Plunging Head First over the Cliff- Worst Case Scenario:
First of all, let's get the worst case scenario
- 9.1% (or higher) Unemployment rate (btw, did you know that if you're unemployed and have already collected all the benefits allotted for you, that you are no longer "counted" as unemployed in the governments statistics)- therefor, the unemployment "rate" given by the media and government is a complete farce.
- Low to Middle Income Classes can expect some serious tax increases:
- If your annual income is $20,000-$30,000- your taxes will increase $1,064 (avg increase)
- If your annual income is $40,000-$50,000- your taxes will increase $1,729 (avg increase)
- If your annual income of $50,000 to $75,000- your taxes will increase (avg increase)
- In addition to the Above Tax Hikes, there is a little devil knows as the "Alternative Minimum Tax" - which is essentially a flat tax (created in 1969) that ensures that "wealthier" tax payers pay a minimum (Federal) income tax regardless of their deductions, credits or exemptions. If you think this one only affects "Rich people", think again, this lovely tax will nail 31 Million taxpayers and extend well into the middle class. The average increase in federal taxes is expected to be $4,200
- Massive Cuts to Government Spending- about 1.2 Trillion Dollars worth, to be exact. This will include cuts in Public health programs, Schools/Education, homeland security, etc
- Lifetime Exemption for Gift/ Estate Taxes Increase- thinking of leaving your home to your children when you pass? This tax Increases the tax rate from it's current 35% to a whopping 55%- yes, that means you have to pay 55% tax on items that were GIFTED to you from your family members at their passing.
- Current Tax Deductions are reduced or cancelled completely including:
- Child Tax Credit
- Qualified Mortgage Insurance Premiums
- State/Local Sales Taxes
- Energy Credits
- Medical Expense Deductions
- WIC (Women Infant & Children Supplemental Program) loses approximately $543 Million
- CDC (Centers for Disease Control & Prevention) takes a $464 Million cut
Now that we have a basic rundown of what this Fiscal Cliff means to our families, here are a few things that would still be available/ unchanged:
- Social Security and Supplemental Security Income
- Refundable Tax Credits
- Food Stamp Benefits
- Veterans Benefits
- Military Personnel- there are discussions that military personnel will be exempt from the cuts
5 Ways to Make it off the Cliff Safely:
Quite frankly, we really have no choice whether or not we go over the cliff, all we can do is prepare ourselves and our families for the increasing expenses . . . so with that in mind, RELAX- getting freaked out or stressed over something that you cannot change is not going to help you or your family.
- Prepay for any Taxable Expenses- and keep your Receipts!
- Make an Extra Interest-Only Payment on your Mortgage before Jan 1st- it's still tax deductible this year and if you have the ability to pay an interest only payment, you'll reduce your mortgage and have a better write off, win-win
- Seniors who have Medicare Claims Denied- appeal it. You have the right to appeal up to 3 times and your odds of winning get better with each appeal.
- Maximize your 401K or IRA, try to lock in any extra that you have available
- Curb your Spending- reduce your current expenses by:
- Consolidating services, canceling those you don't actually need (such as satellite movie or sports packages)
- Reducing your grocery & household expenses- make your own convenience foods
- finding alternative family entertainment/fun & crafts - dump the gym membership and work out at home
As the first of the year gets closer and the fiscal cliff remains unresolved, what are your thoughts and main concerns?
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