Posted by Madison on May 17th, 2010
Even though the health care reform bill passed, increases in taxes aren’t over yet. The old 2001 Bush Tax Cuts are set to expire at the end of 2010, leaving us all with higher taxes in 2011.
Since December 31, 2010 is the date that the Bush tax cuts expire, I’m sure there will be a lot of debate in Congress this year over all of these. Here’s what we’re looking at:
Tax Cuts Expiring in 2010
- Tax Rates. The top tax rate will go from 35% to 39.6%. In addition, if nothing is done, it will mean higher taxes across the board. See the proposed 2011 tax rates for more information.
- Capital Gains. The 0% long term capital gains rate will go away. Capital gains rates will go up to 10% for lower tax brackets and from 15% to 20% for higher tax brackets.
- Dividends. Dividends will be taxed as ordinary income, with the new higher rates. Right now the dividend tax rates are 10% and 15%.
- Child Tax Credit. The child tax credit will return to $500 from the current $1,000 per child. In addition, it may not be refundable for some taxpayers.
- 529 Plans. 529 plan withdrawals will not be allowed tax free for computer or Internet access.
- Business Taxes. In addition, various business taxes will change including the payroll tax credit and section 179 expense deduction.
- Estate Taxes. Without any action, the estate tax (or death tax as some like to call it) exemption will go back to a $1 million exemption.
- Other Tax Credits. The tuition credits will be limited, as will the earned income tax credit.
- Mortgage Premiums. You will no longer be able to deduct mortgage insurance premiums after December 31, 2010.
No matter what happens, we’re going to have some planning to do, like determining when should you pay taxes on your 2010 Roth conversion?
Obama Tax Cuts
Will we have a new set of tax cuts in place before year end? Will President Obama extend the Bush tax cuts for 10 more years?
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12 Comments
To which Obama will say that he didn’t raise our taxes. He will just let the tax cuts expire, so that we pay more.
Do you think they will let them expire?
Interesting that we were PROMISED that we wouldn’t have a tax increase from the current administration of his media cohorts, but they never did promise we wouldn’t pay more in taxes.
Hopefully, there will be some changes coming soon in November.
I’m hoping so too. But then again, I’m not sure how they would pay for everything else that was promised.
They draw a distinction – and I would, too – between reverting to prior tax rates and actually increasing the tax rate. This is especially important when you consider that we could never afford the Bush tax cuts in the first place (Republicans have always been better at preaching fiscal discipline than actually following through).
It’s always been my understanding that President Obama had promised no tax increases to the “lowest 99% of income earners”, i.e. the Bush tax cuts would expire, thus raising the tax burden on the top bracket earners, the 1%.
I’ve also been under the impression that the expiration of the Bush tax cuts have been included in all health care reform cost extrapolations, so that extending them would change what has already been explained/laid out.
I don’t believe that the expiration of the Bush tax cuts had anything to do with the cost estimates of the health care bill. I remember reading reports about how the CBO scoring process was being “gamed”. The CBO scores the legislation put it front of it, without regard to any other legislation, e.g. the phantom “savings” by putting the “doc fix” in another bill, or the additional “discretionary” money that was recently reported that is going to have to be allocated in future years to implement parts of the new health care system (unless Republicans get a majority this year and do not include it in the next budget).
If the Democrats know what assumptions CBO works with and hides spending in other bills that have yet to be introduced, the bill’s score is going to come out the way the Democrats want it to. All of the spending in the bill had to be offset by the taxes included in the bill. There’s nothing about the federal income tax rates or other Bush era tax cuts in the health care bill.
I had no idea long term capital gains are presently 0%. Are you sure? So if I sell a rental property that I have owned for 12 years,and I sell it before 2011 there will be no capital gains to pay??
Yes, I’m sure. The capital gains rate switched to 0% back in 2008 and is set to expire at the end of this year. The 0% applies to taxpayers in the bottom two tax brackets.
IRS Tax Tip 2010-35
Have you heard of capital gains and losses? If not, you may want to read up on them because they might have an impact on your tax return. The IRS wants you to know these ten facts about gains and losses and how they could affect your tax situation.
Almost everything you own and use for personal purposes, pleasure or investment is a capital asset.
When you sell a capital asset, the difference between the amount you sell it for and your basis – which is usually what you paid for it – is a capital gain or a capital loss.
You must report all capital gains.
You may deduct capital losses only on investment property, not on property held for personal use.
Capital gains and losses are classified as long-term or short-term, depending on how long you hold the property before you sell it. If you hold it more than one year, your capital gain or loss is long-term. If you hold it one year or less, your capital gain or loss is short-term.
If you have long-term gains in excess of your long-term losses, you have a net capital gain to the extent your net long-term capital gain is more than your net short-term capital loss, if any.
The tax rates that apply to net capital gain are generally lower than the tax rates that apply to other income. For 2009, the maximum capital gains rate for most people is15%. For lower-income individuals, the rate may be 0% on some or all of the net capital gain. Special types of net capital gain can be taxed at 25% or 28%.
If your capital losses exceed your capital gains, the excess can be deducted on your tax return and used to reduce other income, such as wages, up to an annual limit of $3,000, or $1,500 if you are married filing separately.
If your total net capital loss is more than the yearly limit on capital loss deductions, you can carry over the unused part to the next year and treat it as if you incurred it in that next year.
Capital gains and losses are reported on Schedule D, Capital Gains and Losses, and then transferred to line 13of Form 1040.
For more information about reporting capital gains and losses, see the Schedule D instructions, Publication 550, Investment Income and Expenses or Publication 17, Your Federal Income Tax. All forms and publications are available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).
I believe the tax cuts should be allowed to expire for everyone.
We hear so much about the debt being left to future generations, allowing the cuts to expire will lessen or eliminate the problem so often cited by the “deficit hawks” who put us in this position in the first place.
For those who consider this naive, remember, from the mouths of babes….
so everyone should pay more in taxes ?
what happened to the Govt. spending less
if we give more they will spend more
they will not change their ways …we must take our country back, maybe to late