The Long Awaited Tax Law Passed (14 Days Before Year-End!)

It's official.  Early this morning, the Congress approved the "Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010".  President Obama signed it into law later in the day.

It's been publicized as "extending the Bush tax cuts", like the Government is doing us some kind of huge favor.  Federal income taxes range from 10% to 35%.  Add in social security, medicare, and state taxes, and the range goes up to something more like 20% to 40%.  This law simply keeps those rates at those levels and didn't allow them to increase.  Thank goodness!  Most of us have a hard enough time making ends meet as it is without having even less left after taxes to do it with.

In Addition To Preserving Most 2010 Tax Rates There Is One Tax Reduction For 2011

For one year, 2011, it actually does cut taxes for most people -- those who are employed will see 2% less taken from whatever they earn (up to an income maximum of $106,800).  It will have the same effect as an immediate 2% raise beginning with your first paycheck in January, assuming the computers figuring your paychecks can be reprogrammed that quickly (Congress didn't leave much time for that, did they?).  I'm actually confident they'll still make it in time ...

2011 and 2012 Might Be A Good Time To Sell Assets To Generate Cash

For those in the 10 and 15% federal tax brackets (meaning less than $34,500 of taxable income (after deductions, so actual income can be somewhat higher) for single folks and $69,000 of taxable income for married couples filing a joint tax return), you could sell assets and get back your basis (generally what you paid for it) tax free plus any gain would also have zero federal income tax due, if you sold by December 31, 2010.  This deadline has been extended until December 31, 2012, and will be a real help to a lot of middle income people.

Lower (Or Zero) Qualified Dividend Tax Rate Extended

In addition, with interest rates on bank accounts so low, some people have been putting their savings into select stocks that pay good dividends.  Of course, that's the stock market, and you have to be careful with that, but there is also a tax benefit that has been extended here.  The same zero federal income tax on capital gains I just mentioned has been extended two years until the end of 2012 for qualified dividend income, but only for people in the lowest two tax brackets.  (Everyone else will pay 15% federal tax, and regardless of income, most states will add their tax to that)

Of Course, There Is Much More To Discuss

Come back often, I'll try to talk about it in plain English and give some planning ideas YOU can use!

Get Your Tax or Financial Questions Answered In A Future Blog Post 

I choose topics for my blog posts based on the questions I receive most frequently from you.  I appreciate your input!  Feel free to comment at http://www.dougbeecherstaxandmoneyblog.blogspot.com/

Important Note!   The information in this article is intended to inform you of some of the financial opportunities provided in the tax laws or elsewhere.  These laws are very complex and thus this article is not intended to give you specific advice for your personal situation.  If you need such advice, please contact a qualified professional.

© 2010, Doug Beecher, MBA, CPA all rights reserved. This article, either as a whole or in part, may not be reproduced or transmitted in any form without the prior written permission of the copyright holder. When such permission is granted, the user must state that the material was used by permission of the copyright holder.