How Your Taxes Will Increase on January 1, 2011

[Ben McCann]

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ September 15, 2010 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

How Your Taxes Will Increase on January 1, 2011 There is a lot of conflicting information floating around about the change in the tax structure in less than 100 days. We are all concerned about the amount of taxes the government extracts from us. In my opinion, the fewer taxes the better, but that does not seem to be the direction we are headed. The goal of this article is to determine where taxes are headed, who it will impact, and what we can do about it. This chart reflects the actual (and projected) annual profit and loss statement for the US government. Gray is the actual, and red is the projected. If the column is above the zero line (0), the government spent less than they took in; if it below the zero line, that means the government has spent (or will spend) more money than it took in. (www.heritage.org) The amount of outstanding national debt owed by the federal government has doubled in the last eight years. As of September 30, 2002 the outstanding debt owed was $5.8 trillion, on September 30, 2009 it was $11.09 trillion and as of today it is $13.36 trillion. (www.usdebtclock.org) Debt as a percentage of Gross Domestic Product. Under Reagan it was under 40%, under Clinton it was down to 55%, under George W Bush it was in the high 60's, under Obama over 90% and projected to exceed that.(www.zfacts.com) Simply, if the US government was defined as a business, it would look something like this: Revenue of $5,000,000 Debt of $4,500,000 Lost money 6 of the last 8 years Projected to lose money for the next 11 years Borrowing money to pay principal and interest on existing debt I do not know of any business that could continue to borrow money with this type of track record. Who Shoulders the US Tax Burden today? Nearly half of those filing tax returns pay no taxes. That number is growing annually. The wealthiest 1% of the population pays 37% of the income tax. The top 10% pay 68% of the tax burden. Who holds our debt (top 6) as of December 2009? (www.guardian.co.uk) China holds $894 billion Japan holds $727 billion Oil Exporters $207 billion United Kingdom $178 billion Brazil $169 billion Hong Kong $148 billion Russia $141 billion Looking ahead, here is what is on the horizon: Without a change of direction in the White House and Congress, deficit spending will continue and the debt will continue to grow. The current spending spree approved by Congress and lead by the White House is out of control. According to a recent survey by the AP, the economic recovery has stalledand it will be well into 2011 before any significant progress is achieved. Why? Consumers are fearful of what lies ahead and are therefore not spending money. All recent recoveries are lead by consumer spending. Small businesses, which represent 65% of all net new jobs created, are not hiring. (www.drjeffcornwall.com) Taxes are going to increase to fund the spending in Washington. Based on all of the information I can glean, here will be the impact on small business: 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). Many 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 are as follows: - 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% The higher taxes on businesses include the recently proposed "bank tax" that is supposed to recapture the money lent to big banks as part of the TARP program-even though most of the banks hit by the tax have already paid back the funds they received. The Obama budget would also repeal the "last in, first out" method of inventory accounting, which allows businesses to deduct their more costly inventory from their income first. This would increase taxes for many businesses. President Obama also proposes raising the tax rates on dividends and capital gains from 15 percent to 20 percent for taxpayers with incomes over $250,000 a year. Death Tax Increase. Currently at 0% and goes to 45% on January 1, 2011 for every estate valued over $3.5 million. Higher Energy Taxes. The budget increases taxes on oil, gas, and coal companies by repealing several tax credits available to these businesses. This will be passed on to consumers. Higher SECA taxes (self employment taxes) for owners of S firms and partnerships, by blocking them in the future from skirting payroll taxes by taking their compensation as dividends instead of salary. New restrictions on worker classification to make it easier for the IRS to crack down on firms that treat workers as contractors who are really employees. 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. More IRS agents. 16,500 new IRS agents are being hired to enforce the new Health Care Bill and tax payments. (www.washingtonexaminer.com) 1099 for purchases over $600. Tucked away in the Health Care Bill is a sentence that requires all businesses to issue 1099s to all companies from which they buy more than $600 in goods or services, this will begin in 2012. The US Chamber of Commerce and the Obama administration have been at odds with each other for nearly 20 months. Who do you think will bear the brunt of the taxes owed? It is time for business owners and employees to become politically active and change the way spending is done in Washington. To Your Businesses Success: Dan Lacy Growth & Profit Coach, Financial Strategist, Cash Flow Doctor, CEO Mentor P.S. I have received rave reviews for my book - Cracking the Financial Code. This is the most practical book on understanding your financial statements and how to use them in your business ever written (okay, that's just my opinion). Get your copy now for only $15. Go to www.crackingthefinancialcode.com to order now. Here's what others have said about this book: "Cracking the Financial Code removed both the mystery of financial statements and my excuses for not diligently using them. This is a must-read for any business owner wanting to make informed business decisions." Jonathan Arnold, President, Tuitive, Indianapolis, Indiana "In Cracking the Financial Code, Dan has taken difficult financial concepts and made them easy to understand. This is a "must read" for business owners who want to grow their business." Kirk Klabunde, Senior Vice President, First Merchants Bank, Anderson, Indiana "Cracking the Financial Code is a terrific reference source for growing companies to make sure their financial focus is sound." Terry J. Pahls P.E., President and COO, I Power Energy Systems Anderson, Indiana

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