WASHINGTON — Millions of families and businesses will get hit by big tax increases a lot sooner than many realize if Congress and the White House don't agree on a plan to skirt the year-end fiscal cliff of higher tax rates and big government spending cuts.
In fact, they already have.
More than 70 tax breaks enjoyed by individuals and businesses expired at the end of 2011. If Congress doesn't extend them retroactively back to the beginning of this year, a typical middle-class family could face a $4,000 tax increase when it files its 2012 return in the spring, according to an analysis by H&R Block, the tax preparing giant.
At the same time, businesses could lose dozens of tax breaks they have enjoyed for years, including generous credits for investing in research and development, write-offs for restaurants and retail stores that expand or upgrade, and tax breaks for financial companies with overseas subsidiaries.
Even if Congress does act, last-minute changes to federal tax laws could make it difficult for taxpayers to figure out their 2012 tax bills.
We're really expecting this upcoming tax season to be one of the more challenging ones on record, said Kathy Pickering, executive director of The Tax Institute at H&R Block. For your 2012 returns there's so much confusion about what will be impacted.
Obama wants to let the Bush-era tax cuts expire on incomes above $200,000 for individuals and $250,000 for married couples, while extending the tax cuts for people making less.
House Speaker John Boehner and other Republicans have said they are open to more tax revenue through reducing or eliminating unspecified tax breaks. But Boehner, R-Ohio, opposes Obama's proposal to increase tax rates on high earners.
Lost in the debate is a big package of tax breaks that already expired for 2012. Lawmakers in both parties say they expect those tax cuts to be addressed in any deal to avoid the fiscal cliff. But they don't want to deal with them separately because that would reduce pressure to reach a broader budget agreement.
The biggest tax increase facing individuals for this year is the alternative minimum tax, or AMT. The tax was first enacted in 1969 to ensure that wealthy people can't use tax breaks to avoid paying any federal taxes. The AMT, however, was never adjusted for inflation, so Congress routinely does that to keep it from imposing hefty tax increases on millions of middle-income families.