Taxes are Going Up---For Everyone | Tax Tip of the Week | No. 66
Tax Tip of the Week | November 10, 2010 | No. 66Taxes are going up-----for everyone.
Tax Rate Changes Unless Congress acts very quickly, everyone will see their federal income tax increase in 2011. This week we will look at the pending tax increases. Next week we will discuss what you can do before the end of the year to possibly lessen your tax burden.Personal Income Tax Rates Will Rise:In 2011, the 10% bracket will be eliminated and replaced with an expanded 15% bracketThe 25% bracket rises to 28%The 28% bracket rises to 31%The 33% bracket rises to 36%The 35% bracket rises to 39.6%See TTW - 9.16.09 for a more detailed look at the marginal tax brackets.Child Tax CreditThe credit will be cut in half from $1,000 per child under age 17 to $500. In addition, the portion of the credit that may be a refundable credit will be eliminated if there are less than three children in the household.Capital Gains Tax IncreasesThe current 0% and 15% long-term capital gains rates will increase to 10% and 20% in 2011. A special 18% tax rate will be added for investments held more than five years.See TTW - 9.23.09 for a more detailed look at capital gains rates.Qualified DividendsDividends that are currently taxed at capital gains rates will be eliminated. Starting in 2011, all dividend income will be taxed as ordinary income. This means dividends that were taxed at a 15% rate may now be taxed as high as 39.6%.The “Marriage Penalty”The penalty for married couples filing joint or separate returns will be back in 2011. Currently, married couples receive 200% of the standard deduction as a single filer. They also receive tax rates that are 200% of a single person’s tax bracket. In 2011, these deductions and rates will be tightened.The Return of the Estate TaxIn 2010, Congress allowed the estate tax to be eliminated. In 2011 it comes roaring back. Those who leave an estate in excess of $1 million will be faced with a 55% estate tax rate.Education ExpensesThe current and generous American Opportunity Credit for higher education expenses will be replaced with a less generous Hope Education Credit.In addition, the option of using the Tuition and Fees Deduction is eliminated.Other Increases
- Sales Tax Deduction eliminated
- Real Property Tax Deduction (for those using the standard deduction) is eliminated
- Educator Expense Deduction eliminated
- Energy Efficient Home Credits eliminated
- Those over 70 ½ must once again take their Required Minimum Distribution from IRAs
- Option to have IRA distributions go tax free as a charitable contribution are eliminated
These are just a few of the changes that may occur. As always, we’ll keep you posted. You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504. Or visit our website.Rick Prewitt - the guy behind TTW...until next week.