Your New Taxes: Let the Frenzy of Wealth Transfer Begin!
With today’s forthcoming signature by the President, the nation enters a frenzy of wealth transfer over both the next few weeks and the next two years. What does the tax bill do? Here is a fairly simple breakdown.
• The bill affirms the tax rates. They are: 10% (for couples with income up to $17,000), 15% (for a single person, $34,000), 25% ($82,400), 28% (up to $171,850), 33% (up to and $379,149) and 35% (more than that!); that last bracket would have gone up to 39.6%.
• Self-employment tax goes down from 12.4% to 10.4%.
• The Social Security payroll tax stays down at 4.2 percent, from 6.2 percent — for annual income up to $106,800. Except for the self-employed! They pay 10.4%.
• Continues the reduced taxes on dividends and capital gains: Those rates are 0% for people in the 25% tax bracket or lower; they are 15% for those in higher brackets.
• The tax on transfer of wealth after death (by which we mean wealth that isn’t put into put in foundations or other instruments) will remain at 35% — of all money beyond $5 million (or, essentially, $10 million for giving and/or inheriting couples). Which is to say, all money up to $5 million may be passed along tax-free, so estate taxes affect fewer than .2% of Americans.
• The “gift” tax remains at 35%, beyond an exemption of $13,000 a year and $10 million over a lifetime. The GST tax (inheritance that skips a generation) is taxable above $5 million beginning in 2011.
• There is a tax credit of $1000 for each child in the household, plus a little somethin’ extra now in the “Earned Income Tax Credit,” for people who made very little money in the year.
• All income levels may now convert individual retirement accounts to a Roth IRA at the extended lower tax rates, and split the taxable proceeds between two years, if they perform the conversion by the end of 2010. Additionally, up to $100,000 of an individual IRA may be given tax-free to charity.
• Teachers may have a deduction of up to $250 for out-of-pocket expenses!
And a few other things that point out that, as BusinessWeek put it, it’s a great time to be rich.
