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Review of current Tax rates:
As we move into the last quarter of 2007 it never
hurts to review tax rates and look ahead to what
could change.
Economic
Growth and Tax Relief Reconcilation Act of 2001
(EGTRRA):
It's a long name but has reduced your taxes over
the past couple of years along with stimulating
the economy. EGTRRA reduced income, dividend,
capital gain and estate taxes. The act is currently
scheduled to sunset in January of 2011 at which
time the tax rates will jump back to their pre-2001
levels (higher).
Let's
take a look at current income tax rates:
Married
Filing Jointly:
- 10%
Bracket $0 to $15,650
- 15%
Bracket $11,200 to $63,700
- 25%
Bracket $63,700 to $128,500
- 28%
Bracket $128,500 to $195,850
- 33%
Bracket $195,850 to $349,700
- 35%
Bracket $349,700 and up
Unless the act is extended the 2011 rates
will be:
- 15%
(from 10%)
- 15%
(from 15%)
- 28%
(from 25%)
- 31%
(from 28%)
- 36%
(from 33%)
- 39.6%
(from 35%)
current Dividend Rates:
- 15% (in 2011 will be at your income tax rate)
current Long Term Capital Gains Rates:
- 15% (in 2011 will move back to 20%)
Estate Tax exemption:
- through 2008 it is $2 million
- 2009 it is $3.5 million
- 2010 unlimited
- 2011 back to pre 2003 levels
So
what's the strategy?
The
simple answer is don't shy away from dividends.
Current tax rates are offering a real incentive
to generate dividend income on your taxable investment
accounts. There are many mutual funds, ETF's and
stocks that are generating dividends greater than
4%.
Just
remember that interest from savings and money
market accounts is taxed at ordinary tax rates.
The dividend rate only applies to investment dividends.
TIP:
With
the ever changing tax laws it is always a good
idea to work with professionals such as CPA's
and Estate Attorneys when trying to develop strategies
to limit or reduce your tax liability. Having
them as part of your overall financial team can
help you keep more of your hard earned money.
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