Many Americans are concerned about the potential tax changes that may take place by the end of the year. While lawmakers have yet to make concrete changes to current rules, several proposed alterations have made many taxpayers question how these changes would impact them. Therefore, those who are considering year-end tax planning strategies may benefit from understanding the types of proposals that are being considered and how they may impact them.
For example, many parents rely on the Child Tax Credit to help manage the expenses associated with raising a family. Beginning in 2013, the maximum credit for each eligible child is expected to drop from the existing $1,000 to $500. Changes may also be made to the Earned Income Credit, which millions of families in the lowest income brackets rely on to lower their tax liability. In previous years, lawmakers enacted legislation that increased the credit for families with three or more qualifying children and allowed married joint-filing couples to earn more without having their credits reduced. However, these changes are set to expire at the end of the year if Congress does not choose to extend them.
Potential changes to education and student loan allowances
Millions of families rely on deductions and credits to manage the rising costs of education expenses. Currently, student loan debt tops $1 trillion dollars, and many schools have been forced to raise tuition rates due to lost endowments and donors. However, potential changes to these benefits may affect how much households can save on qualified education expenses.
For example, the current student loan interest deduction enables families to write off as much as $2,500 in interest payments. In 2013, however, there may be a 60-month limit on deductible interest, and phase-out provisions may be tightened to a level that may eliminate the deduction for many families, according to MarketWatch.
Those who rely on Coverdell Education Savings Accounts to help families save for college costs may also see a stark reduction in the amount they can devote to these accounts annually. The current maximum contribution amount to the federal-income tax-free accounts is $2,000, but this may fall to $500 if proposals are approved, the news source explains.
Proposed end-of-year tax changes have made it difficult for many families to plan ahead. While no person can clear up the uncertainty until Congress acts, it may be helpful for families to consult a tax preparer
to help them determine which year-end strategies to adopt for their circumstances.
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