Taxpayers face uncertainty heading into 2013

U.S. taxpayers are facing a lot of uncertainty as the New Year begins, so 7 On Your Side wanted to help clear up the confusion.

December 26, 2012 12:00:00 AM PST
Taxpayers are facing a lot of uncertainty as we head into the New Year with the government right on the edge of a fiscal cliff. And for many of us, the usual year-end financial strategies may not apply this year. 7 On Your Side wants to help sort out some of the confusion.

Adding to the confusion is the unknown fate of two popular tax deductions for the middle class -- the deductions for charitable contributions and home mortgages.

When it comes to year end finances, the old rules may just not add up this year.

"It's very difficult to do any type of tax planning and advising because nobody really knows exactly what's going to happen," said CPA Mark Brittain from Lindquist, Von Husen & Joyce.

Much of the uncertainty centers around whether the United States will fall off the fiscal cliff. If that happens, that would mean the end of the temporary payroll tax cuts. Even if that doesn't happen, most believe taxes will go up next year.

"One of the things that is being floated right now is people are advising people to get out of dividend payment funds, high dividend yield funds and move more into tax exempt bonds and things like that that won't be taxed," said Brittain.

The current budget negotiations between President Obama and House Speaker John Boehner, R-Ohio, also could mean the reduction of the popular deduction for charitable contributions.

"If it came to that point to where I wasn't receiving my credit for helping out a charity or even helping them out in their situation, then why would I even help them out," said Brian Smith, a Folsom resident.

It's statements like that that has the chief executive officer of the United Way of the Bay Area and other non-profits fighting to retain charitable deductions.

"It would be a very big mistake to think that this is only a benefit for high income people. There are many, many donors who itemize their taxes and they take advantage of the charitable tax deduction and these include very middle income people," said Anne Wilson from the United Way.

Also on the table is the possible elimination of the mortgage deduction.

"If that were to happen eventually, I think it would have to be phased out over a really long period of time," said Karen Smith, a San Francisco resident.

"I think it encourages people to buy houses versus rent it. If they will lower the mortgage rate deductions, then people would think twice," said Nora Weiss, a Sunnyvale resident.

Whatever happens, Brittain thinks it is a good time to refinance if you still have 15 to 20 years left on your mortgage.

"An interest rate drop could make a significant difference in the total amount that you pay over the length of that mortgage," said Brittain.

A lot of the uncertainty could be cleared up soon. Obama and Boehner are resuming talks on Thursday.

Even Starbucks is trying to bring the sides together. The coffee giant is asking its baristas in Washington D.C. to write the words "come together" on all the cups.