We’re just two weeks into the new Congress and the Republican majority is already causing controversy as it tries to live up to what it perceives as its deficit reduction, tax cut mandate. Republicans promised to cut spending by $100 billion by the end of 2011, but critics say that recent Republican maneuvers will do just the opposite by reducing revenue through new tax cuts and a repeal of the health care reform law.  

The so-called “cut as you go” rules require that every new mandatory spending measure be offset by an equivalent spending cut. Tax cut legislation is exempt from the cut-go rules.  Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

The Tax Relief Act will extend unemployment benefits for about 2 million unemployed persons in the month of December and a total of 7 million over the next year.  Federal unemployment benefits amount to only about $260 per week, but it is money that families need for basic necessities—money that flows right back out into the economy.  If the extension had not passed, the average affected household’s income would have dropped by one-third. The corresponding drop in spending would have further increased job losses, further delaying the already slow recovery.   Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of President Obama’s tax agreement in Advisor’s Journal, see Obama Tax Agreement Faces Stiff Resistance in Congress (CC 10-112), Obama Tax Agreement Passed by House (CC 10-117) and Obama’s Social Security Tax Holiday: Penny Wise and Pound Foolish? (CC 10-119).

Why is this Topic Important to Wealth Managers?  Discusses new tax rate brackets beginning next colander year (2011).  Also, briefly discusses tax rate tables generally.

In 2001, the Economic Growth and Tax Relief Reconciliation Act first created a new 10-percent regular income tax bracket for a portion of taxable income that was previously taxed at 15 percent.  That law also reduced the other regular income tax rates. The otherwise applicable regular income tax rates of 28 percent, 31 percent, 36 percent and 39.6 percent were reduced to 25 percent, 28 percent, 33 percent, and 35 percent, respectively.

Under Section 101 of the new Tax Relief, Unemployment Insurance Reauthorization, And Job Creation Act of 2010, the law creates an extension of the taxable income brackets created almost a decade ago.

Generally, a taxpayer determines his or her tax liability by applying the tax rate schedules (or the tax tables) to his or her taxable income. The rate schedules are broken into several ranges of income, known as income brackets, and the marginal tax rate increases as a taxpayer’s income increases. Separate rate schedules apply based on an individual’s filing status.

Below are the new tax rate tables for those filing as single taxpayers, married filing jointly, as well as head of household.

For those filing as single taxpayers the new income tax rates, effective after 2010 are:

For married individuals filing jointly, the new income tax rates are:

For those filing as head of household, the new income tax rates are:

Tomorrow’s blog will continue to discuss pertinent provisions of the new Tax Cuts and how they relate to wealth managers.

We invite your questions and comments by posting them below, or by calling the Panel of Experts.

In a tax plan full of surprises, President Obama’s unexpected proposal to give workers a one-year, 2 percent Social Security tax holiday is perhaps the most surprising part.   But Social Security experts caution workers not to party just yet because the holiday could destabilize Social Security.   And, although a 2 percent paycheck bump is better than nothing, it is not the tremendous boon to workers it is being presented as.  The Social Security tax holiday would essentially offset the loss of the Making Work Pay tax credit, which expires at the end of 2010 and is not renewed by the tax cut bill.  The Making Work Pay tax credit gives taxpayers making at least $5,000 and no more than $75,000 annually a refundable $400 tax credit.

Opponents also characterize the proposed tax holiday as an attempt to shift retirement savings from the Social Security Administration to Wall Street.  Undoubtedly, many taxpayers will, smartly, divert the 2 percent tax break into their 401(k)s and IRAs, but a majority of taxpayers are likely to spend the money, barely noticing the tiny bump in their paychecks.  Read this complete article at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of the debate over the expiring Bush tax cuts in Advisor’s Journal, see Obama Tax Agreement Faces Stiff Resistance in Congress (CC 10-112) and What Lies Beyond the Sunsetting 2010 Tax Provisions (CC 10-88).

President Obama’s tax compromise—the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010—passed the House late Thursday (Dec. 16) by a margin of 277-148. The Bill, which was passed by the Senate on Wednesday (Dec. 15), was signed into law by President Obama.

The act, which extends the Bush tax cuts for two years for taxpayers at all income levels, includes the following provisions (among others):  Read this complete article at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of congressional wrangling over the Bush tax cuts in Advisor’s Journal, seeObama Tax Agreement Faces Stiff Resistance in Congress (CC 10-112), Lame Duck Agenda Packed with Tax Business (CC 10-108), Obama Administration May Be Willing to Extend Bush Tax Cuts for More Taxpayers (CC 10-93), and CBO Analysis Supports Extending Tax Cuts (CC 10-49).

Although President Obama’s agreement with Republican leaders to extend the Bush tax cuts is a good sign that unanswered tax issues may be resolved by the end of the year, the controversial agreement may also cause a damaging Democrat mutiny.  The deal, reached last Monday, would extend the Bush tax cuts for two years for taxpayers at all income levels, continue the reduced capital gains and dividend rates, and institute an estate tax with a $5 million exemption and 35 percent rate.

