Taxes are on the rise, and for taxpayers who think that taxes are high now, there is only more to come. Both individual taxpayers and small businesses will be hit by higher tax rates as attempts to simplify the tax code are made to reduce the national deficit.
There are several tax cuts that the President Bush administration passed that are set to expire at the end of 2010. The expiration of these cuts will have an impact around the nation. The current Obama administration has stated the intention to extend some of the cuts but not all are likely to be extended.
Some of the changes that are not likely to occur include:
- 10% tax bracket will likely not be eliminated.the standard deduction for married couples who file jointly will not be reduced
- the top end of the 15% tax bracket for couples married, filing jointly will not be reduced
- the middle tax brackets at 25% and 28% will not rise to the projected 28% and 31%
- dividend will not revert back to being taxed as ordinary income
Some of the changes are that are set to happen include:
- the top tax bracket at 35% will go back to 39.6%
- the second from the top tax bracket at 33% will go back up to 36%
- long-term capital gains will revert back to being taxes at a rate of 20% instead of 15%
Handling the Change
Taxpayers can do some preparation in light of the coming changes to protect themselves from tax increases including:
Plan to Sell Any Taxable Holdings?
If you have any holdings in a taxable account that have gone up in value, you may want to plan to sell before the year is out.
Anticipating More Income?
If you believe you will be in a higher tax bracket next year, you may want to try to up your income as much as possible in 2010 rather than the following year. You may also want to delay taking some of your tax deductions and apply them to 2011. You may also want to find investment accounts that are tax-fee like bond funds and money market funds instead of the taxable alternatives.
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