Thanks to the election, there might be some significant changes to the tax code and how taxes could affect you. The first tax effect that could come into play is the ending of the tax cuts established during the Bush administration. This end will come if Congress doesn’t act.
Some other effects include a rollback of the income triggers for AMT (alternative minimum tax) to their 2000 levels. If that happens, around 30 to 31 million taxpayers would pay AMT. Furthermore, capital gains taxes would increase to 20% for 15%. There would also be cuts in federal spending to defense and social welfare programs.
Also, the 2 percent deduction in payroll taxes will expire and the IRS would probably have to delay the sending of tax refunds.
If no action is taken before the Bush-era tax cuts expire, the tax rate on dividend income will rise from 15 percent to the top individual tax rate (39.6 percent), and the tax rate on long-term capital gains will rise from 15 percent to 20 percent.
The President wants to let the taxes expire for the top 2% richest people in the nation while keeping earners of $250,000 or less as beneficiaries of a Bush tax cut extension. The Speaker of the House opposes this idea but indicates there might be room for compromise.
There have been various tax propositions in individual states as well. For example, in my home state of California, Proposition 30 boosts the income tax rate for seven years on those individuals who earn more than $250,000 a year. It also raises the state sales tax by a quarter of a percent for four years. It is estimated that this will result in placing $6 billion in the state’s coffers on an annual basis.
Those who earn more than $250,000 per year have several options, one of which is to take advantage of gifting or other means to minimize their tax exposure. As we reported in an earlier post, being a high-tax state has not seemed to have driven millionaires out of our luscious state. Many view it as a necessary cost for the privilege of living in California.
Those who wish to minimize their exposure to income taxes are encouraged to work with a tax professional to determine an individualized plan or as I like to call it, a strategic tax plan, which is a year-round implementation of tax moves and strategies to minimize your tax liability, no matter the results of the election on the tax code.