·         New legislation enacted in 2008 that will bring changes in our tax laws.

·         Sunset provisions that were part of the 2001 Tax Act will bring significant changes by 2011.

·         The new Administration and Congress will likely initiate new laws and changes to help stimulate the economy.

 

Many of these changes will likely be determined in the next twelve months, however, several of the key issues might now include:

 

Current Economic Climate. The economic downturn has led to a significant loss of capital in the stock market. There is no “quick fix.” Recovery will take time and history has shown that Congress often will attempt to stimulate the economy through tax measures. Added dynamics that impact the current economy, especially in Michigan, include the state of the auto industry, a shrinking tax base and the competitive global marketplace.

 

New Administration & Congress. The balance of power in Washington has shifted. In 2009, the United States will have a Democrat-controlled Congress as well as a new president. Campaign pledges promised that tax priorities would include:

·         Increased benefits for families making less than $250,000 per year.

·         Increased tax rates for capital gains and top earning individuals. 

·         Revisions to the estate tax

·         Corporate benefits for job creation

·         Simplifying the tax system

 

Sunset Provisions. The Tax Acts of 2001 and 2003, often referred to as the “Bush tax cuts,” had sunset provisions, meaning that the previous reductions are scheduled to end on December 31, 2010, unless Congress takes other action. The major slated sunsets include:

·         Eliminating the 10% tax bracket and increasing the maximum individual rate from 35% to 39.6%. 

·         Capital gains currently at 0% and 15% are slated to rise to 10% and 20%. Under the Obama campaign plan, capital gains would be taxed at 20% of capital gains rates for the $250,000+ annual income households while current low capital gains rates would remain in place for households under.

·         Qualified dividends will be taxed as ordinary income instead of the current long term capital gains rates. The Obama plan calls for all dividend income to be taxed at 20%.

·         The estate tax credit equivalent exclusion rises from $2 million (2008) to $3.5 million (2009), but is then eliminated in 2010, before reverting back to a $1 million credit equivalent exclusion in 2011.

 

New 2008 Legislation. Congress enacted five separate acts during 2008, some of the acts were to stimulate the economy. Among the most significant aspects are the first time home buyer credits in the Housing Act and the business depreciation benefits of the Economic Stimulus Act. 

 

Tax Planning is a Priority. With so many changes on the horizon and the uncertainty of the current economic times, the need to review your tax situation and look at planning opportunities is more important than ever. This applies to individuals as well as businesses. Every situation is unique. The pending changes will impact everyone differently, and should be examined carefully in context of your entire financial picture. Proactive tax planning with your tax advisor, especially prior to year end, is more important than ever to protect resources, reduce tax liability and position finances to achieve objectives.