Deep federal spending cuts, combined with higher taxes that go into effect January 1st, make up what's come to be known as the fiscal cliff. As legislators push that deadline to the very end, uncertainty mounts. As our Katie Gibas reports, for financial advisors, that means planning for a variety of scenarios and taking a gamble on which one will pan out.
UNITED STATES -- It's been a confusing and frustrating final weeks of the year for taxpayers and their financial advisors as Congress struggled to reach a compromise on the fiscal cliff.
"It's a very difficult task giving advice sometimes when you don't know what the tax laws are," said Frank Squadrito Jr., a Certified Public Accountant partner at D'Arcangelo and Co.
With a number of proposals floating around Congress, accountants have had to plan for a variety of scenarios, without certainty in any of them.
"Taxes are going to go up next year, at least to some degree. The question is, how much," said Mike Reilly, a Certified Public Accountant, Partner in Charge of Tax Department at Dannible and McKee.
Financial advisors have been trying to predict the effects on individuals if the Bush tax cuts will expire, be extended for everyone or just be extended for certain incomes.
"I think it's a big concern because it really puts taxpayers in an uncomfortable position because they can't plan. They're advisors can't plan. It's actually costing them more money because as advisors, we have to run the calculations several times. We have to run them on a guess and then when it does pass, we might have to run additional calculations," said Reilly.
In most cases accountants have advised clients to cash in stocks in 2012 to avoid potential double digit percentage tax increases on those profits in 2013.
"It's hard to tell people, 'Why don't you pay more tax this year, so you'll pay tax less next year.' That's a hard sell sometimes," said Squadrito.
Reilly added, "If they have long-term capital gains, that's taxed at a 15 percent rate right now for federal. That's the lowest rate it's probably going to be for a long period of time."
While some clients have taken that advice, many simply can't afford to.
Financial advisors say regardless of how the crisis is resolved, everyone will feel the effects, as Congress will have to address the mounting federal debt.
If a decision isn't made by the New Year, there's still a chance that something could be done retroactively. But experts say the longer agreement put off, the harder it will be to mitigate the effects.