Taxes and You - wait it's not April!!

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There has been a lot of buzz around tax changes, or rather the lack of changes, regardless of what political flavor you find yourself getting your info from. The idea is to try to get more money into everyone's pockets and out on the streets to hopefully add to the holiday spending bump and beyond. I just covered these topics with my students in my macroeconomics classes so I hope this doesn't come across as too preachy. The idea is that I want to just mention the biggest parts of the tax hoopla and how it's going to feel on your end.

So one of the first things to change/stay the same is that there is going to be a few year extension on income tax cuts. What that means is that if you're making around $80,000 then the maximum federal tax on your earnings will stay at 25%. If you were a lucky one to get a raise or two over the last year then you can rest easy knowing that the max federal tax, not counting AMT stuff, is 35%. I'm excited about this because what fiscal policy is trying to do is keep more money in peoples pockets in the form of a trickle. Hopefully people save more and start to spend more as part of their natural behavior instead of just receiving one large stimulus check and then the economy keeping it's fingers crossed that everyone spends every cent of it. Along the same lines as the income tax comes a reduction in the payroll taxes.

Companies all over the country will be paying less in payroll taxes - going from about 6% to about 4%. While Social Security might be getting a smaller cut of everyone's wages firms will be able to hold on to a few more dollars. The goal there is to encourage economic investment. With those dollars firms might to decide to pay more in wages, meaning workers have more to spend, or expand meaning the the companies are spending on infrastructure allowing the possibility of more jobs.

The next big swing is at the financial investments and transfers of wealth in the country. Estate taxes will move to 35% and estates under $5 Million will go tax free. This is a little different than in past years as there was the sunsetting of the non exemption to the proposed $3.5 million exemption with rates as high as 45% after that. Now I know you might be reading this and think that it's not a big deal for you right now, but taxation on estates and the transfers of wealth from generation to generation is a big revenue engine for the government. It gets a lot of attention because it's like trying to take a food bowl away from a puppy..you have to do it very carefully and with a ton of confidence. After that are the capital gains rates which are going to stay at their 15% maximums. Straying away from the conventional financial markets, bond markets in particular are up in arms, and paying attention to real estate investors this could prove to be pretty helpful. It might give individuals and firms that much more incentive to keep picking up, fixing, and selling previously distressed properties and accelerate the the rebound of housing values to their actual worth.

Finally there will be continued credits to keep on the look out for. If you're a small buisness owner, a college student or on the verge of starting a family there will be some credits and write-offs you will be able to take advantage. Make sure you save your receipts and you keep of your children because they will save you money come April.

I hope that this little post has helped demystify what's going on in tax talk circles. I know I missed a lot of the specifics a long the way but for the majority of us out there these are the big ones that we should be keeping a look out on.

Feel free to add your thoughts and any points I missed in comments below. Let me know how you feel or what you might change if you could throw your two cents in the congressional conversations.