Twenty years from now you will be more disappointed by the things you didn’t do than by the ones you did do. So throw off the bowlines. Sail away from the safe harbour. Catch the trade winds in your sails. Explore. Dream. Discover.
– Mark Twain
Can you believe it’s almost October?
Really, though–2010 is almost finished. And while this continuing sensation of time’s swift passage may be interesting, the reality is that the end of 2010 will be bringing some major changes to the tax code–and it will be here sooner than you think!
If you think that you have a handle on your tax situation in 2010, you will be shocked at the changes in 2011.
I’ve been hesitant to put together this list, because I don’t want to A) scare you or B) appear overly-political here [if I’m partisan, it’s that I’m in the “Save My Clients’ Money” Party].
But this piece may really shock and surprise you. There’s one answer for it, of course, but I’m going to be extra sneaky and make you wait until the end of the article to find out what it is. You know how it works–that’s called a “tease”.
So you’ll read the whole thing, now, of course!
The Coming Tax Armageddon in 2011 (Part 1)
I know this sounds hopelessly dramatic, but I’m being completely upfront about the fact that I want to prompt you into action. I would not be doing an excellent job as your advisor if I did anything *but* pull out all the stops to get your attention pointed to this coming train wreck for your finances.
Here’s what’s coming, starting January 1, 2011…
The Personal Income Tax Increase
The top income tax rate will rise from 35% to 39.6%. The lowest rate will rise from 10% to 15%. All the brackets in between will also rise. Itemized deductions and personal exemptions will be phased out if you have “too much income”, which has the same effect as higher marginal tax rates. Here’s the complete list…
* The 10% bracket becomes an expanded 15%
* The 25% bracket becomes 28%
* The 28% bracket becomes 31%
* The 33% bracket becomes 36%
* The 35% bracket becomes 39.6%
Though these increases may seem small, their ramifications for your wallet, and your monthly budget are quite significant.
The Return of the Estate Tax
This year, there is no estate tax. However, for those dying on or after January 1 2011, there is a 55% top death tax rate on estates over $1 million. (And you thought you weren’t “wealthy” because your net worth –including real estate– was only $1.4 million?)
And, unfortunately, this will have an impact on gifting, charities, and more.
New, Higher Taxes On Married Couples, Families
The “marriage penalty” (these are compressed tax brackets for married couples) will return starting with the first dollar of your 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 and the dependent care tax credit will be cut.
Higher Tax Rates on Savers and Investors
The capital gains tax will rise from 15% this year to 20% percent in 2011.Â The dividendsÂ tax will rise fromÂ 15%Â thisÂ year to 39.6% percentÂ in 2011.Â These ratesÂ willÂ riseÂ anotherÂ 3.8%Â inÂ 2013.
Further, there are over twentyÂ new or higherÂ taxes inÂ theÂ new PatientÂ Protection andÂ Affordable Care Act (theÂ Healthcare Reform Act), many of whichÂ willÂ firstÂ goÂ intoÂ effectÂ onÂ JanuaryÂ 1,Â 2011.
I’ll share more about those next week.
Now, all of these things I’ve listed above (and what I’ll be sharing next week) are contingent, of course, on Congress *NOT* acting to change them. Unfortunately (or fortunately, depending on your opinion), that’s probably a safe assumption.
What You Should Do Right Now
First of all, don’t be surprised at what comes down on the pike on New Year’s Day. I’m giving you plenty of warning.
Second, take advantage of these remaining months in 2010 to have your income count during this tax year, instead of 2011 (as much as you’re able to do so).
Third–look over your specific information, compile a list of questions for me and my team, and let’s sit down to talk things over…together (and as soon as possible! Our schedule has been extremely busy with savvy clients who have already seen the ‘writing on the wall’).
Send me an email, or give us a call [414-325-2040]. We’ll make sure you (and your wallet) survive this coming Armageddon.