5 Tax Trends That Could Cost You in 2012
Are changes afoot for future implementations of the estate tax? CCH cites expert speculation that the current $5 exclusion will be lowered to $3.5 million and the top rate will rise to 45%.
Will deficit reduction talks -- including the stalled response to the budget-cutting "Super Committee" -- lead to increased revenue plays, a major point of division among Democrats and Republicans?
No one really knows, and we'll all have to wait until November's elections are in the history books to get a clear read.
An impact of all that uncertainty is that numerous tax strategies will be difficult to commit to in 2012. Income shifting in its many forms (deferred compensation, delaying year-end billings, maximizing retirement contributions, etc.) will be a gamble given that no one knows -- or will know until late in the year -- how taxes will rise or fall in 2013.
Big Brother is watching
Businesses and individuals alike should be prepared for increased scrutiny by the IRS in 2012 as the federal government, as well as states, look to increase collections as a means to bolster revenue.
A survey of 890 corporate tax executives released in November by KPMG, an audit, tax and advisory firm, found that nearly two-thirds (61%) of respondents said federal tax dispute activity had increased in the past 12 months, while more than one-third (37%) said the total number of state tax audits in jurisdictions in which they do business increased.
The majority of respondents expect this to continue. Over the next 12 months, 67% of the respondents said they expect federal tax dispute activity to increase; 53% expect the same on the state level.
"Federal, state and local governments are all taking extra measures to ensure that they are not leaving any corporate tax revenue on the table, as many are facing budget shortfalls," Frank Lavadera, principal-in-charge of KPMG's Tax Dispute Resolution Services Network, said in a statement. "Tax directors, CFOs and corporate boards should keep the increased likelihood of an audit by taxing authorities high on their priority lists, as it presents a significant tax risk. It is clear that taxing authorities are demanding greater transparency and imposing more complex reporting requirements, while the IRS and various states are adding tax audit personnel to increase the number of exams they can conduct."
According to government statistics, IRS enforcement revenue increased by 18%, to $57.6 billion, and corporate examinations increased by 5% in fiscal year 2010.