(a) Top Marginal Rate. For spouses filing jointly who earn in excess of $250,000, and for single taxpayers who earn in excess of $200,000, the top marginal rate will probably increase from 35% to 39.6%, commencing in 2011. The 39.6% rate was reduced to 35% by the Tax Act of 2001, and it is being partially restored.
(b) Itemized Deductions. Commencing in 2011 allowable itemized deductions will be reduced by 3% of a taxpayers adjusted gross income. Again this is a reversion to the pre-2001 provision.
(c) Personal Exemptions. The personal exemption for each dependent is $3,650. For taxpayers filing joint returns who earn more than $250,000, and for single taxpayers who earn more than $200,000, the personal exemption will be eliminated starting in 2011.
d) Capital Gains. The federal tax on capital gains and dividends will increase from the present 15% to 20% in 2011 for taxpayers filing joint returns who earn more than $250,000 or single taxpayers who earn more than $200,000.
(e) Estate Tax. One of the most confusing areas of tax planning over the past decade is finally to be clarified. In the tax amendments adopted in 2000, the individual estate tax exemption went from $600,000 in 2001 to its present $3,500,000, and the estate tax was scheduled for elimination altogether in 2010; however, in a dazzling bit of Congressional legerdemain, the estate tax was scheduled to return in 2011; with the individual exemption scheduled to be reduced to $1,000,000! As early as 2004, we suggested in these pages that something would be done to modify this strange melange and that Congressional wisdom (oxymoron?) would probably eliminate the 2010 estate tax fadeout and make permanent the $3,500,000 exemption. It does appear that for the first time in a decade we shall be able to anticipate with a high degree of certainty what the rules will be for at least the next 15 to 20 years. Applying the marital deduction, a married couple by doubling the personal exemption should be able to escape federal estate taxes completely if its assets do not exceed $7,000,000.