AS THE new year begins, the gloom is so thick in some quarters that one of these days some administration official will surely propose taxing it. Still, all the news isn't bad. Here and there an economic indicator is pointing upward, and if you've got enough money to have to pay income tax, the Treasury has some new favors in store for you.
Income tax rates will drop again, on average about 9 percent. So will estate and gift taxes. In case you've been wondering, it will now be possible for that rich aunt--the one who has always been so fond of you and your family--to plan gifts and bequests for you totaling as much as $275,000 without having to pay taxes on it.
If you happen to own a business that's thinking of buying some new equipment this year, this will not only make you a standout among most businesses that have been slashing investment; it will also entitle you to a larger tax break than you would have gotten last year. And if you're still in the oil business, you may find your tax load lighter.
These new tax cuts may come as a surprise to you after all that ballyhoo last summer about Congress' passing a $100 billion tax increase. What you've probably forgotten is that--except for a few "nuisance" taxes and limitations on casualty and medical deductions--the 1982 tax act didn't actually raise taxes at all. All it did was scale back a very small part of the far larger reductions that the massive 1981 tax cut put into place. These tax reductions will continue to phase in over the next few years, albeit in slightly reduced form.
The 1982 tax measure did make some changes that you'll want to keep in mind. If you have a habit of forgetting to report all that income you get from interest, dividends, capital gains or tips, you'd better sharpen up your memory a bit. The IRS will have new ways of checking on who got what. It will also be requiring banks, brokers and savings institutions to withhold a part of taxes owed on interest and dividends.
If you've been dabbling in abusive tax shelters, you may find yourself facing some stiff penalties. If you've been piling up the tax dodges, you may find yourself facing a newly stiffened minimum tax. Oh, and don't play games with the IRS--there is now a $500 penalty for filing a "frivolous return."
For most people and businesses, however, the new year will mean a drop in income tax liabilities. Everyone's hoping that this round of tax cuts will do a whole lot more for the economy than the last two rounds did--at the very least you might expect business investment to go up rather than drop like a rock as it did last year. But whether the tax cuts "work" this year or not, it's important to remember that further tax cuts are still scheduled by law in the following years. With enormous deficits looming in the future, it's not too late to decide whether it makes sense to keep them in place.