Public debate over federal tax policy has reduced many elements of taxpayer planning to guesswork.
“There probably hasn’t been a time, at least in the last 10 to 15 years, when there has been this much uncertainty” about future federal tax rules, said Mark Margulies, a partner in the Fort Lauderdale office of professional services firm Grant Thornton.
“When you don’t know, for example, what’s going to happen with the Bush tax cuts that sunset at the end of this year, it makes it very difficult to plan for taxes,” said Margulies, whose specialty is corporate tax services. “There certainly is a lot of nervousness that income tax rates and capital gains rates may go up.
In acting on mere speculation about future tax rules, the risk is “that you make the wrong decision, and it ends up costing you additional dollars, or maybe more, maybe a deal. You don’t know,” said Kenneth J. Strauss, director of tax and personal financial planning at the South Florida accounting and advisory firm of Berkowitz Dick Pollack & Brant.
“This happens to be one of the most confusing times to hit this country in my career,” said Strauss, who serves as a vice president of the Florida Institute of Certified Public Accountants. “Unfortunately, we are living in an environment where there is very little predictability.”
The temporary absence of the federal estate tax in particular is causing widespread confusion, said David Appel, a partner at the Miami office of accounting and advisory firm MarcumRachlin.
The estate tax is scheduled to be reinstated next year with an expanded exemption, covering estates valued at $1 million or less. “But Congress is talking about changes that could increase the exemption,” Appel said. “There’s also some talk about some type of retroactive application of the estate tax. So no one knows how those will be played out.”
Appel said dividend income is also in play, citing the possibility that the federal tax rate on dividends “is going up from 15 percent to the maximum ordinary income tax rate, if you’re in the highest bracket. Well, how does someone plan? Do I go ahead and reposition my portfolio?”
He said these and other vagaries are challenging tax experts and amateurs alike: “Sometimes professionals are confused about what is the best advice. I can imagine how taxpayers feel … No one likes uncertainty like that.”