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Tax changes not final yet.

The news services have been reporting that the 2010 tax stalemate over the “Bush-era” tax cuts has ended in December 2010. 

Are we counting our proverbial chickens before they hatch?

On December 6, 2010, President Obama and the GOP came to a handshake agreement to extend  the Bush-era tax cuts for an additional two years for all taxpayers.  I caution taxpayers that this is just a handshake agreement to extend tax cuts  and not officially tax law. 

We have not yet seen a bill presented and voted on by the House of Representatives or the Senate and definitely not signed by President Obama.  The goal is to have a bill passed by Congress by year-end.  So as we celebrate the ball dropping on New Year’s, we may also celebrate 2 more years of “no new income taxes”.

As we discovered with the Health Care Bill, the negotiating and fighting isn’t over until presented to President Obama for signature.   What we end up with  may be drastically different than the proposals listed below. 

Proposed changes  and extensions to federal individual income  tax include the following:

  1. Rates.  A two-year extension of the current individual tax rate structure with a maximum rate of 35% for 2011 and 2012.  The tax rates are scheduled to increase to a maximum of 39.6% without the proposed extension.
  2. Investment gains, dividends.  Long-term capital gains and qualified dividends will continue to be  taxed at 15% for another two years.
  3. Deductions. Itemized deduction phase-outs will remain at 2010 levels.
  4. Personal exemptions.  No  personal exemption phase-outs for another 2 years.
  5. Standard Deduction.  Marriage penalty relief will be extended for two more years.
  6. Child  Tax Credit. The child tax credit will remain at $1,000 for another two years per child instead of $500 per child.
  7. Earned income, Dependent Care Credits. Favorable changes scheduled to expire after 2010 will be extended through December of 2012.
  8. Education credit. The American Opportunity Tax Credit, offering up to a 40% refundable credit for higher education expenses, will be extended through December of 2012.
  9. AMT.   A patch will be provided to prevent additional tax on middle income  taxpayers.

Other proposed changes covered in the President’s plan:  

Hopefully, all of the elements of the President’s proposals will “hatch” in time for taxpayers who are keeping a close eye on their nest egg.