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Higher Tax Rates
Beginning in 2011,
tax rates in effect prior to 2001 spring back into effect. The top
income tax rate returns to 39.6 percent, and the special low 10
percent bracket is eliminated. Whether this will actually happen
will be at the heart of a spirited battle in Congress.
Estate Tax
Revived
For individuals
dying after 2010, the federal estate tax returns with a $1,000,000
exemption and a 50 percent maximum rate. This assumes that Congress
allows the estate tax to disappear in 2010, which is unlikely.
Increase in
Capital Gains and Dividend Tax Rates
The tax rate
reductions for long-term capital gains and dividends is scheduled to
expire this year.
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In 2011, the
maximum long-term capital gains tax rate goes back up to 20
percent from 15 percent. A lower 10 percent tax rate is used by
individuals who are in the 15 percent tax bracket. Their
long-term capital gains had been tax-free since 2008.
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In 2011,
dividend income (other than capital gain distributions from
mutual funds) is taxed as ordinary income at your highest
marginal tax rate.
Child Tax Credit
The credit of
$1,000 per eligible child reverts to $500 after 2010. After 2010,
none of the child tax credit will be refundable to taxpayers unless
their earned income is more than $12,550. This is one of the many
Bush tax cuts currently scheduled to expire after 2010.
Payroll Tax
Credit
Starting in 2011,
the partial credit for payroll taxes paid is no longer available.
Decreased
Section 179 Expense Deduction
Taxpayers who
purchase qualifying business property may elect to deduct the cost
of the property (new or used) in the year that it is placed in
service. This is referred to as a Section 179 deduction. In 2009 and
2010, the maximum amount of property that may be taken as a Section
179 deduction is $125,000, as indexed for inflation. In 2011 and
future years, the maximum deduction drops to $25,000.
College Savings
Plans
Beginning in 2011,
529 Plans can no longer be tapped tax-free to pay for a computer or
Internet access.
Tax Credit for
College Tuition
The Hope credit is
again limited to the first two years of college and is capped at
$1,800. None of the credit is refundable if it is more than your
regular income tax liability.
Earned Income
Tax Credit (EITC)
Temporary increases
in the Earned Income Tax Credit for filers with three or more
children and the higher income levels for the phaseout of the credit
are repealed.
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