By Bob Jennings, via Yahoo! Finance & Fox Business

In a recent tax planning meeting with one of our clients, we shocked them with what their income tax future looked like for 2013 if -- on the off-chance -- Congress continues to do nothing to provide a long-term permanent set of tax laws.

They had no idea what tax breaks were expiring this year and next year, and how much it would cost them personally in extra income tax. But they aren't alone, many Americans and even tax professionals aren't aware that their tax bill could rise dramatically next year.

These clients are your average American family and their situation is a good example of the law changes that will affect all of us. Here's their tax situation with a table summarizing the expiring tax laws that are scheduled to occur in 2011 and 2012.

Meet the Smiths: 26-year-olds Bill and Joan have been married for five years and have two young children. Bill earns about $65,000 a year in sales and Joan has gone back to work and earns about $35,000 annually. Bill owes quite a bit on his college student loans and will pay about $3,000 in interest on them in 2013. With Joan working again, they are paying $3,000 for year-round child care. Joan inherited some AT&T stock from her grandmother, which pays her $1,000 in dividends every year. Finally, counting home mortgage interest, they have about $20,000 in itemized deductions.

The first big change affecting the Smiths will be a combined increase in income tax rates, and a tightening of tax brackets as a result of the expiration of the Bush tax cuts. We estimate this will cost them $960 in 2013.

Bill will lose the complete deduction of his student loan interest in 2013, costing about $840. The pair's allowable deduction for child care will drop to $2,400 from $3,000, and they will also see their credit for children drop in half, costing another $1,000.

The marriage tax penalty will come roaring back to hit the Smiths in 2013, costing an estimated $500. The tax on their dividend income will go increase to $280 from $150, adding another $130. Finally, although we did not calculate the effect, without Congressional action to once again "fix" the alternative minimum tax, the Smiths could owe this ugly tax as well!

Luckily for the Smiths — but not for many Americans — other major changes for 2013, which do not personally affect them, include a phase out of itemized deductions and personal exemptions if their income starts to climb.

In summary, because of tax laws expiring this year and next, we estimate that the Smiths will owe $3,598 more in income tax in 2013 than in 2011 with no change in their income.

Major Individual Income Tax Benefits Expiring 12/31/2011:

• Personal tax credits applied against income tax no longer apply

• Higher alternative minimum tax exemptions revert back to extraordinarily-low thresholds

• $250 school teacher expense deduction ends

• Mortgage insurance premium deduction expires

• State and local sales tax deductions expire

• Tuition and related fees deduction end

• IRA to charity tax-free transfers stop

• 2% Social Security tax reduction ends

Major Individual Income Tax Benefits Expiring 12/31/2012:

• Marriage penalty equalization ends

• Dividends taxed at capital gains rates removed, taxed at regular rates now

• Capital gains low tax rates expires

• Removal of itemized deduction phase out for higher income Americans

• Removal of personal exemption phase out for higher income Americans

• Child care deduction limit of $3,000 reverts to $2,400

• Child credit reduces from $1,000 per child to $500 per child

• Low 10% tax bracket for low income Americans is eliminated

• Lower income tax rates and smaller brackets expires

• Refundable adoption credit and reduced deduction

• American Opportunity college education credit expires

• Major reduction in earned income credits and refunds

• Income tax exemption for debt forgiven on home foreclosures and repossessions

• Deduction for student loan interest ends

• Education IRA limit drops from $2,000 to $500

Bob Jennings is a CPA, EA and CFP and author of "Understanding Social Security & Medicare."

By Erik Wasson - The Hill (blog)

Jennifer Peryam
Times-Union Staff Writer

Jackie Walorski is running for the second district congressional seat in 2012.

Walorski (R-South Bend) stopped by the Times-Union office recently to discuss her congressional run.

Walorski is unopposed on the Republican ticket. On the Democrat ticket, Andrew Straw, Goshen, and Brendan Mullen, South Bend, also are seeking the seat.

The 2012 U.S. House of Representatives general election in Indiana will be Nov. 6 to elect the nine representatives from the state, one from each of the state’s nine congressional districts.
With the redistricting plan, if elected to the second district, Walorski will represent the north, west and southwest portions of Kosciusko County.

