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What’s Behind Door # 1? (A Brief look at 2011 income taxes)

BLOG, TAXES  |  6 Aug 2010

As you probably know by now the Bush tax cuts which were enacted in 2001 and also 2003 are set to expire at the end of 2010. If Congress fails to act on taxes soon, these lower rates will be a memory, and higher tax rates will begin in 2011. Actually the rates would revert to the rates in effect before the first Bush tax cuts in 2001. Below are the approximate tax rates and brackets for 2010, and the change in tax rates set to begin in 2011.

SINGLE FILERS

2010 Taxable Income 2010 Rate 2011 Rate
$0-$8,543 10% 10%
$8,543 – $34,680 15% 15%
$34,680 – $84,048 25% 25%
$84,048 – $175,287 28% 28%
$175,287 – $381,123 33% 35%
$381,123 + 35% 39.6%
     

MARRIED FILING JOINT

2010 Taxable Income 2010 Rate 2011 Rate
$0-17,085 10% 10%
$17,085 – $69,360 15% 15%
$69,360 – $140,046 25% 25%
$140,046 – $213,435 28% 28%
$213,435 – $381,123 33% 35%
$381,123 + 35% 39.6%
     

As you can see, the way things currently stand only the top 2 income brackets will see an increase. Also, the long term capital gains rate for people above the 15% tax bracket increases from 15% to 20%. For people in the 10% & 15% brackets, this goes from 0% to 10%. Short term capital gains (assets held less than one year) will continue to be taxed your marginal income tax rate.

Qualified Dividends, which were taxed at 15% with the Bush tax cuts will revert back to ordinary income rates, meaning they will be taxed at your top tax bracket.

Currently, President Obama’s 2011 budget looks to let the tax cuts expire in 2011, thus the tax brackets you see above would be in effect and the lower income brackets would remain the same for 2011. He has promised that he wanted to leave tax rates the same for those making less than $250,000 (married) and $200,000 (single). Thus, if nothing is done than he has basically achieved that goal.

It will be interesting to see how this plays out the remainder of the year. So the above rates are by no means set in stone yet, and it will remain to be seen where the final tax rates end up. Of course the estate tax is also a hot item, and we will get into a discussion of that later on.