Taxes
Now and Taxes January 1, 2011
(Unless
Congress extends the Bush Tax Cuts)
Most
people are aware that the Bush tax cuts enacted in 2001 expire as a
matter of law at the end of the present calendar year.
President Obama identifies any individual earning
$250,000 per year as "rich". I wanted to know what
the impact of these scheduled tax increases would be for a wage
earner whose income is $250,000. To help in this
analysis, I turned to Tracey Peters, CPA, whose firm Tracey S.
Peters, CPA, LLC is located in Ellicott City, Maryland.
Tracey provided these charts.
Example #1: Single taxpayer with no dependents.
The taxpayer has a mortgage of $200,000 and pays
$12,000/year in mortgage interest. Real estate taxes are
$6,000. State taxes paid are
$18,000.
Single:
Individual: No Dependents
|
Tax
Items
|
2010
|
2011
(all
Bush tax cuts expire)
|
Changes
|
Difference
|
Wages
|
$250,000
|
$250,000
|
|
0
|
Interest
|
$2,000
|
$2,000
|
|
0
|
Qualified
Dividends
|
$4,000
|
$4,000
|
|
0
|
Capital
Gains
|
$3,000
|
$3,000
|
|
0
|
AGI
|
$259,000
|
$259,000
|
|
0
|
Itemized
Deductions
|
$43,000
|
$42,078
|
Phase-outs
return
|
$922
|
Subtract
|
$216,000
|
$216,922
|
|
|
Exemptions
|
$3,650
|
$2,828
|
Phase-outs
return
|
$822
|
Taxable
Income
|
$212,350
|
$214,094
|
Increase
in taxable income
|
$1,744
|
Tax
|
$54,639
|
$61,339
|
Increase
from 33% tax bracket to the 36% tax bracket
|
$6,700
|
Alt
Min Tax
|
$4,5001
|
$8,0001
|
Alt
min tax returns
|
$3,500
|
Total
Tax =
|
$59,139
|
$69,339
|
Overall
Tax Increase =
|
$10,200
|
1 using 2009
rates
|
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Example
#2: Married couple filing jointly with 2 dependents over
the age of 17 years. The
taxpayers have a mortgage of $200,000 and pays $12,000/year in
mortgage interest. Real estate taxes are $6,000. State taxes paid
are $18,500.
MFJ:
2 Dependents Over 17 Years of Age
|
Tax
Items
|
2010
|
2011
(all
Bush tax cuts expire)
|
Changes
|
Diff
|
Wages
|
$250,000
|
$250,000
|
|
0
|
Interest
|
$2,000
|
$2,000
|
|
0
|
Qualified
Dividends
|
$4,000
|
$4,000
|
|
0
|
Capital
Gains
|
$3,000
|
$3,000
|
|
0
|
AGI
|
$259,000
|
$259,000
|
|
0
|
Itemized
Deductions
|
$43,500
|
$42,578
|
Phase-outs
return
|
$922
|
Subtract
|
$212,500
|
$216,422
|
|
|
Exemptions
|
$14,600
|
$11,312
|
Phase-outs
return
|
$3,288
|
Taxable
Income
|
$200,900
|
$205,110
|
Increase
in taxable income
|
$4,210
|
Tax
|
$43,586
|
$51,938
|
Increase
from 28% tax bracket to the 31% tax bracket
|
$8,352
|
Alt
Min Tax
|
$5,7001
|
$13,0001
|
Alt
min tax returns
|
$7,300
|
Total
Tax =
|
49,286
|
$64,938
|
Overall
Tax Increase =
|
$15,652
|
1 using 2009
rates
|
|
|
|
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A
family with two children in college, has to assume an outlay of
$50,000 per year, and that is for a public university. It would
literally be double for a private university. So, in
the second example, assuming public university tuition expenses of
$50,000 and a federal tax liability of $64,938, State taxes of
$18,500 and real estate taxes of $6000, out of the gross earnings
of $250,000, only $110,562 remains after deducting just these line
items. If the children attended private university,
there would remain only $60,562 per year or approximately $5000 per
month to cover housing and mortgage expenses, automobile,
insurance, etc, etc, etc. None of these calculations
include any savings for retirement. President Obama
may have concluded that these wage earners are rich, but I doubt
too many of these individuals feel that way. And, if
they are self employed, the tax costs are even greater.
Income of $250,000 is much richer for a public
employee with top health benefits and retirement pension security
than for an independent private sector employee or business
owner.
Respectfully
submitted,
Greg
Gann
Questions
can be relayed to me or directly to Tracey Peters at (410) 418-9111
or
tpeters@tpeterscpa.com;
Tracey
Peters is not affiliated with or endorsed by LPL
Financial.
The
opinoions voiced in this material are for general
information and are not intended to provide specific advice or
recommendations for any individual. To determine which
investment(s) may be appropriate for you, you should consult a
financial advisor prior to investing.
This
information is not intended to be a substitute for specific
individualized tax, legal or investment planning advice. We
suggest that you discuss your specific tax issues with a qualified
tax advisor.
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