The east and southeast portions of Kosciusko County will stay in the third district. All of Wabash and Miami counties will be included in the second district.

Joe Donnelly, Democrat, is currently the second district congressman. Donnelly announced he is running for the U.S. Senate seat in 2012, that is currently held by Republican Richard Lugar.

Walorski was a Republican member of the Indiana House of Representatives, representing the 21st district from 2005-2011. She won the Republican nomination, but lost the 2010 race for Indiana’s second congressional district.

Walorski said she is running for the seat again because the problems have not changed in the second district.

“I think the solutions are not rocket science, it’s about bringing jobs back into the district and stabilizing the economy so that we remove instability,” Walorski said.

She said one of the reasons job growth has been slow is because small and large businesses have a fear about extending themselves into the market hiring additional employees when the market is unstable.

If elected, Walorski said she can bring a proven track record.

“I got into the legislature because I wanted to make a difference and be a part of the team that took Indiana from the bottom of the barrel to the top in the country and we did,” Walorski said.

She said Indiana’s economic example needs to be taken to the federal level.

“We methodically took our state from a deficit to a surplus, balanced our budget, and modeled to our country exactly what has to happen,” Walorski said.

Walorski said Indiana has a story to tell that needs to be told at the federal level.

Walorski said she has a huge grassroots network that has supported her.

“You need a strong, anchored, independent voice that is experienced and understands what it is like to cast votes and cares about people and moving mountains for your district,” Walorski said.

Walorski said serving as a Republican member of the Indiana House of Representatives will prepare her to serve as a congresswoman.

“The story that unfolded from 2005 to the story of 2011 is a story about a comeback of common-sense people working together,” Walorski said.

She said it is a story that has an incredible ending with a lot of hard work in between that must happen at the federal level.

Walorski said she believes "Obamacare" needs to be repealed, and said Donnelly’s vote for "Obamacare" was a critical blow to job creation in the second district.

“That is evidence by the number of CEOs that have come to the table that said we can’t survive with the cost and increase that is going to happen with Obamacare,” Walorski said. “Critical votes that Donnelly cast show that he was more concerned about Washington than his district.”

She said her voting record is fiscally and socially conservative, and said Donnelly’s voting record has set back the district on job creation.

She said now is the time to drop political labels in order for the country to move ahead.

She said in 2012 people will see courage and Americans now realize that tax money is the only fuel the government runs on.

“I think people are engaged and energized, and if there was ever a time that Americans are at the table with their ears on it is because they are not sure where there 401ks are or the value of their retirement,” Walorski said.

She said there is a fight in Washington right now between two political parties that is a fight for power.

“The call in this country is so far greater than the political parties, and the call is for people to lay down the war, fight for a nation that you were elected to fight for,” Walorski said.

She said the only true requirement of the federal government is to build an infrastructure that people can thrive on.

“We can’t just decide to build wealth, because the infrastructure is damaged and trust in government is gone,” Walorski said.

“Those are the real principle things that don’t cost money, they cost political will,” Walorski said.

She said the 2012 election will be about jobs, and no one will be able to come to the table with a magic solution or silver bullet without including the stability of the economy.

Walorski said senior citizens who are vulnerable are terrified that they will get rolled under the bus, and they will pay the bill for irrational spending at the federal level and she said that is not right.

Walorski said the job of a representative is to stand and fight for senior citizen’s social security they paid into, not watch someone else rob them of their social security.

Walorski said the whole dynamic of our lifestyles has changed, and it really is because there is a spending problem at the federal level.

“Americans are understanding for the first time that we live by grocery lists and sale bills and no one is going out taking what disposable income they have and passing it to the wind,” Walorski said. “The only people that pay the bill are the middle-class working people and nothing has changed, so I think there is fear and more angst and frustration with conservatives wondering why there is no leadership in Washington.”

She said when she has sat down at coffee shops and marched in parades she hears time and time aging that the federal government needs to bring the debt down and stop the spending.

Walorski said people are voicing their opinion, and she thinks there will be a big shakeup in congress in 2012.

“If all these horrible lessons from the past brought us to this point, and America is rising up and defines our country and destiny, it has been worth the fight,” Walorski said. “If it doesn’t happen, it’s up to representatives to say this country is worth fighting for.”