Six Months to Go Until The Largest Tax Hikes in History

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.