George S. McGovern, R.I.P.
Kiddie tax, gifts and other tax-related items do get 2013 inflation adjustments

Income tax tables and much, much more missing from annual IRS inflation update

Every fall the Internal Revenue Service announces the upcoming inflation-based adjustments to tax provisions millions of taxpayers use.

Not this year.

Oh, the IRS did issue its annual revenue procedure -- Rev. Proc. 2012-41 -- last week, setting forth inflation-adjusted items for 2013.

But there's a big hole in this year's announcement.

Section 2 usually notes some key changes for the coming tax year. This year, however, the IRS takes advantage of the section to tell us what isn't in Rev. Proc. 2012-41.

This revenue procedure does not include the following items: the tax rate tables under §1 of the Internal Revenue Code (Code), the adoption credit under §23, the child tax credit under §24, the Hope Scholarship and Lifetime Learning Credits under §25A, the earned income credit under §32, the standard deduction under §63, the overall limitation on itemized deductions under §68, the qualified transportation fringe benefit under §132(f), the adoption assistance exclusion under §137, the personal exemption under §151, the election to expense certain depreciable assets under §179, the interest on education loans under §221, and the unified credit against estate tax for estates of decedents under §2010(c). Those items will be addressed in future guidance.

Section 2 of 2013 IRS inflation adjustments_what is not includedThe special Section 2 statement earns that number the distinction of being this week's By the Numbers figure.

And why will the noted tax laws and any changes be addressed in future guidance?

Because we are still waiting on Congress to deal with expiring tax provisions.

The decisions that Representatives and Senators eventually make, agreed upon by whichever man will be in the White House, will determine just what makes it into future IRS guidance announcements.

As the IRS notes in its announcement of partial adjustments, we are waiting to see, among other things, whether:

  • 2013 individual tax rates will return to the level they were before the Bush-era tax cuts (no 10 percent bracket and a top rate of 39.6 percent),
  • itemized deductions will again be phased out based on taxpayer adjusted gross income,
  • the child tax credit will be cut from the current $1,000 to $500,
  • the Hope Scholarship education tax credit that maxes out at $1,800 will return in the place of the partially refundable $2,500 via the expiring American Opportunity tax credit,
  • adoption tax breaks will be reduced,
  • the enhancements that expanded the Earned Income Tax Credit (EITC) will disappear,
  • less student loan interest will be deductible,
  • business owners will be able to expense the same amount of assets under Section 179, and
  • more estates will be subject to a higher tax rate.

Sadly, such negligence in taking care of expiring tax laws is situation normal, all fouled up on Capitol Hill.

Late legislative action has meant delays in tax return processing for years.

And in 2010 as we were facing the original expiration of the Bush tax cuts, the IRS commissioner himself chastised Congress for doing a sloppy job.

Let me suggest that you do more than just criticize and complain. Remember all this undone tax work as you head out in a couple of weeks to vote for who stays or goes in Washington, D.C.

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