When George W. Bush was in office, he created two major tax cut bills in 2001 and in 2003. The two laws cut many taxes for earned income, long-term capital gains and dividends. They also improved the child tax credit and made changes to the tax code, according to Forbes. However, the two bills had expiration dates on them, and if Congress does not choose to renew the tax cuts, many Americans will feel the new change.
In the new year, when they expire, income taxes will increase. The bottom rate will rise to 15 percent from 10 percent. The top rate will increase as well, from 35 percent to 39.6 percent. Many rates in between the top and bottom will also go up, according to the Washington Post.
The child tax credit will go back to $500 per child instead of claiming the current $1,000 per child. The number of families who could qualify for the credit would be a lot less because tougher eligibility standards would go back into effect, according to Forbes.
Capital gains taxes will also be affected by the expiration of the Bush Tax Cuts. The top rates will return, causing them to increase from 15 percent to 20 percent. Taxes on dividends will also rise. This is because they will be taxed at the same rate as earned income. The top marginal rate increases to 39.6 percent from 15 percent, reports the Washington Post.
The federal estate tax will return to 55 percent as well, with a $1 million exemption. The tax had slowly been reduced, then repealed in 2010. If there is no extension on the bills in 2011, then the phase out will continue at incomes above $122,500. The phase out for itemized deductions will return as well and some taxpayers could lose up to 80 percent of their itemized deductions if they make too much money.
Finally, the Alternative Minimum Tax will not be adjusted to spare more than 20 million middle-income families from an increase in tax. The increase will average $3,900. It was enacted in 1969 so that high-income Americans could not avoid paying taxes, however it was not indexed for inflation.
It is important for taxpayers to take note to these possible changes which may take place this January. If an extension is not granted on the Bush Tax Cuts, many Americans will face new speed bumps when filing their income taxes.
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