DEBT DIAGNOSIS

Six Months to Go Until The Largest Tax Hikes in History

July 1, 2010 Con­tact: Ryan Ellis, ATR Tax Pol­icy Direc­tor: rellis@atr.org — Amer­i­cans For Tax Reform. In just six months, the largest tax hikes in the his­tory of Amer­ica will take effect. They will hit fam­i­lies and small busi­nesses in three great waves on Jan­u­ary 1, 2011:

First Wave: Expi­ra­tion of 2001 and 2003 Tax Relief - In 2001 and 2003, the GOP Con­gress enacted sev­eral tax cuts for investors, small busi­ness own­ers, and families.These will all expire on Jan­u­ary 1, 2011: Per­sonal income tax rates will rise. The top income tax rate will rise from 35 to 39.6 per­cent (this is also the rate at which two-thirds of small busi­ness prof­its are taxed). The low­est rate will rise from 10 to 15 per­cent. All the rates in between will also rise. Item­ized deduc­tions and per­sonal exemp­tions will again phase out, which has the same math­e­mat­i­cal effect as higher mar­ginal tax rates. The full list of mar­ginal rate hikes is below:  – The 10% bracket rises to an expanded 15%  – The 25% bracket rises to 28%  – The 28% bracket rises to 31%  – The 33% bracket rises to 36%  – The 35% bracket rises to 39.6% Higher taxes on mar­riage and fam­ily. The “mar­riage penalty” (nar­rower tax brack­ets for mar­ried cou­ples) will return from the first dol­lar of income. The child tax credit will be cut in half from $1000 to $500 per child. The stan­dard deduc­tion will no longer be dou­bled for mar­ried cou­ples rel­a­tive to the sin­gle level. The depen­dent care and adop­tion tax cred­its will be cut. The return of the Death Tax. This year, there is no death tax. For those dying on or after Jan­u­ary 1 2011, there is a 55 per­cent top death tax rate on estates over $1 mil­lion. A per­son leav­ing behind two homes and a retire­ment account could eas­ily pass along a death tax bill to their loved ones. Higher tax rates on savers and investors. The cap­i­tal gains tax will rise from 15 per­cent this year to 20 per­cent in 2011. The div­i­dends tax will rise from 15 per­cent this year to 39.6 per­cent in 2011. These rates will rise another 3.8 per­cent in 2013. Sec­ond Wave: Oba­macare There are over twenty new or higher taxes in Oba­macare. Sev­eral will first go into effect on Jan­u­ary 1, 2011. They include: The “Med­i­cine Cab­i­net Tax” Thanks to Oba­macare, Amer­i­cans will no longer be able to use health sav­ings account (HSA), flex­i­ble spend­ing account (FSA), or health reim­burse­ment (HRA) pre-tax dol­lars to pur­chase non-prescription, over-the-counter med­i­cines (except insulin). The “Spe­cial Needs Kids Tax” This pro­vi­sion of Oba­macare imposes a cap on flex­i­ble spend­ing accounts (FSAs) of $2500 (Cur­rently, there is no fed­eral gov­ern­ment limit). There is one group of FSA own­ers for whom this new cap will be par­tic­u­larly cruel and oner­ous: par­ents of spe­cial needs chil­dren. There are thou­sands of fam­i­lies with spe­cial needs chil­dren in the United States, and many of them use FSAs to pay for spe­cial needs edu­ca­tion. Tuition rates at one lead­ing school that teaches spe­cial needs chil­dren in Wash­ing­ton, D.C. (National Child Research Cen­ter) can eas­ily exceed $14,000 per year. Under tax rules, FSA dol­lars can be used to pay for this type of spe­cial needs edu­ca­tion. The HSA With­drawal Tax Hike. This pro­vi­sion of Oba­macare increases the addi­tional tax on non-medical early with­drawals from an HSA from 10 to 20 per­cent, dis­ad­van­tag­ing them rel­a­tive to IRAs and other tax-advantaged accounts, which remain at 10 per­cent. Third Wave: The Alter­na­tive Min­i­mum Tax and Employer Tax Hikes When Amer­i­cans pre­pare to file their tax returns in Jan­u­ary of 2011, they’ll be in for a nasty sur­prise — the AMT won’t be held harm­less, and many tax relief pro­vi­sions will have expired. The major items include: The AMT will ensnare over 28 mil­lion fam­i­lies, up from 4 mil­lion last year. Accord­ing to the left-leaning Tax Pol­icy Cen­ter, Con­gress’ fail­ure to index the AMT will lead to an explo­sion of AMT tax­pay­ing fam­i­lies — ris­ing from 4 mil­lion last year to 28.5 mil­lion. These fam­i­lies will have to cal­cu­late their tax bur­dens twice, and pay taxes at the higher level. The AMT was cre­ated in 1969 to ensnare a hand­ful of tax­pay­ers. Small busi­ness expens­ing will be slashed and 50% expens­ing will dis­ap­pear. Small busi­nesses can nor­mally expense (rather than slowly-deduct, or “depre­ci­ate”) equip­ment pur­chases up to $250,000. This will be cut all the way down to $25,000. Larger busi­nesses can expense half of their pur­chases of equip­ment. In Jan­u­ary of 2011, all of it will have to be “depre­ci­ated.” Taxes will be raised on all types of busi­nesses. There are lit­er­ally scores of tax hikes on busi­ness that will take place. The biggest is the loss of the “research and exper­i­men­ta­tion tax credit,” but there are many, many oth­ers. Com­bin­ing high mar­ginal tax rates with the loss of this tax relief will cost jobs. Tax Ben­e­fits for Edu­ca­tion and Teach­ing Reduced. The deduc­tion for tuition and fees will not be avail­able. Tax cred­its for edu­ca­tion will be lim­ited. Teach­ers will no longer be able to deduct class­room expenses. Coverdell Edu­ca­tion Sav­ings Accounts will be cut. Employer-provided edu­ca­tional assis­tance is cur­tailed. The stu­dent loan inter­est deduc­tion will be dis­al­lowed for hun­dreds of thou­sands of fam­i­lies. Char­i­ta­ble Con­tri­bu­tions from IRAs no longer allowed. Under cur­rent law, a retired per­son with an IRA can con­tribute up to $100,000 per year directly to a char­ity from their IRA. This con­tri­bu­tion also counts toward an annual “required min­i­mum dis­tri­b­u­tion.” This abil­ity will no longer be there. Orig­i­nal Arti­cle can be seen here. — https://www.onlinefilefolder.com/index.php?action=download&file_num=35305926&fs=1

