As many of you may be aware, the “Bush Tax Cuts” and credits are set to expire at the end of 2010. If they do expire completely, a lot of people will experience a significant adjustment to their tax situation.
Although nothing has been enacted yet, let me start by saying, I don’t expect Congress to allow the tax cuts to expire for Middle-Income tax payers. That being said, obviously anything can happen.
It does appear that many Republicans, Democrats, and the President seem to favor an extension of the tax cuts for the middle class. Where they differ is whether to extend the cuts for Americans in the top 2% of taxpayers. However, as we know with congress, anything can happen. Regardless of what congress ultimately decides to do, it’s always best to stay informed.
A little background information – The “Bush Tax Cuts” refers to legislation enacted in 2001 and 2003. The cuts lowered tax rates on income, dividends, and capital gains; eliminated the estate tax; lowered burdens on married couples, parents, and the working poor; and increased tax credits for education and retirement savings.
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If All the Bush Tax Cuts Expire…
If the Bush tax cuts were allowed to expire, the following would take place, along with other items: For a more detailed description, click here.
- Tax brackets would change, from 10%, 15%, 25%, 28%, 33%, and 35% to 15%, 28%, 31%, 36%, and 39.6%.
- Long-term capital gain tax rates would rise from 15% to a maximum of 20%.
- The child tax credit would be lowered from $1,000 to $500 per child.
- The alternative minimum tax would cease to be indexed for inflation.
- The “marriage penalty” would be reinstated.
Based on what many experts are predicting, if the Bush Tax Cuts did expire, most people would have a tax increase between a few hundred and a few thousand dollars.
Here’s an example of what could happen if the Bush Tax Cuts were to completely expire in 2011.
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Single Filers
– AGI around $40,000 – could see increase around $400.
– AGI around $80,000 – could see increase around $1,600.
Married Filers
– AGI around $80,000 – could see increase around $2,200.
– AGI aournd $160,000 – could see an increase around $5,500.
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Reminder
Obviously anything can happen, and we should always be informed and not make our financial decisions hastily.
If you have any questions about how all this may affect you personally, please feel free to contact me anytime.
If you are considering making a major financial change this year, or at the beginning of next year, you may want to seriously consider the possible tax ramifications that could occur whether or not the “Bush Tax Cuts” expire.
The chart provided above can also be found at The Tax Policy Center, which is a joint venture of the Brookings Institution and the Urban Institute in Washington.
http://www.taxpolicycenter.org/taxtopics/2011_continue_2001cuts.cfm