Posted: 1:19 pm Sunday, January 3rd, 2010
By Jamie Dupree
The Congress went home in 2009 without finishing work on a series of major and minor tax issues, which will mean lawmakers will likely have to approve major tax legislation in 2010, some of it retroactive in nature.
The most well known item is the federal estate tax – death taxes as some have called them.
On January 1, 2010, the estate tax phased out completely at the federal level. But on January 1, 2011, the estate tax returns with a vengeance, at a rate of 55% on estates worth more than $1 million.
Lawmakers in both parties have talked about the need to come up with a new plan, discussing an extension of the current top rate of 45% on estates of $3.5 million for individuals, $7 million for married couples.
This is just one of many tax decisions that must be made by the Congress this year. Why?
Well, because at the end of 2010, the first round of Bush tax cuts expire, which means income taxes will go up, along with taxes on capital gains and qualified dividends.
For example, capital gains rates are right now 15% on long term profits, with a zero rate if you are in the bottom two income tax brackets.
As for tax brackets, they would go from 10-15-25-28-33-35% to 15-28-31-36-39.6%.
In other words, a tax increase is on the horizon in 2011.
Something else lawmakers will have to do is to deal with a series of expiring tax breaks – items that simply went away at the end of 2009.
Those include the ability of people who live in states without income taxes to deduct their state and local sales taxes instead on their federal tax returns. There is also a deduction for tuition and educational expenses, an extra standard deduction for property taxes and more which expired.
The House approved a one year extension in December, but the Senate never took up the issue.
And there is one more big issue that needs attention, the Alternative Minimum Tax, which lawmakers usually “patch” each year, to make sure it doesn’t hit more and more taxpayers. That was not done in 2009.
All of these decisions, from estate taxes to the AMT to the expiring Bush tax cuts and more will have huge implications on the deficit as well, depending on how they are handled.
That is a lot of unfinished tax business for any year. But it’s a huge amount of unfinished tax business – with major political ramifications depending on the solution – for a hotly contested election year as well.
The calendar is already crowded for 2010 in the Congress.