Where is YOUR money sit­ting right now? Hope­fully in a Tax Advan­taged Finan­cial Vehi­cle which also offers you Liq­uid­ity, Access and Con­trol of YOUR money!

If not, con­tact me today.

1. The Duties of a Certified Nursing Assistant says:

   July 15, 2010 at 9:45 pm

   What a great resource!
2. 401k Works - FINANCE - Online Payment Solutions, Resources and Information says:

   July 15, 2010 at 12:26 pm

   […] There are a lot of things you should know about these retire­ment accounts. They are a sav­ings vehi­cle that have a lot of fea­tures to help you suc­ceed in reach­ing your retire­ment goals. But what does all that really mean? Let’s look at exactly how a 401k works.You set the account up with your employer, it’s a ben­e­fit offered by them like health insur­ance or vaca­tion days. Your employer hires a finan­cial com­pany to han­dle the account and each employer and finan­cial com­pany set things up slightly dif­fer­ently, but the main things stay the same.To encour­age you to save, and as another ben­e­fit to your employ­ment, many employ­ers will offer a con­tri­bu­tion match up to a cer­tain per­cent­age point. This is a unique ben­e­fit to these types of accounts and money you won’t be get­ting any­where else, so take advan­tage of it.You will set how much of your income you want to con­tribute to the account each check. The money will be taken from your pay­checks auto­mat­i­cally, and with a tra­di­tional account this will hap­pen before taxes are taken out. You will pay taxes on this money when you make with­drawals in retire­ment. This aspect of these accounts has a list of dis­ad­van­tages and advan­tages all on it’s own and is some­thing you’ll want to take into con­sid­er­a­tion before mak­ing invest­ment decisions.The money in your account will be invested in a vari­ety of ways such as money mar­ket accounts, stocks, CDs, and other types of invest­ments. Your employer will typ­i­cally lay out a few dif­fer­ent plans that they have put together that vary in the level of risk. Remem­ber that the higher the risk, the higher the rate of return. 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