The “Bush Tax Cuts” are scheduled to expire at the end of this year, but what exactly does this mean to you? Short answer – “higher taxes” – but how? Here are some of the major provisions that will increase how much you pay in taxed when the “Bush Tax Cuts” expire.
- All tax rates are scheduled to rise in 2011. The top income tax rate will rise from 35 to 39.6 percent and the lowest rate will rise from 10 to 15 percent. See our Blog post dated October 26th for more information on tax rates.
- Itemized deductions and personal exemptions will again phase out, which has the same mathematical effect as higher marginal tax rates.
- 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.
- Death (“Estate”) Tax returns in 2011. There is a 55 percent top death tax rate on estates over $1 million (as indexed projected to be about $1.1 million). Higher tax rates on savers and investors.
- The capital gains tax will rise from a 15 percent ceiling this year to 20 percent in 2011.
- The dividends tax will rise from a ceiling of 15 percent this year to being taxed at ordinary income tax rates (could be up to a maximum rate of 39.6 percent) in 2011.
- Alternative Minimum Tax still an issue. The annual exemption amount does not index with inflation and requires Congressional action each year. If Congress does not index this amount for 2010 or 2011, we expect about $28.5 million households to be subject to AMT. We would expect Congress to patch this provision for both 2010 and 2011.
- Deductions and credits for tuition expenses will be limited.
These are just a few of the major provisions getting ready to change in 2011. Please let us know if you have any questions regarding how these provisions will impact you or if you need assistance with your year end tax planning.