As 2010 draws to a close, most Americans’ are consumed with holiday shopping, party planning, and coming up with ways to get through Christmas with the in-laws. No doubt, all of these issues rank highly on our list of priorities, but Americans would be wise to turn their attention to something else that is right around the corner: higher taxes.
In just over 45 days, 2010 will end and the New Year will begin, ushering in a whole host of new federal taxes. According to Americans for Tax Reform, the tax hikes set to take effect January 2011 will make for “the Biggest Tax Increase in American History.” Listed below are just a few.
First Wave: Expiration of 2001 and 2003 Tax Relief
In 2001 and 2003, the GOP Congress enacted several tax cuts for investors, small business owners, and families. These will all expire on January 1, 2011:
Personal income tax rates will rise. The top income tax rate will rise from 35 to 39.6 percent (this is also the rate at which two-thirds of small business profits are taxed). The lowest rate will rise from 10 to 15 percent. All the rates in between will also rise. Itemized deductions and personal exemptions will again phase out, which has the same mathematical effect as higher marginal tax rates. The full list of marginal rate hikes is below:
– The 10% bracket rises to an expanded 15%- The 25% bracket rises to 28%- The 28% bracket rises to 31%- The 33% bracket rises to 36%- The 35% bracket rises to 39.6%
Higher taxes on marriage and family. 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 tax credit will be cut.
The return of the Death Tax. This year, there is no death tax. For those dying on or after January 1 2011, there is a 55 percent top death tax rate on estates over $1 million. A person leaving behind two homes and a retirement account could easily pass along a death tax bill to their loved ones.
Higher tax rates on savers and investors. The top capital gains tax will rise from 15 percent this year to 20 percent in 2011. The top dividends tax rate will rise from 15 percent this year to 39.6 percent in 2011. These rates will rise another 3.8 percent in 2013.
And remember this isn’t even all of them, just the “First Wave!”
– Talmadge Heflin