Tuesday Tax Tips 3/5/13

Well the sky is not falling in.  The "Sequestration" is 2.6% of overall federal budget; it's not 50%, so it's not the end of the world.    The effects of the "Sequestration" will take 30 days or longer before any big effects. The term "Sequestration" refers to a series of automatic, across-the-board spending cuts to federal government agencies that are scheduled to take place in fiscal years 2013 through 2021.  After all the federal government is 16 Trillion dollars ($16,000,000,000.00) in debt so a few spending cuts is health and perhaps a few small tax increase is necessary.
How did sequestration come into being?  Sequestration was created from the August 2011 standoff over the U.S. debt ceiling. In conjunction with agreeing to raise the debt ceiling (which allowed the U.S. Treasury to pay its monetary obligations and avoid a default), Congress imposed approximately $2 trillion worth of spending cuts--$1 trillion that was spelled out in the debt ceiling bill (the Budget Control Act of 2011) and another approximately $1 trillion that would be implemented through sequestration--a broad, across-the-board series of default spending cuts that would take effect beginning in 2013. 

The idea was that sequestration would be a measure of last resort, and that Congress could act to replace the sequestration cuts with an equal amount of alternate spending reductions. Indeed, the Budget Control Act of 2011 created a deficit reduction "super committee" that was charged with reaching consensus on additional budget cuts that would avoid sequestration. The super committee failed, paving the way for sequestration to take effect.

What's going to be cut?  The automatic cuts are effective March 1, 2013. From 2013 through 2021, sequestration is split between defense and domestic programs. The lion's share of the cuts comes from the Defense Department and other national security agencies. The remaining cuts will affect a variety of domestic programs, including education, public safety, energy, national parks, food inspections, housing aid, transportation, and law enforcement.

Social Security, Medicaid, and Medicare benefits are exempt from sequestration. Although cuts to Medicare provider payments are on the table, they can't exceed 2% of current payments.

You may have heard a great deal about what's going to happen as a result of the sequester and much of it has been alarming. It's important to understand, though, that the government will not be shutting down. In fact, while it's hard to know exactly how things will play out as the cuts are implemented; most individuals are probably not going to notice a significant, immediate effect.

Wait, it's Tax Season - when will I get my refund?  Over 70% of IRS budget is personnel so the anticipated effects are expected to be
    IRS Customer Service - people calling 1-800-829-1040 will probably have very long wait times or find no help at all.  Last year more than 115 million people called the IRS for help; only 68% actually spoke to IRS representative after holding for average of 17 minutes.
    28 Million American who still paper file their tax return will probably have to wait several weeks longer in getting their refund.
    "Where is my Refund" will likely see significant delays.
    IRS received more than 10 million written correspondences last year; a high percentage of these will go unanswered.
    SPECIAL NOTE:  Audits will continue to ramp us as this is high priority within Congress and IRS

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