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By KATHIE BASSETT
ALTON - Whether Congress can reach a compromise to avoid the "fiscal cliff" could have a significant impact on the average taxpayer by triggering tax consequences most have been exempt from paying.
"Taxes will go up for most people, and to an extent, they will go up for everybody," said Mike Fitzgerald, CPA, with Scheffel and Company in Alton. "When the Bush-era tax cuts sunset in the next couple of days, the 10 percent bracket disappears and everybody starts at 15 percent beginning in 2013."
Embedded in the fiscal cliff morass is Congress' failure to pass an annual "patch" of the alternative minimum tax (AMT), which was enacted in the 1960s to make sure the wealthiest could not avoid taxes by accumulating too many deductions and credits.
"In Illinois, people will already be paying more in state income taxes, going from 3 percent in 2010 to 5 percent in 2011," Fitzgerald said. "People keep thinking that they can take an itemized deduction for this, but under AMT they get no deduction for taxes - either income taxes or real estate taxes. This means more and more people will be subject to AMT."
If a deal isn't reached, the average tax increase for affected households would total approximately $3,700 for 2012, according to the Tax Policy Center.
A flat rate of 26 percent would be applied to the first $175,000 under the alternative minimum tax calculation, with income above that level subject to a 28 percent flat rate, Fitzgerald said.
In 2011, only 1.3 percent of households earning between $50,000 and $75,000 paid alternative minimum tax; in 2012, the percentage in this bracket is expected to jump to 12.3 percent, with higher income levels being even more affected.
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