We’re six months away from the Bush tax cuts coming to an end, and Congress does not seem to taking any action to prevent the expiration of those cuts. What might that mean for you?
If you’re wondering if your taxes will go up…
Here’s a short list of what expires on January 1, 2011:
- Personal income taxes will increase: 10% to 15%, 25% to 28%, 28% to 31%, 33% to 36%, and those in the 35% bracket move up to 39.6%. Remember, that’s just a federal hike. State taxes get put on top of that.
- The “marriage penalty” will start from the first dollar earned.
- The child tax credit drops from $1,000 to $500 per child. The dependent care and adoption tax credits are reduced.
- The marriage deduction reverts to the single deduction amount.
- The “death tax” returns, with the top tax rate on estates over $1 million going to 55%.
- The capital gains rate increases from 15% to 20%.
- The dividends tax increases from 15% to 36.9% (and another 3.5% increase in 2013 for healthcare reform).
- If you make an early, non-medical withdraws from a Health Savings Account, the tax increases from 10% to 20%.
- Tax benefits for education tuition and fees will not be available. Tax credits for education will be limited.
- Teachers can no longer deduct classroom expenses.
- Employer-provided educational assistance stops.
- Many families will no longer be able to deduct student loan interest payments.
With Medicare and Social Security in trouble, a war on terror, and an aging population, I can’t see taxes going lower. What does this mean for you? Maybe it’s time to start looking at saving strategies that allow for tax-free growth and tax-free access.