How will the new tax laws affect you?
Oct.18, 2010
HARRY’S WEEKLY UPDATE
A CURRENT LOOK AT THE COLORADO SPRINGS RESIDENTIAL real estate MARKET
HOW WILL THE UPCOMING CHANGES IN TAX LAW AFFECT YOU ?
In recent weeks, we have heard local business leaders, clients and friends express questions and concerns about how the upcoming changes in tax laws will affect them. In many cases, they indicated they were postponing buying decisions until they were more certain of their tax liability under the new laws. We thought the following article from Kiplinger might help clarify some of the uncertainty:
HERE’S WHAT KIPLINGER SAYS:
Six Months to Go Until ... The Largest Tax Hikes in History
Source: Kiplinger Tax Letter - Death Panels and Taxes (The Healthcare Chimera) Published: Aug 22, 2010. Author: Joan Pryde, Senior Tax Editor for the Kiplinger Letters
In just six months, the largest tax hikes in the history of America will take effect. They will hit families and small businesses in three great waves on January 1, 2011:
First Wave: Expiration of 2001 and 2003 Tax Relief
In 2001 and 2003, the Congress enacted several tax cuts for investors, small business owners, and families. These will all expire on January 1, 2011:
Personal income tax rates will rise. The top income tax rate will rise from 35 to 39.6 percent (this is also the rate at which two-thirds of small business profits are taxed). The lowest rate will rise from 10 to 15 percent. All the rates in between will also rise. Itemized deductions and personal exemptions will again phase out, which has the same mathematical effect as higher marginal tax rates. The full list of marginal rate hikes is below:
- The 10% bracket rises to an expanded 15%
- The 25% bracket rises to 28%
- The 28% bracket rises to 31%
- The 33% bracket rises to 36%
- The 35% bracket rises to 39.6%
Higher taxes on marriage and family. The “marriage penalty” (narrower tax brackets for married couples) will return from the first dollar of income. The child tax credit will be cut in half from $1000 to $500 per child. The standard deduction will no longer be doubled for married couples relative to the single level. The dependent care and adoption tax credits will be cut.
The return of the Death Tax. This year, there is no death tax. For those dying on or after January 1 2011, there is a 55 percent top death tax rate on estates over $1 million. A person leaving behind two homes and a retirement account could easily pass along a death tax bill to their loved ones.
Higher tax rates on savers and investors. The capital gains tax will rise from 15 percent this year to 20 percent in 2011. The dividends tax will rise from 15 percent this year to 39.6 percent in 2011. These rates will rise another 3.8 percent in 2013.
Second Wave: Obamacare
There are over twenty new or higher taxes in Obamacare. Several will first go into effect on January 1, 2011. They include:
The “Medicine Cabinet Tax” Thanks to Obamacare, Americans will no longer be able to use health savings account (HSA), flexible spending account (FSA), or health reimbursement (HRA) pre-tax dollars to purchase non-prescription, over-the-counter medicines (except insulin).
The “Special Needs Kids Tax” This provision of Obamacare imposes a cap on flexible spending accounts (FSAs) of $2500 (Currently, there is no federal government limit). There is one group of FSA owners for whom this new cap will be particularly cruel and onerous: parents of special needs children. There are thousands of families with special needs children in the United States , and many of them use FSAs to pay for special needs education. Tuition rates at one leading school that teaches special needs children in Washington , D.C. (National Child Research Center) can easily exceed $14,000 per year. Under tax rules, FSA dollars can be used to pay for this type of special needs education.
The HSA Withdrawal Tax Hike. This provision of Obamacare increases the additional tax on non-medical early withdrawals from an HSA from 10 to 20 percent, disadvantaging them relative to IRAs and other tax-advantaged accounts, which remain at 10 percent.
Third Wave: The Alternative Minimum Tax and Employer Tax Hikes
When Americans prepare to file their tax returns in January of 2011, they’ll be in for a nasty surprise—the AMT won’t be held harmless, and many tax relief provisions will have expired. The major items include:
The AMT will ensnare over 28 million families, up from 4 million last year. According to the left-leaning Tax Policy Center, Congress’ failure to index the AMT will lead to an explosion of AMT taxpaying families—rising from 4 million last year to 28.5 million. These families will have to calculate their tax burdens twice, and pay taxes at the higher level. The AMT was created in 1969 to ensnare a handful of taxpayers.
Small business expensing will be slashed and 50% expensing will disappear. Small businesses can normally expense (rather than slowly-deduct, or “depreciate”) equipment purchases up to $250,000. This will be cut all the way down to $25,000. Larger businesses can expense half of their purchases of equipment. In January of 2011, all of it will have to be “depreciated.”
