The rich may not be out of the woods on higher taxes. The "fiscal cliff" deal passed this year raised taxes on incomes above $400,000 per year ($450,000 per year for married filing jointly) and increased taxes on investment income, but as a new round of budget negotiations on deficit reductions begins, Congress may call upon the rich again for additional revenue.
Republicans believe any reductions in the deficit should come from spending cuts, while Democrats are considering higher taxes and fewer deductions. Up for discussion are eliminating or capping tax deductions that Democrats say are unfairly skewed toward the rich. Suggestions include eliminating the deduction for vacation homes and yachts and capping charitable deductions at 28 percent. Currently, you can donate up to half of your adjusted gross income and take a deduction.
Other possible reforms that would affect the rich include closing loopholes in the estate and gift tax and lengthening the term of a grantor retained annuity trust, or GRAT, in which the wealthy often place assets they expect to appreciate. When properly set up, a GRAT allows all appreciation to go to heirs tax-free. Some GRATs allow a term of as little as two years.
Though the rich may be end up losing some deductions or paying more in taxes, businesses could be in for tax reform as well. Congress is considering closing international loopholes for moving jobs overseas, eliminating tax deductions for meals and entertainment and eliminating corporate jet tax deduction loopholes.
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