Response to the agreement has been mixed, with some Democrats condemning it as a total victory for Republicans.  When asked about what Democrats got out of the deal, Representative Gary Ackerman (D-N.Y.) said “I disagree that we didn’t get anything—we got screwed.”  The agreement hit a speed-bump last Thursday (Dec. 9), when the House Democratic Caucus passed a resolution rejecting the president’s agreement and refusing to consider it in session.  Read this complete article at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous Advisor’s Journal coverage of the Bush tax cuts, estate tax, and other tax provisions set to expire at the end of 2010, see Lame Duck Agenda Packed with Tax Business (CC 10-108), Obama Administration May Be Willing to Extend Bush Tax Cuts for More Taxpayers (CC 10-93), and CBO Analysis Supports Extending Tax Cuts (CC 10-49).

We invite your questions and comments by posting them below or by calling the Panel of Experts.

Determined to shuck common stereotypes about lame duck sessions of Congress, lawmakers returning to the capital after Thanksgiving break have filled their calendars with tax-related meetings and legislation—including White House visits intended to flesh out a compromise on the Bush tax cuts. Also on the docket is a repeal of the newly expanded Form 1099 reporting requirement and a sorely needed AMT patch.

The Senate is considering the FDA Food Safety Modernization Act (S. 510), which includes a provision repealing the Health Care Act provision that will expand the reach of the 1099 reporting requirement to anyone in a trade or business making a payment of over $600.  Repeal of the expanded 1099 requirement has support on both sides of the aisle.  Read this complete article at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of the Bush tax cuts in Advisor’s Journal, see CBO Analysis Supports Extending Tax Cuts (CC 10-49) and What Lies Beyond the Sunsetting 2010 Tax Provisions (CC 10-88).

For previous coverage of the expanded 1099 reporting requirement in Advisor’s Journal, see Health Care Reform Causes an Avalanche of 1099s (CC 10-84).

For previous coverage of the AMT patch in Advisor’s Journal, see Finance Committee Promises AMT Patch (CC 10-100).

We invite your questions and comments by posting them in our blog AdvisorFYI or by calling the Panel of Experts.

The co-chairs of President Obama’s Fiscal Commission released a preliminary proposal to reduce the deficit by $4 trillion through 2020. The plan would reduce the deficit to 2.2 percent of GDP by 2015, cap government spending and revenue at 21 percent of GDP, and ensure Social Security’s long-term solvency. Perhaps the most dramatic component of the plan is its proposal to completely overhaul the U.S. income tax system by reducing tax rates and eliminating the alternative minimum tax (AMT)—balanced by the elimination of many tax credits and deductions.  Read this complete article at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of Congressional action on the income tax in Advisor’s Journal, see CBO Analysis Supports Extending Tax Cuts (CC 10-49).

We invite your questions and comments by posting them below or by calling the Panel of Experts.

President Obama still insists that the Bush tax cuts should be extended only for low and middle-income taxpayers, but there are signs that compromise is possible. Although the president is unwilling to extend the cuts beyond the middle class, the administration may be willing to move the dividing line between the haves and have-nots.

The definition of “middle-income” is the newest compromise point in the tax cut battle, with some Democrats willing to raise the level at which a taxpayer is considered “wealthy.”   The dividing line currently used by the Obama administration is $250,000, with some Democrats expressing willingness to move the line to $500,000.   Others favor pushing the definition of “wealthy” all the way to the $1 million income mark.  Alice Rivlin, a member of the White House’s National Commission on Fiscal Responsibility and Reform, favors the $500,000 threshold—although she would make that threshold a temporary, compromise measure.   Read this complete article at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of the Bush tax cuts in Advisor’s Journal, see CBO Analysis Supports Extending Tax Cuts (CC 10-49).

We invite your questions and comments by posting them below, or by calling the Panel of Experts.

The so-called Bush tax cuts are proving to be popular ammo in the 2010 election cycle, with Democrats accusing the Republicans of slashing the tax base by pandering to the wealthiest Americans, and Republicans accusing the Democrats of hindering economic recovery by taxing Americans to the poorhouse.

We have heard ad infinitum about the 2011 regression of the estate tax to 2001 rates, exemptions, and exceptions and the income tax rate increase that will result from Congressional inaction—those are, after all, the easiest changes to digest and spit back over the airwaves as a twenty-second sound bite. But there are dozens of other important income tax provisions that will expire if Congress does not step in by the end of the year to extend them. While not as dramatic as the tax rate increase or estate tax conundrum, these provisions can profoundly affect a taxpayer’s tax exposure and may warrant an income tax strategy overhaul.   Read this complete article at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of the Bush tax cuts in Advisor’s Journal, see CBO Analysis Supports Extending Tax Cuts (CC 10-49) as well as coverage at Bush Tax Cuts Linger Long After Sunset.

We invite your questions and comments by posting them below or by calling the Panel of Experts.