You need to set a tax planning appointment with your tax advisor before year end.
On January 1, 2011 the largest tax hike in the history of the United States will occur unless Congress acts to keep that from happening.
Contrary to the populist rhetoric coming out of Washington D.C., this tax increase won't be limited to the über rich or even those that are making in excess of $250,000. Everybody will feel and see this tax increase. Here are the current marginal tax brackets and where they're going on January 1st., if Congress fails to act.
- The 10% bracket goes up to 15%
- The 25% bracket rises to 28%
- The 28% bracket is raised to 31%
- The 33% bracket expands to 36%
- The 35% bracket increases to 39.6%
Low wage earners, generally the poorest people, will take the biggest brunt of the increase with a 50% increase in their marginal tax rate.
The marriage penalty will come back into play and the child tax credit will be cut in half, from $1,000 to $500. Dependent care and adoption tax credits will also be cut.
Savings along with individual and company sponsored retirement plans will also take a hit as higher taxes will erode returns. The capital gains tax will increase 33% from 15 to 20%. Elderly people who depend on quarterly dividend payments might need to look at becoming Wal-Mart greeters for additional income as the top dividend tax rate increases a whopping 164% from 15 to 39.6%. If grandma or grandpa get a greeter job at Wal-Mart tell them to keep it. In 2013 the top dividend rate is scheduled to increase another 3.8% to 43.4%. This 3.8% surcharge is thanks to the recently passed health care bill that increases taxes by 3.8% on all investment income beginning in 2013.
If grandma or grandpa are in poor health some may pray God calls them home before January, 2011. In less than six months the death tax returns with a vengeance and estates worth more than $1 million will be assessed a 55% tax--A tax the heirs will be responsible for paying.
The estate tax, also known as the death tax, is a serious issue for small businesses. For many businesses the family owned firm has a net worth in excess of $1 million, but few if any have 55% of the firm's worth in cash to pay the IRS.
Under the recently passed health care bill individuals will see an additional 20 tax increases over the next 42 months. One has already gone into effect--A 10% excise tax on indoor tanning salons. 2 more taxes will go into effect on January 1, 2011. The "Medicine Cabinet Tax" basically makes health savings accounts (HSA) and flexible spending accounts (FSA) useless and the HSA Withdrawal Tax increases from 10 to 20%.
Last but not least is the AMT, or alternative minimum tax. According to the liberal Tax Policy Center, if Congress fails to index this tax the number of families paying taxes on earned income this year will balloon to 28.5 million households, up from 4 million last year. The procedure requires a family to calculate their tax liabilities twice, paying the higher burden.
