Welcome to the latest edition of “Our Laws_Your Life”. Have you detected more than a whiff of hysteria in the air, due to the level of noise in the media about the potential consequences of the ‘fiscal clift’? It’s difficult to separate the wheat from the chaff. Certainly part of the problem is that there are many variables involved.
In the blitz of “what-if'” scenarios, we know many of our readers are wondering, when it comes down to the nitty-gritty, how their finances may be impacted by the proposals (or lack of proposals) that Congress agrees upon by the end of 2012.
The Urban-Brookings Tax Policy Center is trying to decrease some of these questions by offering a free tax calculator. It’s a clever tool that helps citizens input their financial and family details and compare hypothetical changes in their tax bills based on four possible fiscal cliff outcomes. Taxpayers can also see ready-made examples to get a sense of the potential effects of the fiscal cliff.
The calculator allows you to select some common household scenarios, for example “Married Under 65, No Children” or “Married age 65 and Over” or “Married One Child in College.” Or customize for your household makeup. And its modeling algorithms include the following possibilities:
- 2012 tax law (with an AMT patch). This is what you’re paying this year, assuming Congress gets around to patching the alternative minimum tax for 2012.
- 2013 tax law. This is what you’ll pay if Congress doesn’t act and we go over the fiscal cliff for all of next year.
- The Senate Democratic plan, which would extend the expiring Bush-era income tax cuts for a year for all except the top 2 percent of taxpayers and extend the credits originally enacted by President Obama in 2009, but allow the temporary payroll tax cut to expire.
- The Senate Republican plan, which would extend the Bush-era income tax cuts for everyone, but would allow the 2009 credits and the temporary payroll tax cut to expire.
Check it out. You may still end up biting your nails as the New Year approaches. But, if your smart, you will use this tool to start thinking about alternative financial planning in the event you need a parachute for a softer landing.
Important note: Per the Institute: “The Tax Calculator estimates the impact of proposed tax policies on typical taxpayers. It is not a tax preparation tool.”