It is important to note that their will be tax increases with the fiscal cliff problems but we already have a number of increases that are happening just because the Bush era tax cuts are expiring. Here is a list of some of the more significant tax increases not counting any that come out of the negotiations over the next week.
The AMT and Capital Gains changes will be a shock and impact many that don't realize it is coming. I have bolded the information that I think will impact traders at the highest level but all of this is important.
The Social Security payroll tax reduction in place for the last two years will increase 2% from 4.2% to 6.2%. This will mean an average of $40 less per paycheck for the average American.
The Child Tax Credit will decrease from $1,000 per child to only $500 per child. Ouch! A $1,000 impact for a two-child family.
The American Opportunity Tax Credit (for educational expenses) will decrease from $2,500 to $1,800 per student (and revert back to being the Hope Credit).
The tax rate on long-term capital gains will increase from 0 to 10% for lower income taxpayers and from 15% to 20% for those with higher incomes.
The tax rate on qualified dividends will increase from 15% to the taxpayer’s ordinary income rate (up to 39.6%).
Itemized deductions and personal exemptions will again be limited/phased out for higher income taxpayers.
The Alternative Minimum Tax ”patch” will disappear and the exemption amount will decrease to $48,450 for single taxpayers and $74,450 more married taxpayers.
Approximately 27 million more Americans will be subject to the AMT.
The Adoption Tax Credit will be reduced to $5,000 from $12,650. It will not be refundable but taxpayers will be able to carry forward unused amounts.
Coverdell Education Savings Account contributions will be limited to $500 per student (down from $2,000 per year, per student).
Income Tax Rates will increase from last year’s 10%, 15%, 25%, 28%, 33% and 35% to 15%, 28%, 31%, 36%, and 39.6%. Yes, that is right some of the lower income tax rates will increase by 50%. How's that for not impacting middle and lower class America?
The maximum Long-Term Capital Gains tax rate will increase from 15% to 20%.
The “Marriage Penalty” returns… Married couples will no longer get an equitable percentage of the single taxpayer amounts for the standard deduction, the 15% tax bracket or the earned income tax credit.
The Child and Dependent Care Credit amounts will decrease due to lower percentages, lower eligible expenses and an lower AGI phase-out.
The top rate for the Estate Tax will increase to 55% (up from 35%) and the exclusion amount will be reduced to $1,000,000 (down from last year’s $5,120,000). So to save money and in the words of Mr Charles Dickens ``If they would rather die,'' said Scrooge, ``they had better do it, and decrease the surplus population.
The Section 179 Deduction will be reduced to $25,000 with a qualifying property limit of $200,000 (down from $139,000 and $560,000 respectively). Bonus Depreciation will be eliminated.