TAX ALERT
As part of his State of the Union speech tonight President Obama is proposing the following changes to the current tax system. Below is a quick summary of those changes and list of local representatives as well as their contact information to voice your opinion if you are for or against such changes.
Increased Taxes:
- Capital Gains Increases: The current maximum capital gains rate is 23.8% including a 20% top marginal rate plus the 3.8% net investment tax. President Obama plans to increase the capital gains top marginal rate to 28% for couples making greater than $500,000 per year.
- Limitations to the Step Up in Basis at Death: At death, most of your assets receive what is called a step up in basis. This means if you bought stock for $10,000 that was worth $100,000 at the time of your death, if you sold it the day prior to your death, you would recognize a $90,000 capital gain ($100,000 less your basis of $10,000), but if your estate sold it after your death it would not be taxable. This is because your basis is deemed to increase to fair market value at death. President Obama is intending to tax your estate for the gain with a $100,000 per individual ($200,000 per couple) exemption and potentially a $500,000 home exemption. This means your Estate would be subject to a substantial amount of capital gains taxes if your assets have substantially appreciated.
- Tax on Bank Borrowing: President Obama proposes a 0.07% tax on borrowing for banks with greater than $50 billion in assets. This is intended to discourage bank borrowing and limiting the risk of a necessary bank bailout.
- 401(k) and IRA Cap: Under a 401(k) Plans and Traditional IRA’s, you do not pay tax on earnings until they are actually received. The deferral is a tremendous benefit allowing additional growth and gaining the time value of money. One proposal was to place a tax preferred cap of $3.4 million for such accounts.
Increased Benefits for Lower and Middle Class:
- Second Earner Credit: President Obama is proposing a tax credit of roughly $500 for double earning couples with $120,000 or less income a year.
- Boosting Earned Income Tax Credit (“EITC”): The EITC is a credit for low wage workers. President Obama plans to boost benefits for childless workers and non-custodial parents.
- Increasing Child Tax Credits: President Obama plans to triple the tax credit for parents with young children earning less than $120,000 a year up to $3,000.
If you are for or against any of the above changes we encourage you to contact your local representative. To find your State’s Senators and House Representative see the following websites for your respective state and click on individual Senator’s or House Representative’s official website:
- Pennsylvania: https://www.govtrack.us/congress/members/PA
- New Jersey: https://www.govtrack.us/congress/members/NJ
- Delaware: https://www.govtrack.us/congress/members/DE