Tax the Rich, Tax the Rich, Tax the Rich…

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anuary 1, 2011 will be remembered like September 11th or December 7th by many Americans. On this day, the largest and most comprehensive tax increase in American history gets unleashed on unprepared wealthy Americans. Higher income taxes, higher capital gains taxes, higher death taxes, and the list goes on and on. Not wealthy? Don’t think you’ll be affected. Guess again! You may not consider yourself wealthy but your government surely does.

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Tax the Rich, Tax the Rich, Tax the Rich…

  1. 1. Aegis Group Holdings, Inc a Colorado Company 8400 East Prentice Avenue, Suite 660 Denver, CO 80111 T: 303-770-3664 info@aegiscompanies.com Copyright © 2009-2010. All rights reserved. Tax the Rich, Tax the Rich, Tax the Rich… January 1, 2011 will be remembered like September 11th or December 7th by many Americans. On this day, the largest and most comprehensive tax increase in American history gets unleashed on unprepared wealthy Americans. Higher income taxes, higher capital gains taxes, higher death taxes, and the list goes on and on. Not wealthy? Don’t think you’ll be affected. Guess again! You may not consider yourself wealthy but your government surely does. A net worth of $1.4 million will put you in the top 5% of Americans, according to the Federal Reserve. Just as there are two economies today — the rich and everyone else — there are also diverging definitions of rich. There’s the government s definition (the top 5%) which is the focus of the coming tax attack and then there’s the wealthy’s definition. At $1.4 million and earning $150,000 a year you are the primary target for taxation. Let’s not forget that you have a no tax pledge from the Obama administration that will prevent you from paying additional taxes unless you make over $250,000. Sorry about that. Your rich. You can afford it. Your nation needs you to pay more taxes now that we are in the Great Recession, have the largest deficit in the post war era, have fewer taxpaying citizens due to real unemployment of around 16.8%, have a war to pay for, have more government employees to pay for and on and on and on!. The wealthy’s definition of rich is around $5 million of net worth with $500,000 of investable assets. You might not consider yourself wealthy but you are about to shoulder the greatest economic tax burden of any generation since World War II. What are the increases? Here is the most recent list I could assemble. Personal income Tax Increase. The top income tax rate will rise from 35% to 39.6%. The lowest rate will rise from 10% to 15%. All the rates in between will also rise. Itemized deductions and personal exemptions will again phase out if you have “to much income”, which has the same effect as higher marginal tax rates. The marginal rate hikes starting January 1, 2011 are below: - The 10% bracket rises to an expanded 15% - The 25% bracket rises to 28% - The 28% bracket rises to 31%
  2. 2. Aegis Group Holdings, Inc a Colorado Company 8400 East Prentice Avenue, Suite 660 Denver, CO 80111 T: 303-770-3664 info@aegiscompanies.com Copyright © 2009-2010. All rights reserved. - The 33% bracket rises to 36% - The 35% bracket rises to 39.6% Higher taxes on marriage and family. The “marriage penalty” (compressed tax brackets for married couples) will return starting with the first dollar of your 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 and the dependent care tax credit will be cut. The return of the Death Tax. This year, there is no death tax. For those dying on or after January 1 2011, there is a 55% top death tax rate on estates over $1 million. And you thought you weren’t wealthy because your net worth was only $1.4 million. I will cover the death tax in my next article which will look at the social reasons why the government taxes transfers of wealth at death and the economics of the death tax. It’s no surprise that the death tax accomplishes neither the social goal of redistribution of wealth nor the economic goal of increased tax revenue. Higher tax rates on savers and investors. The capital gains tax will rise from 15% this year to 20% percent in 2011. The dividends tax will rise from 15% this year to 39.6% percent in 2011. These rates will rise another 3.8% in 2013. There are over twenty new or higher taxes in the new Patient Protection and Affordable Care Act (the Healthcare Reform Act) Several will first go into effect on January 1, 2011. They include: The Tanning Tax. This went into effect on July 1st of this year. It imposes a new, 10% excise tax on getting a tan at a tanning salon. There is no exemption for tanners making less than $250,000 per year. The “Medicine Cabinet Tax” Americans will no longer be able to use health savings account (HSA), flexible spending account (FSA), or health reimbursement (HRA) pretax dollars to purchase non-prescription, over-the-counter medicines (except insulin).
  3. 3. Aegis Group Holdings, Inc a Colorado Company 8400 East Prentice Avenue, Suite 660 Denver, CO 80111 T: 303-770-3664 info@aegiscompanies.com Copyright © 2009-2010. All rights reserved. The HSA Withdrawal Tax Hike. The tax on on-medical early withdrawals from an HSA increases from 10% to 20%. IRAs and other tax-advantaged accounts remain at 10% so keep in mind where you are pulling money. Brand Name Drug Tax. Tax assessment imposed on name-brand drug manufacturers is an excise tax and will result in an increase in the cost of prescription medication that the manufacturers will have to pass on to you the consumers.. The Dreaded AMT (Alternative Minimum Tax) The AMT will hit over 28.5 million families, up from 4 million last year as a result of the failure of Congress to index the AMT and expiring exceptions. You will be calculating your tax twice and you will pay tax the higher of the normal income tax or the AMT. Small business Expensing Cut by 90% and 50% expensing Disappears. Small Businesses currently get to expense up to $250,000 of equipment purchases. This gets cut all the way down to $25,000. Larger businesses can expense half of their purchases of equipment. In January of 2011, all of it will have to be “depreciated” and expensed over time; on average 7 to 10 years. Taxes Increases for All Types of Businesses. There are literally scores of tax hikes on business that will take place. The biggest is the loss of the “research and experimentation tax credit,” but there are many, many more that are beyond the scope of this summary. Here is a sampling:  Higher SECA 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.
