The U.S. Presidential Election is heating up and more and more people talk about an impending fiscal cliff. Some even call it “Taxmageddon”. What is the impending fiscal cliff? Ten years ago, President George W. Bush initiated a tax cut that reduced personal tax as well as corporate taxes. The fiscal cliff somewhat loosely refers to the expiration of those tax cuts in 2013 as well as tax rates hikes, bracket adjustments, new taxes, and mandatory cuts to programs that will go into effect in 2013 if the Congress is unable to reach an agreement before the end of 2012. The expiration of many of these current programs could push the country into a recession is called the impending fiscal cliff.
If the Congress is unable to reach an agreement, the Government will be unable to borrow money to pay for programs. The current budget deficit stands at $1 trillion. Some of the tax cuts including lower tax rates charged for dividends will expire at the end of the year causing people to rethink about their investments as well as property sales, retirement contributions, estate planning and host of other decisions. The tax brackets adjustment alone could cost an average family an additional $1,550 in taxes.