Bush Tax Cuts Ending January 1st!

The craziest thing that I have witnessed since working full-time doing lots of income tax returns (30 years) is the way the G W Bush tax cuts that came in about nine years ago have a built-in expiration on 1/1/11. Not only does it scare me that the writers of our laws might be into Numerology, and no, those laws are NOT written by our elected officials, but the difficulty of planning when tax laws expire can be kind of scary too!
Reagan's tax cuts came in and got altered, but they did not have an expiration date like the Dubya cuts do.

Almost all tax brackets are rising in 2011. The 10% bracket will be 15%, 25% goes to 28%, up to the top 35% going to 39.6%. Capital gains rates currently 0% and 15% jump back up to 10% and 20%.

Death taxes, which are technically gone for 2010, go wayyyy back up in 2011 for persons with over $1 million is net assets. I am not recommending suicide, but some families might be hit hard by the new, not kindler gentler inheritance tax rates starting with those dying in 2011.

Some planning for this bump in rates can be done. If you know you will be selling a capital asset at a large gain, generating that gain in 2010 could save tax over the same gain in January 2011.

Credits help tax bottom lines so much, but some good ones are going down. The child tax credit, now worth $1,000 per child under 17, goes down to $500. Lots of other goodies will decrease or disappear.

Now bear in mind that the current Democratic congress is indicating that most of these tax benefits won't be expiring....they will be preserved for families making under $250,000 per year. That is all well and good, but keep in mind that the preserving may just be a one-year-at-a-time extension, and the same expiration threats will just be moved forward a year at a time.

Stay tuned, I promise an update on Obamacare, but to be honest, that huge mess which had no business being passed is so confusing I am still trying to get my head around all the provisions. Too bad our elected officials didn't read it!