Friday, December 17th, 2010
14

Your New Taxes: Let the Frenzy of Wealth Transfer Begin!

DEVIL SHEEPWith today's forthcoming signature by the President, the nation enters a frenzy of wealth transfer over both the next few weeks and the next two years. What does the tax bill do? Here is a fairly simple breakdown.

• The bill affirms the tax rates. They are: 10% (for couples with income up to $17,000), 15% (for a single person, $34,000), 25% ($82,400), 28% (up to $171,850), 33% (up to and $379,149) and 35% (more than that!); that last bracket would have gone up to 39.6%.

• Self-employment tax goes down from 12.4% to 10.4%.

• The Social Security payroll tax stays down at 4.2 percent, from 6.2 percent—for annual income up to $106,800. Except for the self-employed! They pay 10.4%.

• Continues the reduced taxes on dividends and capital gains: Those rates are 0% for people in the 25% tax bracket or lower; they are 15% for those in higher brackets.

• The tax on transfer of wealth after death (by which we mean wealth that isn't put into put in foundations or other instruments) will remain at 35%—of all money beyond $5 million (or, essentially, $10 million for giving and/or inheriting couples). Which is to say, all money up to $5 million may be passed along tax-free, so estate taxes affect fewer than .2% of Americans.

• The "gift" tax remains at 35%, beyond an exemption of $13,000 a year and $10 million over a lifetime. The GST tax (inheritance that skips a generation) is taxable above $5 million beginning in 2011.

• There is a tax credit of $1000 for each child in the household, plus a little somethin' extra now in the "Earned Income Tax Credit," for people who made very little money in the year.

• All income levels may now convert individual retirement accounts to a Roth IRA at the extended lower tax rates, and split the taxable proceeds between two years, if they perform the conversion by the end of 2010. Additionally, up to $100,000 of an individual IRA may be given tax-free to charity.

• Teachers may have a deduction of up to $250 for out-of-pocket expenses!

And a few other things that point out that, as BusinessWeek put it, it's a great time to be rich.

14 Comments / Post A Comment

gregorg (#30)

The only surprising thing about this is that you apparently read Businessweek??

boyofdestiny (#1,243)

To be fair (to whom, I don't know), we poor self-employed slobs get to deduct half of that 10.4% (or 12.4% previously). So really, we're paying 5.2%, plus half of whatever the Medicare contribution is supposed to be. (Has that gone up or down at all? I have no idea!) Of course, it's easy to see that 5.2 is not equal to 4.2, so we're still getting screwed. But not screwed that bad!

jfruh (#713)

The deal w/the self-employment tax is that if you had a straight job your employer would be paying as much into social security as you are; as a self-employed person, you pay double. (Obviously employed people are actually liable for this, as your employer will factor this hidden cost into the calculations re: your salary). This payroll tax holiday only affects the employee side of the equation, which is why the self-employment tax goes down by 2% of your salary instead of 4%.

In practice of course the self-employment tax also includes Medicare as noted, so it wasn't actually 12.4 percent but rather 15.3. (And that extra 2.9 percent also is half-deductable!) I haven't heard anything about said Medicare tax in this imbroglio so I'm guessing it's unaffected and the SE tax is going down from 15.3 to 13.3 percent.

jfruh (#713)

OH WAIT I THINK I JUST SEE WHAT YOU'RE GETTING AT! Or if not, here is a weird thing:

You get to deduct half of your self-employment tax because it's the equivalent of the tax your employer would pay on your behalf if you have an employer, and that tax paid by your employer is a part of your compensation that you're not taxed on. BUT now employers will be paying MORE into Social Security than employees! Which means that the SE tax deduction should now be MORE than half your self-employment tax! Maybe this will happen, actually? I eagerly await the 2011 1040-ES forms (even more so than usual now!)

boyofdestiny (#1,243)

Yeah, the ES form is usually a joy. I was totally on board with your first comment, but now I have no idea about anything! I'm sure the numbers will make some manner of sense, but the fact that for tax purposes, my employer and employee are the same person (me!) is causing all kinds of abstract philosophical/existential crises. Even more so than usual.

I think your employer told you that since you are suffering and existential crisis you could knock off early today. Your employer is nice.

boyofdestiny (#1,243)

As founder, president, and CEO of Interslice Industries, I sent out a memo to my only employee authorizing him to polish off the bottle of whiskey he has in his desk.

deepomega (#1,720)

Let's go pay our quarterly taxes guys! WOOOO

People actually pay their taxes?

MParcells (#375)

Well, my options haven't changed too much. Step 1. Get rich, or get a wife and/or child. Step 2. Bathe in my newfound tax savings.

Bittersweet (#765)

Considering how much more than $1000 a kid costs to stable per year, I'd recommend buying those lottery tickets now.

MParcells (#375)

Don't worry. They'll have jobs, to pay their way. They'll be baby models. Or reality stars.

freetzy (#7,018)

The worst time to be rich? When the unwashed peasants get their guillotine out of the storage unit.

Pop Socket (#187)

I'm looking forward to my FICA holiday. As salaried professional who makes too much to get all the fun tax credits, this is one that benefits us middle class folk and NOT the rich.

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