- In just six months, on January 1, 2011, the largest
tax hikes in the history of America will take effect.
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- They will hit families and small businesses in three
great waves.
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- On January 1, 2011, here's what happens...
(read it to the end, so you see all three waves)...
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- First Wave
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- Expiration of 2001 and 2003 Tax Relief
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- 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.
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- Personal Income Tax Rates Will Rise
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- 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).
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- The lowest rate will rise from 10 to 15 percent.
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- All the rates in between will also rise.
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- Itemized deductions and personal exemptions will again
phase out, which has the same mathematical effect as highermarginal tax rates.
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- The full list of marginal rate hikes is below:
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- The 10%
- bracket rises to an expanded 15%
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- The 25%
- bracket rises to 28%
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- The 28%
- bracket rises to 31%
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- The 33%
- bracket rises to 36%
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- The 35%
- bracket rises to 39.6%
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- Higher Taxes On Marriage And Family
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- The "marriage penalty" (narrower
tax brackets for married couples) will return from the first
dollar of income.
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- The child tax credit will be cut
in half from $1000 to $500 per child.
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- The standard deduction will no longer be doubled
for married couples relative to the single level.
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- The dependent care and adoption tax credits will be
cut.
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- The Return Of The Death Tax
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- This year only, there is no death
tax. (It's a quirk!) 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, a business, a retirement account, could easily
pass along a death tax bill to their loved ones. Think of the farmers
who don't make much money, but their land, which they purchased years
ago with after-tax dollars, is now worth a lot of money. Their children
will have to sell the farm, which may be their livelihood, just to pay
the estate tax if they don't have the cash sitting around to pay the tax.
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- Think about your own family's assets. Maybe your family
owns real estate, or a business that doesn't make much money, but
the building and equipment are worth $1 million. Upon their death,
you can inherit the $1 million business tax free, but if they own
a home, stock, cash worth $500K on top of the $1 million business,
then you will owe the government $275,000 cash! That's 55% of the
value of the assets over $1 million! Do you have that kind of cash
sitting around waiting to pay the estate tax?
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- Higher Tax Rates On Savers And Investors
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- The capital gains tax will rise from 15 percent
this year to 20 percent in 2011.
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- The dividends tax will rise from 15 percent this
year to 39.6 percent in 2011.
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- These rates will rise another 3.8 percent in 2013.
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- The Second Wave
- Obamacare
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- There are over twenty new or higher taxes in Obamacare.
Several will first go into effect on January 1, 2011. They
include:
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- The "Medicine Cabinet Tax"
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- Thanks to Obamacare, Americans will no longer be
able to use health savings account (HSA), flexible spending account
(FSA), or health reimbursement (HRA) pre-tax dollars to purchase
non-prescription, over-the-counter medicines (except insulin).
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- The "Special Needs Kids Tax"
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- This provision of Obamacare imposes a cap on flexible
spending accounts (FSAs) of $2500 (Currently, there is no federal
government limit). There is one group of FSA owners for whom
this new cap will be particularly cruel and onerous: parents
of special needs children.
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- There are thousands of families with special
needs children in the United States , and many of them use FSAs
to pay for special needs education.
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- Tuitiion rates at one leading school that teaches special
needs children in Washington , D.C. ( National Child Research Center
) can easily exceed $14,000 per year.
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- Under tax rules, FSA dollars can not be used to
pay for this type of special needs education.
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- The HSA (Health Savings Account) Withdrawal Tax
Hike.
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- This provision of Obamacare increases the additional
tax on non-medical early withdrawals from an HSA from 10 to 0
percent, disadvantaging them relative to IRAsand other tax-advantaged
accounts, which remain at 10 percent.
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- The Third Wave
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- The Alternative Minimum Tax (AMT) and Employer Tax
Hikes
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- When Americans prepare to file their tax returns
in January of 2011, they'll be in for a nasty surprise-the AMT
won't be held harmless, and many tax relief provisions will have
expired.
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- The major items include:
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- The AMT will ensnare over 28 million families, up from
4 million last year.
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- According to the left-leaning Tax Policy Center
, Congress' failure to index the AMT will lead to an explosion
of AMT taxpaying families-rising from 4 million last year to
28.5 million. These families will have to calculate their tax burdens
twice, and pay taxes at the higher level. The AMT was created in
1969 to ensnare a handful of taxpayers.
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- Small business 'expensing' will be slashed and 50% expensing
will disappear.
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- Small businesses can normally 'expense' (deduct)
rather than slowly-deduct or 'depreciate' equipment purchases up to $250,000.
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- The traditional $250,000 figure will be cut all
the way down to $25,000!
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- Larger businesses can currently expense half
of their purchases of equipment. In January of 2011, ALL
of it will have to be "depreciated." (The depreciation
period over which a business must write off a major expense is often THIRTY
YEARS.)
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- Taxes will be raised on all types of businesses
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- There are literally scores of tax hikes on business
that will take place. The biggest is the loss of the "research
and experimentation tax credit," but there are many,
many others. Combining high marginal tax rates with the loss
of this tax relief will cost jobs.
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- Tax Benefits for Education and Teaching Reduced
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- Teachers will no longer be able to deduct classroom
expenses.
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- Coverdell Education Savings Accounts will be
cut.
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- Employer-provided educational assistance is curtailed.
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- The student loan interest deduction will be disallowed for hundreds
of thousands of families.
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- Charitable Contributions from IRAs no longer allowed
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- Under current law, a retired person with an IRA
can contribute up to $100,000 per year directly to a charity
from their IRA.
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- This contribution also counts toward an annual
"required minimum distribution." This ability will
no longer be there.
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- PDF Version Read more:
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- And Worse Yet?
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- Now, your insurance will be INCOME on your
W2's!
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- One of the surprises we'll find come next
year, is what follows - - a little "surprise" that
99% of us had no idea was included in the "new and improved"
healthcare legislation . . . the dupes, er, dopes, who backed
this administration will be astonished!
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- Starting in 2011, (next year folks), your W-2 tax
form sent by your employer will be increased to show the value
of whatever health insurance you are given by the company. It
does not matter if that's a private concern or governmental body
of some sort.
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- If you're retired? So what... your gross will go
up by the amount of insurance you get.
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- You will be required to pay taxes on a large
sum of money that you have never seen. Take your tax form you
just finished and see what $15,000 or $20,000 additional gross
does to your tax debt. That's what you'll pay next year.
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- For many, it also puts you into a new higher
bracket so it's even worse.
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- This is how the government is going to buy insurance
for the15% that don't have insurance and it's only part of the
tax increases.
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- Not believing this??? Here is a research of the summaries.....
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- On page 25 of 29: TITLE IX REVENUE PROVISIONS- SUBTITLE
A: REVENUE OFFSET PROVISIONS-(sec. 9001, as modified by sec. 10901)
Sec.9002 "requires employers to include in the W-2
form of each employee the aggregate cost of applicable employer
sponsored group health coverage that is excludable from the employees
gross income."
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- ___________
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- Joan Pryde is the senior tax editor for the Kiplinger
letters.
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- Go to Kiplingers and read about 13 tax changes that could
affect you. Number 3 is what is above.
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