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
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Investors, Brace Yourselves for Tax Hikes

By William Ehart of InvestorPlace

As if battered investors needed more abuse, they are in for a rude awakening at the end of the year.

That's when the Bush tax cuts, enacted in 2001 and 2003, are scheduled to expire. While many in Congress favor extending some or all of the cuts, President Obama has come out prior to this fall's congressional election strongly against the Bush tax breaks. However, a number of key Democrats including former presidential candidate Sen. John Kerry (D, Mass.) are working to extend the cuts that pertain to the middle class.

But without action by Congress and the assent of the president, those investor-friendly tax breaks simply will vanish in the night as the ball drops on Times Square. Action before the election is seen as highly unlikely, even though Obama and party leaders wanted to make an election issue out of the matter. Republicans are expected to gain seats in Congress in the election and such a result might change the equation.

> > Bull or Bear? Vote in Our Poll

While the tax change mainly will hurt the "wealthy" -- high earners with incomes above $200,000 -- any investor large or small will take a serious hair cut on next year's tax bill.

The most dramatic change will be in the taxation of dividends. Who doesn't love big, stable dividend-paying companies in these uncertain times? Well, you may have to adjust your portfolio as the tax on dividends will rise from the current Bush-era maximum capital gains rate of 15% to a Clinton-era maximum income-tax rate of 39.6%. While Obama had proposed a 20% tax on dividends as an alternative, that now appears unlikely given budget rules enacted by Congress.

Speaking of capital gains, that attractive 15% maximum rate will rise to 20%, so if you have big gains, you may want to sell your high-dividend stocks this year and buy different stocks with less tax impact.

The story is the same for income tax rates. The Bush brackets of 10%, 15%, 25%, 28%, 33% and 35% will revert back to a schedule of 15%, 28%, 31%, 36% and 39.6%.

The so-called marriage penalty and the phase-outs for itemized deductions and personal exemptions for wealthy taxpayers will also return.

If it's not one thing it's another for shell-shocked investors.

--Written by William Ehart.



>To contact the staff member responsible for this article, click here: Ross Snel.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

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
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

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

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, 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
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

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

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,076.48 -37.06 -0.22%
S&P 500 1,986.40 +2.87 0.14%
NASDAQ 4,471.2540 +15.2380 0.34%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto
Advertising Partners

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs