Thursday, December 9, 2010

Aftermath of the Proposed Tax Cut Plan: What Does it Mean For You?

Many individuals and families are clamoring for answers to the most logical question in the aftermath of a new proposed tax cut agreement between the White House and Congressional Republicans.

"What does the new policy mean for me?"

For clarity's sake, the announced agreement is not yet "policy" but rather a "framework" with which a deal could be struck before year's end. We do not have a comprehensive outline of the proposal's structure, nor are we 100% certain of the proposal's passage by Congress.

Yet, the broad parameters address a multitude of issues that have been in question for months and in some instances years. Here is what all of this could mean for YOU if the "framework" eventually becomes "law."

Tax rates for individuals: The Bush-era tax cuts would be extended until the end of 2012 for all taxpayers no matter income level. Current income tax rates would remain in place with a top rate of 35%--where it has held since 2003. To put the rate in perspective, the top federal tax rate was 70% just 29 years ago and 91% in 1963.

Payroll taxes: A fairly progressive measure, the agreement would reduce payroll taxes by two percentage points for employees. The change, to be instituted just for 2011, would lower the payroll tax from 6.2% to 4.2% on the first $106,800 of wages per worker (statistic according to the Tax Policy Center).

Estate and gift tax: A bone of contention with some, the tentative framework includes an estate-tax provision for 2011 and 2012 with a top rate of 35% and an exemption of $5 million per individual. The White House released no language on this as of this printing, so the actual parameters make a difference.

Extenders: The most important for IRA holders is the transfers of IRA assets to charities by those over age 70 1/2.

Unemployment Benefits: This was the major sticking point for the Obama White House. The agreement would extend federal benefits at their current level (up to 99 weeks) for 13 months through the end of 2011.

Other Tax Credits: These include a $1,000 child tax credit; an expansion of the Earned Income Tax Credit for larger families and married couples; a continuation of the higher-education tax credit.

Those are just the basics. We at The Slott Report will be monitoring this situation closely and posting articles and explanations on how the final passed bill affects retirement planning and IRAs in particular.

By Jared Trexler
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