Tax Tsunami
Research for Online Investors

by John Dalt

7/08/10

A Tsunami of tax hikes are around the corner, what can you do? In six months, the largest tax hikes in the history of the U.S. will take effect.  These tax hikes will hit your family and small businesses like a tsunami.

Last week, tanning salons started collecting a 10% tax on their services. Tanning is not taxed if offered in a wellness/fitness center. A new 2.3% tax also went into effect on medical devices that cost over $100

The first tide to come in is the expiration of the 2001 and 2003 Tax Relief Acts. Here are the changes.

Personal income tax rates will increase an average of 18.9%, here are the rates. Some itemized deductions and exemptions phase out. The last rate is where two-thirds of small business profits are taxed.

10% bracket rises to 15%
25% bracket rises to 28%
28% bracket rises to 31%
33% bracket rises to 36%
35% bracket rises to 39.6%

-The Child tax credit will be cut from $1000 to $500. The standard deduction will not be doubled for married couples, dependent care and adoption tax credits will be cut.

-The Death Tax will go from -0- this year to 55% on estates over one million.

-Capital gains taxes increase from 15% to 20%, and dividends will be taxed at 39.6%. Both will increase by 3.8% again in 2013.

The next wave, growing on the first, is health care reform. Here are the changes.

-New healthcare taxes on employers and “adjustments” to Health Savings Accounts (HSA), Flexible Spending Accounts (FSA), and Health Reimbursement Accounts (HRA).

-Non-prescription drugs or over-the-counter medicines cannot be purchased with the above accounts. New FSA limit of $2,500. Tax on non-medical withdrawals from HAS raised from 10% to 20%

The final and third group of increases. Higher employer taxes and indexing. Here are those changes.

-The Alternative Minimum Tax (AMT) index was not renewed by congress. This will lead to an estimated 28.5 million taxpayers paying AMT adjusted taxes compared to 4 million last year.

-Small businesses will only be allowed to expense $25,000 in capital expenditures, down from $250,000 per year. Larger corporations must expense all capital expenditures.

Here is a 46 page report prepared for the Joint Committee on Taxation prepared on Jan. 29, 2010 if you would like to read about all of the expiring taxes. 46 pages!

Employers will now report the amount of employee health insurance benefits on their W-2. This will allow the government to tax these benefits in the future.

We couldn't help but include this bumper sticker.  My wife's mother was a child in Nazi Germany, and caught in the Soviet occupation as an American citizen.  She has seen the current events, before.

Tax planning should be on your mind now, not in December. There may be more changes coming in the next six months. Tuesday we wrote about parking your money in Treasury Inflation Protected Securities (TIPS) or in the TIP etf if you have funds not in the market right now. We like the TIP etf as it is easy to move in and out of, pays interest monthly, and current yield is 3.86%. That is pushing the current yield on 10-year treasuries! You don’t receive the minimum guaranteed value that comes with purchase of a TIPS since you have some exposure to changing stock price. The inflation protection is built into the ETF basket of bonds owned, and should reflect in the yield paid over time.

Tomorrow we are going to bring you a way to send money out of the country safely, out of the reach of the taxman, and completely legal. This investment could make you money, and you won’t have to tell the government you own it!

Today’s quote:
Democracy is two wolves and a lamb voting on what to have for lunch---Benjamin Franklin

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.  

MarketToday Home Page

Back to Top