“Will Obama raise my taxes?” This is one of the biggest questions on most American’s minds right now. As you probably know already, the Bush tax cuts are set to expire at the end of this year. I’ve already written about this in a previous post (Read It Here).
In addition to everyone being in a higher tax bracket with less income, and paying higher taxes on stock dividends and capital gains, here’s a few other nasty tax increases that will be coming back in 2011 if Obama decides to do nothing:
Return of the Marriage Penalty
Right now, the standard deduction for married joint-filing couples is double the amount for singles. For this, we can thank the Bush tax cuts, which included several provisions to ease the so-called marriage penalty. The penalty can force a married couple to pay more in taxes than when they were single. Starting next year, the joint-filer standard deduction will fall back to about 167% of the amount for singles unless Congress takes action and the president approves. We don’t know if that will happen. If not, lots of lower and middle-income couples will face higher tax bills.
Now, the bottom two tax brackets for married joint-filing couples are exactly twice as wide as those for singles. That ratio helps keep the marriage penalty from biting lower- and middle-income couples. Starting next year, the joint-filer tax brackets will contract, causing higher tax bills, unless a change is made.
Return of Phase-Out Rule for Itemized Deductions
Before the Bush tax cuts, a nasty phase-out rule could eliminate up to 80% of a higher-income individual’s itemized deductions for mortgage interest, state and local taxes, and charitable donations. The rule was gradually eased and finally eliminated this year. Next year, it will be back in full force unless Congress takes action — which is unlikely. So if you itemize and have adjusted gross income above about $170,000 ($85,000 if you use married filing separate status), be ready for this phase-out rule to take a toll.
Return of Phase-Out Rule for Personal Exemptions
Before the Bush tax cuts, another nasty phase-out rule could eliminate some or all of a higher-income individual’s personal exemption deductions. The rule was gradually cut back and finally eliminated this year. But it will be back with a vengeance next year unless Congress blocks it. So be ready for another tax hike if your adjusted gross income exceeds about $252,000 if you file jointly; about $168,000 if you’re single; about $210,000 if you’re a head of household; or about $126,000 if you use married filing separate status. (For 2010, personal exemption deductions are $3,650 each, and they will be about the same next year.)
Right now there is a lot of discussion about the possibility of NOT letting all the tax cuts expire. One scenario would include only letting them expire for couples making $250K or more. It’s mostly Republicans who want to extend the Bush tax cuts, but there are a few Democrats who feel it’s a good idea as well. As we get closer to the November elections we will probably get more clear direction on which tax cuts, if any, will be extended by Obama and his team. As it stands right now, it appears that taxes will be going up in 2011 for all of us.