This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Tax Pain Is Only Starting for the Wealthy

BOSTON ( TheStreet) -- The tax deadline is three days away, but for the 2.48 million wealthy American families, the pain of higher taxes and increased scrutiny by the government is only starting.

President Barack Obama's proposed budget lets many of the tax cuts enacted by the Bush administration expire, a move benefitting the middle class at the expense of the richest Americans. Tax increases, including those included as part of health-care reform, will hurt those earning more than $250,000 a year, defined as "wealthy" by the IRS.
Taxes

High-income earners can protect themselves. Here are three major tax changes, with a longer review and action plan following.

1. Barring Congressional intervention, 2011 income-tax rates for top earners will increase to 39.6% from 35%. Capital-gains tax rates jump from 15% to 20% in 2011 and 23.8% by 2013, and there are new tax burdens placed on investment income. Singles earning more than $200,000 and households making $250,000 will pay 0.9% more on wages and self-employment income. Because the new taxes aren't indexed to inflation, those currently earning less may still find themselves paying the increased rates.

2. For the first time since 1999, the rich are at a greater risk of being audited than those in lower- and middle-income brackets, and enforcement is being ramped up even more.

3. Tax-related strategies for preserving wealth will require a fresh approach. Once-routine decisions such as which stocks to buy and when to sell, and how to get paid at work will need to be reassessed in light of new government policies. Dividend-paying stocks may suffer, and oft-maligned municipal bonds may gain renewed interest.

Dividend damage

In its effort to get more money from the rich, the government is targeting investments as much as basic compensation.

In an IRS survey of the top-earning taxpayers in 2007 (a list of 400 individuals earning at least $139 million), the group paid $23 billion in federal income taxes. Slightly more than 81% of their reported income was derived from capital gains taxed at a rate of 15%. A mere 6.5% came in the form of salaries and wages that were taxed at a higher rate of 35%. Many executives chose to accept stock options as a large portion of their compensation to take full advantage of tax incentives.
1 of 5

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
BAC $17.77 0.00%
GOOG $631.21 0.00%
GE $25.87 0.00%
MO $54.66 0.00%
PFE $36.15 0.00%

Markets

Chart of I:DJI
DOW 17,598.20 -91.66 -0.52%
S&P 500 2,098.04 -5.80 -0.28%
NASDAQ 5,115.3820 -12.8990 -0.25%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs