SPRINGFIELD, Mo -- Economic uncertainty is a large, dark cloud looming over Americans as we approach the end of the year. As the stalemate in Washington continues, the pending fiscal cliff could mean trouble for your taxes.
Some experts believe that if a deal isn't reached, expiring tax deductions could burn a hole in your wallet pretty quickly to the tune of $3,500.
There are a handful of these deductions on the line and some tax increases to boot.
The Payroll Tax Holiday has been in place for the past two years. To be fair, it was supposed to be only temporary. All the same, if congress doesn't renew it workers will see a 2% increase in their Social Security withholdings.
"It does affect quite a few people. It's going to affect the average person by about $1200 a year," said Drury University Visiting Professor of Accounting Tiffany Cossey, CPA.
One big deduction that could go away is the Mortgage Interest Deduction. Homeowners who itemize their returns will no longer be able to deduct the interest the interest paid on their mortgages.
"The mortgage interest deduction affects about 70% of taxpayers, and it provides a large benefit to the average person," said Cossey. "Congress currently is probably not going to do away with it entirely, but they don't know what is going to happen."
Another possible a tax increase is looming--the Capital Gains Tax. This isn't just for people that play the stock market. It could seriously affect seniors enjoying the retired life. Retirement accounts are full of stocks and bonds and fall under the capital gains umbrella.
"The current rates are any where from 0-15%. But if the fiscal cliff occurs and those tax rates are not renewed those tax rates would go up to 20-25%," explained Cossey.
Another popular tax credit that could go away is the American Opportunity Tax Credit. This credit gives up to $2,500 for the cost of up to four years of college. If it expires another credit called the Hope Credit will come into play. It gives less money, is tougher to get, and has tighter restrictions.
"If the American Opportunity Credit expires, it will revert to the Hope Credit, and it will only be available for the first two years of education," Cossey said.
There are more ramifications if a deal isn't reached--the Alternative Minimum Tax could kick in, the Child Tax Credit could decrease, and bracket rates could tighten.
