The expiration of Bush-era tax cuts. A patch to the alternative minimum tax. An increase in capital gains taxes.
As the "fiscal cliff" approaches, all of these are possible, but none certain. That uncertainty solicits many questions from anxious taxpayers. But, for accountants and financial planners, there are a few definitive answers.
Financial professionals who spoke with NPR say they are not strangers to uncertainty. When the Bush tax cuts were up for expiration two years ago, for instance, the feeling was similar.
"Every time there's a significant change in tax law, you have to retool and learn things," says Mark Burger, a CPA in Palm Beach Gardens, Fla.
But the fiscal cliff, with its host of associated changes, presents a challenge unlike anything the pros have dealt with in the past.
"The difference this year is the volume and the unprecedented amount of issues coming at the same time," says Ed Karl, vice president of taxation of the American Institute of Certified Public Accountants.
Clients, they say, crave certainty. Although they can't provide that, professionals say, they can be honest about what they don't know, and help their clients prepare for possible futures.
"Our job is to make clients aware of these issues and be in a position to act when these rules become final," says Daniel Joss, a financial planner in Reston, Va.
One thing they can do, Karl says, is to work with clients on scenario planning.
"In other words, 'Let's talk about your situation. If this happens or doesn't happen politically, then we should do this, or I recommend you do this.' So when you get to [Dec. 21 or Dec. 22], which is when we're guessing there will be a clearer picture of what might happen, you'll be in a better position to make decisions from a planning perspective," Karl says.
For one, clients wonder whether they should they sell their assets before year end in anticipation of possible capital gains tax increases in 2013.
"It doesn't make sense if you weren't at all thinking of selling stocks or assets," Karl says. "But if you were thinking about selling it now or within the next couple of months you clearly need to do some serious thinking about accelerating the sale of that business or particular assets into this year."
Of course, accountants can't say for sure that the taxes will go up. But they might. So consider it, they say.
Uncertainty about tax rates, meanwhile, has effectively caused accountants to turn some traditional advice on its head.
"Normally at the end of the year you're thinking of deferring income to the next year and accelerating expenses into the current year. This year you're probably looking at the reverse of taking income earlier into this year where the rates and the preferential rates are almost certain to change next year," Karl says.
But not everything is up in the air.
After Jan. 1, for instance, the record-high exemption for estates and gifts is expected to drop to $1 million from $5.12 million. For people with lots of money to give, it may be time to make that transaction.
The Associated Press reports that financial advisers and trust and estate attorneys have been "flooded" with requests from those who wish to make financial gifts and create trusts. Joss, the financial planner, says he has handled such requests.
"We're saying to our wealthier clients, 'If you're planning to give more than a million dollars away to the next generation, you may want to do that this year instead of waiting to see what may happen next year. Not everyone can afford to give gifts, but with the top 1 percent, they'd much rather give this year when they're allowed to give more than next year," Joss says.
He says he's also helping clients avoid the 3.8 percent tax increase associated with the Affordable Care Act, also known as Obamacare, that takes effect in 2013. The increase will apply to investment income for single taxpayers with adjusted gross income above $200,000 or jointly filing married couples making more than $250,000. Taxpayers can avoid the tax by realizing taxable gains before the end of the year.
There's a similar sense of urgency for big charitable contributions, The Wall Street Journal reports. Fears of a threat to the charitable deduction have caused wealthy taxpayers to scramble to make donations before the end of the year.
But taxpayers aren't the only ones holding their breath. The IRS is already bracing itself for the worst.
In a letter to members of Congress, IRS Acting Commissioner Steven T. Miller said that the Internal Revenue Service annually conducts planning during the summer to prepare for the upcoming filing season, but that planning this year has been "particularly challenging" due to unresolved tax issues.
"When Congress takes action well after this planning process is under way, there is potential for substantial disruption to the filing season ahead," Miller wrote.
Expiration of the alternative minimum tax patch, for instance, would require systems changes that would require a significant amount of time. This could delay tax filing until March, and in turn, delay refunds.