  4. 4. Aegis Group Holdings, Inc a Colorado Company 8400 East Prentice Avenue, Suite 660 Denver, CO 80111 T: 303-770-3664 info@aegiscompanies.com Copyright © 2009-2010. All rights reserved. And elimination of some tax breaks for big corporations, including the deduction for domestic production, accelerated depreciation and incentives for foreign income and oil production. For a complete list of expiring tax benefits please contact Casey Wilson at Casey@AegisCouncil.com and request a copy of the “List of Expiring Federal Tax Provisions, 2009 – 2020; Prepared by the Staff of the Joint Committee on Taxation.” Tax Benefits for Education and Teaching Reduced. The deduction for tuition and fees will not be available. Tax credits for education will be limited. Teachers will no longer be able to deduct classroom expenses. Coverdell Education Savings Accounts will be cut. Employer- provided educational assistance is curtailed. The student loan interest deduction will be disallowed for hundreds of thousands of families. Charitable Contributions from IRAs no longer allowed. Under current law, a retired person with an IRA can contribute up to $100,000 per year directly to a charity from their IRA. This contribution also counts toward an annual “required minimum distribution.” This ability will no longer be there. Now is the time to accelerate your charitable planning and make the gif your want in 2009. What are we to do? First and foremost don’t be surprised by the tax hikes starting in 2011. Now is the time to get informed about the changes coming and prepare for them. Aegis Council has a comprehensive list of the tax law changes and can identify which changes will affect you. The old adage of “knowledge is power” really rings true in preparing for the onslaught of tax hikes coming. Take advantage of 2010. Accelerate your income and deductions into 2010 before the tax increases take affect and your deductions are taken away. If there are investments with front end load fees, equipment purchases, retirement contributions or charitable deductions that you can accelerate into 2010 then get them done now.
  5. 5. Aegis Group Holdings, Inc a Colorado Company 8400 East Prentice Avenue, Suite 660 Denver, CO 80111 T: 303-770-3664 info@aegiscompanies.com Copyright © 2009-2010. All rights reserved. Get your estate plan done and use your gift tax exemption before it gets taken away. It is a well known fact that the estate tax is one of the “voluntary” taxes that can be eliminated or substantially minimized with proper and often basic planning. Don’t hope for the best. Any potential to extend the tax cuts currently in place in an effort to gain political favor in the upcoming mid-term elections is off the table. The momentum to publicly spend the economy out the Great Recession is gaining (look up Keynesian economics) as it did during the Great Depression and methods for paying the national debt are limited. The generally accepted solutions are, in order of priority: Bottom line: Educate yourself; get prepared; makes some decision for today and make some decision for tomorrow but above all else have a plan. ___________________________________________________________ More information on Thomas Agresti can be found here: http://aegiscompanies.com T.J. Agresti, J.D., LL.M, CEO Founder and Chairman of the Board, Aegis Holdings, Denver, Colorado Thomas Agresti (JD LLM) from Denver, Colorado began a successful career as a tax attorney after finishing an extensive and well-planned education that included the University of Maryland, Seton Hall University School of Law, University of Parma School of Law in Italy, and University of Denver School of Law. He is currently registered with the Bar of Colorado. In law school he focused on taxation and transactional law. He also went to Italy to understand the intricacies of international law and finance, again with a focus on taxation and transactions. He then took his taxation skills to the ultimate level receiving a Masters in Taxation from the University of Denver School of Law. He immediately became a highly sought after professional with a rare educational background. He chose to work with a large multinational public accounting firm, due to the extensive tax and transactional experience he could gain in a condensed time period. While a taxation specialist for a "Big Six" international accountancy firm, he specialized in domestic and international strategic tax planning or, quite simply, how to reduce a client's overall tax burden. His responsibilities also included financial and estate planning, income, gift, and estate tax reduction, compliance for individuals, trusts, and estates, partnerships,
  6. 6. Aegis Group Holdings, Inc a Colorado Company 8400 East Prentice Avenue, Suite 660 Denver, CO 80111 T: 303-770-3664 info@aegiscompanies.com Copyright © 2009-2010. All rights reserved. corporations, and tax-exempt entities. After leaving public accounting he practiced tax law with a boutique law firm before forming his own firm. He has lived and worked overseas representing a broad range of clients. He has practical experience planning and implementing multi-national transactions, sophisticated wealth transfer planning, sophisticated life insurance structures, captive insurance, private equity and structured debt instruments.

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