Home > Strictly TAXES! > Tax Increases ARE Coming~Unless Congress Takes Action! (Part 3)

Tax Increases ARE Coming~Unless Congress Takes Action! (Part 3)

Tax Cuts Are Scheduled To Sunset! 

(Part 3)

In my previous postings, I’ve been talking about the tax cuts that are set to expire if they are not re-instated by congress before the end of this year. If these tax cuts are allowed to “Sunset”, they will have an impact on just about every taxpayer in the country. The result will simply be that we will all pay MORE TAX!
In this writing, I’m going to highlight some of the changes that will affect taxpayers for  tax year 2011. Although you won’t feel the effects of these changes for this year, you WILL feel them for the 2011 tax return.
Here we go:
  • Tax Rates – As part of the Bush era tax cuts, the marginal tax rates (they increase with taxable income) were reduced to 10, 15, 25, 28 and 33 percent. These rates are set to return to their original levels of 15, 28, 31, 36 and 39.6 percent. The 10% and 15% brackets will be replaced with a single 15% bracket. This results in an increase for everyone! Those in the previously lowest bracket (10%) will see a tax increase of approximately 5%, while others will see increases ranging approximately from 2% to 6%. In addition, an expanded 15% bracket for a married couple filing a joint return has applied for several years as relief for the “marriage penalty.” This will not apply as of 2011. Instead, the top of the 15% bracket for joint returns will be about 167% of the end point for single returns rather than the 200% it has been.
  • Capital Gains Rates – Also, as part of the Bush era cuts, the capital gains rates were substantially reduced, but will return to their old levels of 10% for anyone in the 15% regular tax bracket and 20% for all others. That is up from 0% and 15% in 2010. This will impact investors, business owners and home owners when they sell a capital asset.
  • Qualified Dividends – Generally, qualified dividend income is dividend income from stock held for 60 days or longer before the ex-dividend date. These dividends, for a number of years, have been taxed at capital gains rates (0% – 15%). However, the law providing these beneficial rates expires at the end of 2010 and all dividend income will be taxed at ordinary income rates (15% to 39.6%). This will generally impact investors holding income stocks and mutual funds. These individuals will see an overall tax increase greater than just the general 2% to 6% rise noted above.
These tax cuts that I’ve mentioned are just the beginning. In my next writing to you, I will highlight a few changes that will impact anyone who has dependent children under 17, has a member of the family who attends college or anyone who may qualify for the Earned Income Credit.
Stay tuned!
E-File Florida is very happy to help you with questions regarding these “Sunset Rules”. Feel free to contact our office by calling 954-583-8534 or by email at info@efileflorida.com. You can also visit us on the Internet at http://www.efileflorida.com for more great tax tips and articles.
IRS CIRCULAR 230 Required Notice – IRS regulations require that we inform you as follows: Any Federal tax advice contained in this communication (including any attachments) is not intended to be used and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any transaction as tax related matter(s).
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