is that because I pay AMT, I'm not affected by the provision in the cliff avoidance legislation that reduces the value of personal exemptions and itemized deductions.
I'm not complaining about the amount of tax I pay. What bothers me is the convoluted way it's calculated and collected. Raise my stated rate and make things simple, please don't torture me.
Too bad we can't hire Apple to redesign the tax code. It would be high-priced and might break after two or three years, but it would sure be pretty while it lasted. And average people would be able to understand it without having to get Bob Roberton or Carl Schwartz to help them out.
SOURCE: http://finance.fortune.cnn.com/2013/01/07/fiscal-cliff-taxes-2/?hpt=po_c2
Well, we had an accountant that made mistakes on our taxes two years in a row and it took a coupe of years for the mistakes to catch up to us. We had to pay the penalty and it was steep for the accountant's mistake. Still makes me mad as heck, I can screw up my taxes on my own . . . I pay someone to ensure that doesn't happen. grrrr
Not sure if it’s true but someone once told me The IRS is where CPAs go that can’t find a job anywhere else.
R, I hear ya. I've thought about trying to do them on my own with Turbo Tax as well, but not sure this year would be wise to try it! LOL.
Hey, if any year you're probably SAFE from an audit, I would imagine it would be this year...as the IRS will be scrambling to figure everything out.
Fingers crossed!
Hey, if any year you're probably SAFE from an audit, I would imagine it would be this year...as the IRS will be scrambling to figure everything out.
Fingers crossed!
I use Turbo Tax. I have a lot of deductions that fall in the "Grey Area". I don't lie on my taxes but some deductions are left up to interpretation
. I figure if I'm audited, I have a case to plea. I am nervous about this year.
. I figure if I'm audited, I have a case to plea. I am nervous about this year.
Aw geez, they're already a nightmare. I think they should hire a PC wizard to at least simplfy the process. UGH. We do bigtime itemizing....so ours are already a PIA!
I wonder how much money they make on the interest owed after mistakes are made . . . enough to fund 'something', I'm sure.
Oh joy... my taxes will be even HARDER to calculate, now.
That said, Not sure I even care very much. That's what I pay my accountant to do. Good luck Pam!!!
Been using the same woman for the past 12 years. Not quite sure how she keeps up with our ever'changing tax-code.
That's why she gets paid the "big bucks" I guess!!!
~LMNO~
That said, Not sure I even care very much. That's what I pay my accountant to do. Good luck Pam!!!
Been using the same woman for the past 12 years. Not quite sure how she keeps up with our ever'changing tax-code.
That's why she gets paid the "big bucks" I guess!!!
~LMNO~
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