Taxes will be raised on all types of businesses. There are literally scores of tax hikes on business that will take place. The biggest is the loss of the “research and experimentation tax credit,” but there are many, many others. Combining high marginal tax rates with the loss of this tax relief will cost jobs.
Tax Benefits for Education and Teaching Reduced. The deduction for tuition and fees will not be available. Tax credits for education will be limited. Teachers will no longer be able to deduct classroom expenses. Coverdell Education Savings Accounts will be cut. Employer-provided educational assistance is curtailed. The student loan interest deduction will be disallowed for hundreds of thousands of families.
Charitable Contributions from IRAs no longer allowed. Under current law, a retired person with an IRA can contribute up to $100,000 per year directly to a charity from their IRA. This contribution also counts toward an annual “required minimum distribution.” This ability will no longer be there.
Health insurance is INCOME on your W2's...... One of the surprises we'll find come next year, is what follows - - a little "surprise" that 99% of us had no idea was included in the "new and improved" healthcare legislation . . . the dupes, er, dopes, who backed this administration will be astonished! Starting in 2011, (next year folks), your W-2 tax form sent by your employer will be increased to show the value of whatever health insurance you are given by the company. It does not matter if that's a private concern or governmental body of some sort. If you're retired? So what; your gross will go up by the amount of insurance you get.
You will be required to pay taxes on a large sum of money that you have never seen. Take your tax form you just finished and see what $15,000 or $20,000 additional gross does to your tax debt. That's what you'll pay next year. For many, it also puts you into a new higher bracket so it's even worse.
This is how the government is going to buy insurance for the15% that don't have insurance and it's only part of the tax increases. Not believing this??? Here is a research of the summaries.....
On page 25 of 29: TITLE IX REVENUE PROVISIONS- SUBTITLE A: REVENUE OFFSET PROVISIONS-(sec. 9001, as modified by sec. 10901) Sec.9002 "requires employers to include in the W-2 form of each employee the aggregate cost of applicable employer sponsored group health coverage that is excludable from the employee’s gross income."
There now. Don’t you feel better?
SPRINGS AREA FINANCIAL INSTITUTION DEPOSITS JUMP 6.2%
The Gazette, October 12, 2010 4:54 PM
Colorado Springs consumers boosted savings sharply in the 12 months ended June 30 as deposits in area financial institutions grew by the greatest percentage in four years, according to the latest reports from federal regulators.
Deposits in area bank and credit union branches jumped 6.2 percent from a year earlier to $8.9 billion as of June 30, compared with 5.7 percent growth in the previous year, recently released reports from the FDIC and the National Credit Union Association said. Area bank deposits grew by 7.4 percent to $6.15 billion, while area credit union deposits were up 4.1 percent to $2.76 billion during the same period.
More than one-fourth of the area’s deposit increase was generated by a single bank. Deposits held by Colorado Capital Bank’s downtown Colorado Springs branch surged more than fivefold during the 12-month period to $174.4 million mostly because an unidentified trust company deposited more than $100 million at the branch, said John Davis the bank’s CEO. The branch also has been successful in attracting business and nonprofit deposits, he said.
Fred Crowley senior economist for the Southern Colorado Economic Forum said the area’s financial institutions benefitted both from consumers saving more of their income as well as the return of thousands of soldiers to Fort Carson from Afghanistan and Iraq. He also pointed to other economic indicators that reflected an improving Colorado Springs economy, including rising sales tax collections and new vehicle registrations.
“This is another indicator of a recovering local economy, although the recovery has tended to lag in recent months because there is nothing moving it forward right now. That probably won’t show up in the deposit numbers until next year,” Crowley said.
32% OF U.S.BUSINESSES PLAN TO HIRE ADDITIONAL STAFF IN 2011
RISMEDIA, October 13, 2010--Businesses across the globe are now looking to hire new staff, in one of the first signs that global economic recovery and growth is on a sustainable upward trajectory. This is the key finding of the bi-annual Regus Business Tracker survey that interviews more than 10,000 businesses around the world.
The fact that companies are looking to hire additional staff will be regarded as a significant indicator that the mindset of organizations has shifted toward investment in growth through human capital. Regus, a global provider of flexible workplace solutions, found that more than a third of companies surveyed said they intend to increase headcount. U.S. business was close to the global average with almost a third (32 percent net) of companies preparing to add new staff in 2011.
These findings are particularly significant, coming in the wake of recent observations from the International Monetary Fund (IMF) and International Labour Organization (ILO) that global unemployment has reached record proportions in the last three years (up to 210 million since 2007). These organizations have warned about potential problems for national economies if this trend continues. Unemployment reduces national taxation income and increases public spending. The findings of the Regus Business Tracker provide important evidence that the world unemployment situation may be set to ease in 2011.
