Changes With Income Tax Rates and Other Taxes
Tax rates refer to the percentage of taxes that need to be paid with regards to income tax rates, estate transfers, and
capital gains.
- Estate Tax To Increase. The Estate Tax, also referred to as the Death Tax, a term that may hold more meaning to many taxpayers, is set to return. Through the Economic Growth and Tax Relief Reconciliation Act in 2001, the estate tax has been phased out over the past 10 years but will unfortunately reach an end this year. This means that unless Congress has a dramatic change of heart, the estate tax will not only return but is set to increase to 55% for homes valued over $1,000,000 dollars (under Obama plan this tax rate is 45%). Therefore, 2010 becomes the year to die!
- Capital Dividends and Gains Hikes. Those who fall within the upper tax brackets should prepare themselves for a changing rate. After this year, the current 15% long-term capital gains rate will return to 20%. However, those in the upper tax brackets will not bear the weight alone as most brackets will be affected. Under former President Bush, the lower 15% income tax bracket had a 0% capital gains rate but this number is expected to rise to 10% in 2011. For the upcoming year, dividends, excluding mutual fund capital gain distributions, will no longer be taxed at 15% for those in the upper tax brackets but will instead is set to be taxed as income. While President Obama is proposing that the dividend rate mentioned here simply be increased to 20% no action has been taken. Regardless of the outcome, those in the upper tax brackets will be faced with a higher tax on dividends.
- Income Tax Hikes. President Obama’s proposed budget for 2011 will extend changes to not only income tax rates but income brackets as well. However, tax breaks for single taxpayers with an income of less than $200,000 and married couples earning less than $250,000 will be exempt from any changes (under his plan). As far as brackets are concerned, the 28% tax bracket is predicted to rise. The 33% tax bracket is also forecasted to increase to 36%. Similarly the top 35% tax bracket is expected to be 39.6% by next year. More importantly, our government is expected to go back to discouraging marriage and the family as the well known “Marriage Penalty” will return with narrower tax brackets and the fact that the standard deduction will not be doubling for married couples what it is for single filers (those slated to get married this year or next will be discouraged to do so, if only marginally).