Tax Alert
The Bush tax cuts are set to expire - and
other big changes are poised to occur
Do
you see a warning light flashing? Americans
with high net worth and high incomes are preparing for the likelihood
of higher taxes in 2011 and subsequent years. High earners are almost
certainly going to take the hit if the EGTRRA and JGTRRA cuts fade away
at the end of 2010. Here’s a summary of what’s
happening – and a look at what might happen. There are some
developments you will want to remember, and some tax breaks you might
very well want to exploit.
No
phaseouts on itemized deductions and personal exemptions in 2010.
This may provide you with an opportunity for some notable tax savings.
Historically, high-income taxpayers have been subject to a reduction in
the value of itemized deductions and personal exemptions. That has
gradually decreased in this decade. In 2010, the phaseouts are gone
entirely. In 2011, they are poised to return.1
As IRS standard deduction
and personal
exemption amounts are indexed to inflation, you’ll see very
little change there for 2010. The standard deduction for heads of
household will rise by $50 to $8,400 for the 2010 tax year. Other
standard deductions will stay put, and the personal exemption amount
will remain at $3,650 for 2010.1
Lower
long-term capital gains rates through 2010. Unless
Congress decides to extend these Bush-era cuts, capital gains
tax rates will revert to pre-2003 levels in 2011. For 2010, the
long-term capital gains rate for those in the 10% and 15% tax brackets
is 0%. In 2011, it is set to go to 10%. If you fall into the 25%, 28%,
33% or 35% tax brackets, the capital gains rate is 15% in 2010 and 20%
in 2011.2
The
Tax Extenders Act of 2009. The House passed this legislation
on December
9, and the Senate is
likely to follow suit. The final version of this bill would likely
extend the additional standard deduction for real property taxes, the
deduction for state and local sales tax, and deductions for
tuition/education expenses and teachers' classroom expenses into 2010.3
The
estate tax. 0% estate taxes
in 2010? That was the plan … but the reality is that estate
taxes are likely to remain at current levels in 2010 with some
retroactive lawmaking. In early December, the House voted to restore
the estate tax for 2010; a week later, the Senate voted against
temporarily extending 2009 estate tax levels into the coming year. The
Senate will almost certainly take up the issue again in January.
However, to prevent a complete repeal of the estate tax next year, any
new legislation is expected to contain a retroactive provision. So
instead of taking effect upon passage, any new estate tax law would
likely be made retroactive to January 1, 2010.4
The
AMT. You know how it works
– Congress comes up with another AMT patch at the stroke of
midnight and middle-class taxpayers are saved once more. Well, just to
make things interesting, the Tax Extenders Act of 2009
doesn’t include an AMT patch for 2010. Many tax professionals
think the 2010 patch issue will be addressed early next year, with the
patch for the 2010 tax year made retroactive.5
How will marginal tax
rates rise in 2011? Does anyone think taxes won't increase in
the near future? At present, the marginal tax rates are 10%, 15%, 25%,
28%, 33%, and 35%. If Congress doesn't act by the end of 2010, the tax
brackets will reset to 15%, 28%, 31%, 36%, and 39.6%. By the way,
President Obama and some Democrats have proposed future tax brackets of
10%, 15%, 25%, 28%, 36% and 39% for 2011 (that is, only the highest two
brackets would revert to pre-EGGTRA levels).3
A healthcare surtax? If
the healthcare reforms pass in 2010,
taxpayers in the highest
brackets might pay even more to the IRS. For example, the legislation
that the House passed would require couples with MAGI of $1,000,000 or
more or individuals with MAGI of $500,000 or more to pay an additional
5.4% surtax.3
And finally, a
dilemma
for Congress. Congress
would like to extend the Bush-era tax cuts further to protect
lower-income and middle-income taxpayers. However, some analysts say it
would cost the federal government more than $1 trillion over the next
decade to do so.3
Have you talked to
your
financial or tax advisor lately? If
you
have, good for you. If you haven’t, do so now. Prepare
for change, and plan to take advantage of extended and potentially
expiring tax breaks. Call your Fragasso
Financial Advisor today for more information. If you
are not currently a client, please call 412-227-3200.
These
are the views of Peter Montoya Inc., not the named Representative nor
Broker/Dealer, and should not be construed as investment advice.
Neither the named Representative nor Broker/Dealer gives tax or legal
advice. All information is believed to be from reliable sources;
however, we make no representation as to its completeness or accuracy.
The publisher is not engaged in rendering legal, accounting or other
professional services. If other expert assistance is needed, the reader
is advised to engage the services of a competent professional. Please
consult your Financial Advisor for further information.
Citations.
1
webcpa.com/news/CCH-Sees-Little-Help-from-2010-Tax-Inflation-Adjustments-51737-1.html
[9/17/09]
2 usatoday.com/money/perfi/taxes/2007-06-15-mym-capital-gains_N.htm
[6/15/07]
3 fa-mag.com/fa-news/4914-higher-tax-rates-ahead-so-make-the-most-of-2010.html
[12/17/09]
4 marketwatch.com/story/story/print?guid=8639F258-5FD1-467F-AE47-3D5BD4572CB6
[12/18/09]
5
tax.cchgroup.com/Legislation/2009-Tax-Extenders-Act.pdf [12/10/09]
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Fragasso
Financial Advisors Receives Two Awards
Tribune
Review's Readers' Choice Poll 2010 Gold Honor
Fragasso Financial Advisors has
received
the Gold honor for Financial Planner in the Tribune Review's Reader's
Choice Poll 2010. Every year The Pittsburgh Tribune Review polls
Pittsburghers for their Readers' Choice. Readers are
asked to vote on the region’s best services in each
category. This year Fragasso Financial Advisors is proud to
receive the Gold recognition for Financial Planner, their highest
honor in that category! Fragasso will be ranked in the March 25th
edition of the Trib PM which will also include a special write-up about
the firm. Thank you to all of our faithful and appreciative
clients for voting for us! We strive to make your financial
success personal!
Pittsburgh Magazine
2010 Five Star Wealth
Managers
Several Financial Advisors
from our firm have been awarded the FIVE STAR Wealth Manager award for
2010.
About 1,000 advisors have been selected by consumers in the Pittsburgh
area who were asked to name an advisor they work with and trust.
33,600
people responded to the survey. Respondents evaluated their advisor
based on customer service, integrity, expertise, communication, value
for fee charged, and overall satisfaction.
Congratulations
to the Fragasso Financial Advisors Selected!
Gregg
Daily
Mike
Fertig
Kevin
Daeschner
Christine
Robinette
Deborah
Graver
Liliann
Moser
Look
for the Article in the July issue of Pittsburgh Magazine!
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