The survey canvassed the opinions of more than 10,000 senior business people in 78 countries asking them about their current revenue performance, their profitability, their projected future revenues and their wider expectations of national economic growth. These indicators form the basis for the report's Business Optimism Index, which unusually reflects actual performance as well as near-term outlook. Globally, this edition of the index revealed a far more positive outlook, with a greater proportion of optimist countries than six months ago. For the U.S. in particular, the global index revealed a bullish rating of 87, up seven points on six months ago.
Sande Golgart, regional vice president for Regus, comments: "In spite of this optimism, our research also highlights that 41 percent of companies are still looking to reduce their overhead, through means other than reducing staff. This reveals an attitude of cautious optimism. As companies look to find economies in their own operations, we are likely to see more and more organizations offering flexible working practices to their existing or prospective employees in a bid to achieve a better work-life balance and run a leaner organization."
NEW ASSISTANCE FOR SMALL BUSINESSES
KRCO Tax Alert: The Small Business Jobs Act of 2010. Daily real estate News. October 12, 2010
On September 27, 2010 President Obama signed The Small Business Jobs Act of 2010, creating a $30 billion fund to provide capital to community banks to encourage lending to small businesses. The legislation (SBJA) also includes $12 billion in tax relief for small businesses and incentives to encourage investment in them. In addition, there are benefits for larger businesses as well as for the self-employed and individual taxpayers. If any of the following areas apply to your business, you should consult your tax advisor for more details:
- Increased exclusion on small business stock gains
- Increased and expanded Sec. 179 expensing
- Extended bonus depreciation
- Extended carryback of general business credit
- Reduced recognition period for S corporation built-in gains tax
- New breaks for the self-employed and individuals
Catch the breaks
Any number of the tax relief provisions listed here could apply to your situation; plus, there are others we didn’t have room to cover. To learn more about how SBJA may affect you or your business, please call (719) 630-1186.
FORECLOSURE LOGJAM THREATENS FANNIE, FREDDIE
Fannie Mae and Freddie Mae will force lenders to pay for any losses that the GSEs incur due to a breakdown in the foreclosure process. Fannie and Freddie, the mortgage giants, could lose billions of dollars in a prolonged delay because they would be unable to sell properties that have slipped into foreclosure, explains George Mason University real estate professor Anthony Sanders. Source: Washington Post, (10/12/2010).
One of the biggest reasons for the logjam is because Realtors and Buyers are no longer willing to wait for the lengthy acceptance process. As a result, Realtors are increasingly not showing foreclosures. Furthermore, foreclosures are no longer the “best deal in the marketplace.” Many individual Sellers are now pricing their properties to compete with foreclosures anyway. And, to add to the problem, some banks are not being as aggressive as they should be on list price.
Perhaps most importantly, as a result of the lawsuits filed by various states regarding “digital signers”, a new set of rules for foreclosures has been issued by the federal government. As a result of these new rules, Buyers can expect even more delays in the acceptance process for foreclosure offers.
The bottom line is that, unless a Buyer is willing to put up with unreasonable delays from out of town Lenders, it is probably not the time to put in an offer for a foreclosure. In our current experience with foreclosures, it is obvious that Lenders do not respect the phrase which appears in every sales contract; “Time Is Of The Essence.”
We will keep you advised on this issue as new information comes in.
HERE’S SOME REALLY GOOD NEWS
The Gazette advises us that, for the second year in a row, Forbes has ranked Colorado as the fourth best state for business and careers. Utah tops the annual list, followed by Virginia and North Carolina. Utah’s economy has expanded 3.5 percent annually over the past five years.
Forbes’ “Our Best States” ranking measures six key categories for businesses: costs, labor supply, regulatory environment, current economic climate, growth prospects and quality of life. Business costs, which include labor, energy and taxes, are weighted the most heavily.
Colorado ranked first among the states for labor supply, sixth for economic climate and growth prospects, ninth for quality of life, 15th for regulatory environment and 33rd for business costs.
“Today’s ranking by Forbes shows that our strategies and investments in emerging and innovative industries like clean energy, health care, aerospace, biosciences and technology are working,” Gov. Bill Ritter said in a news release.
For the full list, go to www.forbes.com.
And, please remember, I would be honored to serve as your Broker for all of your residential real estate needs. I want to help you, my reader, make the most prudent and accurate Real Estate business decision.
Also if you know of anyone who desires to buy or sell local real estate, or, who is moving in or out of the Pikes Peak region, remember that, with over 37 years of providing relocation and Real Estate services to clients throughout the country, I am uniquely qualified to assist them with the relocation process, including buying and/or selling their homes on both ends of their move. Please allow me to implement my negotiating skills on your behalf.
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