Tax Tips How Will Tax Impact Affect Me? Read the Article Open Share Drawer Share this:Click to share on Facebook (Opens in new window)Click to share on Twitter (Opens in new window)Click to share on LinkedIn (Opens in new window)Click to share on Pinterest (Opens in new window)Click to print (Opens in new window) Written by TurboTaxBob Published Aug 18, 2010 - [Updated Jul 5, 2016] 2 min read While tax legislation can be notoriously unpredictable, it is a good idea to know what is currently on the table for consideration, even with tax day just 8 short months away! Two big considerations will drive action in D.C. this year – the economy and the budget deficit. Obviously these actions will affect your tax situation. So, let’s discuss what we know today and what is scheduled to change in 2011. And keep in mind, this is not only about tax planning for 2010, but for years beyond. Expiring Tax Cuts In 2001 and 2003, tax breaks were enacted that are scheduled to expire in 2011. These breaks consisted primarily of reducing the top tax rates on capital gains, dividends and all other income. If no legislative action happens to reverse these expiring tax cuts, taxpayers will see the following tax rate changes in 2011: From (2009 tax year) To (2010 tax year) Capital gains: 15% -> 20% Dividends: 15% -> 39.6% Income: 35% -> 39.6% These are substantial increases across the board. Fortunately for some, these increases may apply only to the wealthiest Americans (> $200,000 single or > $250,000 joint). Regardless of what happens, many believe that top tax rates will go up. Therefore, now is the time to evaluate your income portfolio to determine if it’s time for asset reallocation. For example, consider shifting those dividend generating investments into capital gains generating investments. While this transaction may create a taxable sale now, you’ll be paying tax on those gains at a rate lower than what it may ultimately be in 2011. On the other hand, if you expect to sell at a loss, consider shifting the sale into 2011 where those capital losses will be more valuable if rates go up. Lastly, if Congress does nothing about the alternative minimum tax (AMT) this year, 24 million additional Americans taxpayers will face paying the AMT this year. This scenario has played out each year for the last few years. What we have learned is that Congress generally acts on this “stealth” tax at the last possible minute to mitigate its impact. And finally, the estate tax uncertainly still exists. While there is no estate tax at least for now, it is scheduled to come roaring back in 2011 at a rate of 55%. The exemption amount is $1 million. Obviously, the lack of certainly in this area makes planning difficult. In summary, while no action has been taken yet on tax legislation for next year, it is prudent to keep an eye on it so you can anticipate its impact on your bottom line. Although I can’t predict what Congress will do with specific legislation, I think it’s safe to assume that high income taxpayers will see higher tax rates in the future. Use this as a guide for beginning your tax planning in 2011, and check back with us often as we’ll keep you updated here on tax changes you need to know about. Previous Post Pedal Power: Save Cash on Your Commute Next Post Last-Minute Vacation Deals Written by TurboTaxBob More from TurboTaxBob 2 responses to “How Will Tax Impact Affect Me?” Howar… All of your interest is deductible. Unfortunately, any loss on the sale of your home is not deductible. Bob Meighan VP, TurboTax Reply I had to sell my house in a short sale. There was enough money from the proceeds to pay off the principal and missed back interest as well as part of the second. Do I get write off that back interest on my tax returns? Reply Leave a ReplyCancel reply Browse Related Articles Tax Planning TurboTax Enables Refund Advance to Taxpayers Investments Tax Benefits of Real Estate Investing Self-Employed Business Tax Checklist: What You’ll Need When Filing Uncategorized What Is Deferred Compensation & How Is It Taxed? Investments How Does an Inherited IRA Work? Work Choosing Your Business Structure: 5 Types of Businesses… Tax Deductions and Credits Are HOA Fees Tax Deductible? What You Need to Know Crypto Understanding Crypto and Capital Gains Work 7 Things You Need to Know About the New Business Report… Work Using Form 8829 to Write-Off Business Use of Your Home
Howar… All of your interest is deductible. Unfortunately, any loss on the sale of your home is not deductible. Bob Meighan VP, TurboTax Reply
I had to sell my house in a short sale. There was enough money from the proceeds to pay off the principal and missed back interest as well as part of the second. Do I get write off that back interest on my tax returns? Reply