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Planning on a Tax Refund Next Year? Good Luck
Most financial experts advise that year-end is a good time to do a little tax planning by estimating how big a bite Uncle Sam is going to take next April 15.
This year, about the only advice they can give is: "Good luck with that."
With Congress and the White House locked in the final throes of an epic, two-year budget battle, estimating your taxes this year is roughly equivalent to playing golf at night under a new moon.
Not only are Democrats and Republicans playing chicken with the Jan.1 deadline to avoid the so-called "fiscal cliff," the terms of their conflicting proposals are shifting as the debate drags on.
That means the tax code's dozens of exemptions, deductions and exclusions - each of which hits millions of taxpayers in different ways - have created a geometric level of complexity to a process that already flummoxes the vast majority of Americans.
The biggest land mine looming at the bottom of the fiscal cliff is the so-called Alternative Minimum Tax, originally designed to minimize deductions for the wealthiest taxpayers. Because Congress forgot to include a provision that raised the dollar definition of "wealthy" over time, the AMT is on course to rip a new financial hole through some 28 million tax returns for the first time this year.
"That would come as a big shock to some people because it's not reflected in their 2012 withholding at all," said Tax Foundation analyst Nick Kasprak. "So if you expect a $2,000 refund, suddenly you'll owe $3,000 if you haven't paid the AMT before."
The rest of the tax increases now being haggled over would apply to 2013 income, which will be reported on your return in April 2014, and due then. But some provisions, like the possible increase in payroll taxes, would hit in January as those payments are deducted from your paycheck.
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