What kind of tax debt will I be liable for over the next five years? The question is not easily answered right now as the spending debate in Congress rages on. Another attempt at a solution was recently proposed when President Barack Obama submitted his plan for a budget. The plan included a mix of tax hikes, planned revenue growth and some cuts.
While the plan is clear in some aspects such as the 94-cent increase in the tax on cigarettes, others are not so clear such as where the financing would come from for the tax rate cuts that were proposed. Although an educated guess can be made as to how both sides of Congress will likely respond, it does little to clarify the future tax picture.
On top of the cigarette tax increase are other tax increases that would amount to approximately $400 billion. The proposed tax cuts would apply to Medicaid and Social Security as well as a decrease in corporate tax rates. Looking at the numbers, the proposed $100 billion fund would lower this rate from 35 to 34 percent, although President Obama said his plan is to decrease it to 28 percent.
How do we plan for an unpredictable future? For many of us, even small tax changes alter our financial picture. Paying taxes during the year involves a lot of guesswork for the average taxpayer. Many earn money under a W-4, but the guesswork comes in when they must decide how many allowances should be taken during the year so that their tax return is neither too big nor too small. A large end-of-season tax liability is not something that the average tax payer can easily cover.
A tax attorney is someone who not only understands the complexity of the ever-changing tax law, but can take the frightening guesswork out of the equation for the taxpayer. If the end of the tax season does close with a burdensome tax liability, a tax attorney can go back and make sure that everything was filed correctly and advocate for the taxpayer in any type of tax litigation, including an audit.
Source: CBS, “Obama Proposes Additional 94-Cent Federal Tax Increase On Cigarettes,” April 11, 2013