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Issue 4 • October 2007 





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.



James A. Daniel,
CFP®, AIF®

This newsletter if for informational purposes only. The information contained within should not be considered as financial advice nor soliciation for financial services. Consult with your financial professional if you have any questions.

The Advisory Firm, LLC is a fee-only financial planning company and registered investment advisor.


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