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

Taxes to Rise, Regardless of Win by Dems, GOP

NEW YORK ( TheStreet) -- Taxes are set to rise next year as the so-called Bush tax cuts, enacted in 2001 and 2003, expire.

The highest marginal bracket will increase from 35% to 39.6%, the qualified dividend tax rate will disappear, and the long-term capital gains rate will jump from 15% to 20%.

Still, Americans may get a reprieve. According to polls, Republicans and the Tea Party are likely to do well in today's midterm elections. (The Republicans may even gain both the House and the Senate.) So what effect would that have on income taxes?

The real question is how much of a long-term difference would it make to tax rates? In the short run, the Republicans, if victorious, would likely extend the Bush tax cuts. The real question is how long can current tax rates realistically survive? Assuming a right-wing victory, the intention would be to extend current low-tax rates permanently.

However, given our spiraling deficit, any reprieve will likely be short-lived. The federal deficit is projected to be $1.3 trillion in 2010. Social Security and Medicare already account for over 40% of the federal budget, and the political will to cut them will be non-existent. The natural conclusion is tax rates will rise, and any reprieve will be temporary. Do the math!

What should individuals do from a tax-planning perspective? My suggestion is to assume tax rates have only one way to go from here, and that is up.

Tax rates are near historical lows so individuals should look to take advantage of current tax rates. Taxpayers should continue to capitalize on historically low tax rates whether they end in 2010 or are temporarily extended.

Some strategies for dealing with higher rates include: accelerating stock-option exercises, booking large unrealized capital gains, Roth conversions and using asset location for investments. The clocking is ticking to lock in these all-time-low tax rates.

The bottom line is that taxpayers need a plan since our politicians do not have a viable one.

Michael Maye is the founder and president of MJM Financial Advisors, a registered investment advisory firm in Berkeley Heights, N.J. He is a member of the National Association of Personal Financial Advisors (NAPFA) and has been a speaker covering tax topics at NAPFA's national and regional conferences. Maye has also been a frequent contributor to the Star Ledger of New Jersey's 'Biz Brain' and 'Get With the Plan' articles. In addition to NAPFA, he is a member of Financial Planning Association, American Institute of Certified Public Accountants, New Jersey State Society of CPAs and the Estate Planning Council of Northern New Jersey.

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
SYM TRADE IT LAST %CHG
AAPL $131.61 1.20%
FB $80.53 -0.02%
GOOG $540.80 0.28%
TSLA $245.55 0.49%
YHOO $43.62 1.90%

Markets

DOW 18,285.74 +0.34 0.00%
S&P 500 2,130.82 +4.97 0.23%
NASDAQ 5,090.7940 +19.0510 0.38%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs