From: C&L Value Advisors, LLC [hwisneski@clvalue.com]

Sent: Thursday, October 21, 2010 4:21 PM

To: Heidi E. Wisneski

Subject: Bush's Tax Cuts Only Affect The Rich? Not True.

 

 

Bush's Tax Cuts

Not Only For The Rich

August, 2010

In This Issue

Higher Taxes for All

Married or Single?

Deductions

 

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Dear Heidi,

bush

The Bush tax cuts (from legislation enacted in 2001 and 2003) are scheduled to expire at the end of this year. But you may not understand the full extent of what is in store if Congress simply sits back and allows the expirations to occur without making any changes. The following article simply informs you of what could happen if no action is taken. 
 
Here's the little-known truth. 

 

HIgher Taxes for All

 

There will be Higher Income Tax Rates for All
 
Some people may believe that only individuals in the top two federal income tax brackets will face higher rates when the Bush cuts go bye-bye. Not true! Unless Congress takes action, rates will automatically go up for everyone who pays taxes-not just "the rich."
 
The existing tax brackets will be replaced as follows: (existing on left >> new on the right)
10% Tax bracket >> 15%
25% Tax bracket >> 28%
28% Tax bracket >> 31%
31% Tax bracket >> 33%
33% Tax bracket >> 36%
35% Tax bracket >> 39.6%
 
Outlook: The 28% bracket would be expanded to accommodate unmarried taxpayers with income below $200,000 and joint filers with income below $250,000. Only taxpayers with income above those levels would be affected by the new 36% and 39.6% rates. To sum up, the only thing we know for sure is that tax rates will go up for everyone if Congress sits on its hands.

Marriage Penalty

 Marriage Penalty Will Get Worse
 
The Bush tax cuts put some relatively favorable framework for married individuals in place to reduce the so-called marriage penalty, which can cause a married couple to pay more federal income tax than if they were single. Unless Congress makes changes and the president goes along, the marriage penalty will automatically get worse when the Bush tax cuts expire.
 
Outlook: Presumably, the Administration's pledge to keep things the same for lower and middle-income taxpayers includes extending the Bush tax cut elements that reduce the impact of the marriage penalty.  
 
 

 

Itemized Deduction Phase-Out

  
Under the Bush tax cuts, the phase-out rule covering the big-ticket deductions for mortgage interest, state and local taxes, and charitable donations was gradually eased and finally eliminated this year.  Next year, however, it will automatically return with a vengeance, unless Congress takes action and the president goes along.
 
Outlook: The Administration has said it wants the phase-out rule back, but at higher income thresholds of $250,000 for married joint-filing couples and $200,000 for other taxpayers.  Raising the thresholds would require Congress to take action and the president to go along.

 

Personal Exemption Phase-Out

Under the Bush tax cuts, this phase-out rule, eliminating some or all of a higher-income individual's personal exemption deductions, was gradually eased and finally eliminated this year. Starting next year, it will automatically return, unless Congress takes action and the president goes along.
 
Outlook: The Administration has said it wants the phase-out rule back, but at different income thresholds:  $250,000 for married joint-filing couples, $200,000 for unmarried individuals and $125,000 for those who use married filing separate status.  It would not be surprising if Congress chooses to do nothing.
 

 

Capital Gains and Dividends

The maximum federal rate on garden-variety long-term capital gains and qualified dividends will increase from 15% to 20% starting next year.  (18% on gains from assets held for over five years). Dividends will once again be taxed at ordinary income rates.  So, the maximum rate on dividends will balloon to a whopping 39.6%.
 
Right now, a 0% federal rate applies to garden-variety long-term capital gains and qualified dividends collected by folks in lowest two rate brackets of 10% and 15%.  Starting next year, the "new" lowest bracket of 15% will have to pay 10% on long-term gains (or 8% on gains from assets held for over five years) and 15% on dividends (since dividends will be taxed at ordinary income rates). Again-these things will happen automatically, unless Congress takes action and the president goes along.
 
Outlook: The odds are rising that dividends will once again be taxed at ordinary rates (of up to 39.6%), starting next year. We hope this is wrong.

 

Some Cuts That Are Likely to Continue

Some elements of the Bush tax cuts have gained bipartisan support and become "extenders." Examples include inflation-indexed Alternative Minimum Tax exemption amounts, the ability to use nonrefundable personal tax credits to offset individual AMT liabilities, the above-the-line deduction for qualified higher education tuition and fees, and the increased Section 179 deduction.  
 
We also believe the current versions of the child tax credit, earned income credit, dependent care credit and adoption credit are also likely to be continued.

 

Despite what some people think, the Bush tax cuts don't just help "the rich."  They help just about anyone who pays federal income taxes. The scheduled demise of the Bush tax cuts next year will hurt lots of people, unless Congress makes changes and the president jumps on board.  Stay tuned (or better yet, call your congressman to voice your concerns) for updates as this develops during the rest of 2010.

 

 

Sincerely,

Kevin A. Cameron

 

The above article is from "Five Minute Tax Briefing," James A. Keller, CPA, J.D. and Brian Martin, CPA.  Five-Minute Tax Briefing Editors

 

Heidi Wisneski, Adm. Assistant
C&L Value Advisors LLC

 

 

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