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The Political Side of Taxes

President Barack Obama recently discussed his plans to adjust the tax cuts put in place by former President George W. Bush. The real question is how will or won’t this affect YOU. I don’t claim to be a financial expert  (on that same note I don’t claim to be an accomplished writer either)but I am fairly confident in the folks at Deloitte & Touche so here is an excerpt of their analysis of the Obama Tax Plan that was originally posted by Forbes.com and Joshua Zumbrun on MSN (original article here).

Income: $35,000

Status: married, two children under age 17

Old taxes: $0 taxes paid; $2,900 received from government

New taxes: $0 taxes paid; $4,100 received from government

Difference: $1,200 more from the government

The $400 Making Work Pay tax credit would apply even to households that paid no income tax or already received payments from the government. An adjustment to the earned income tax credit for married couples would mean that a family of four earning $35,000 could receive $4,100 in income support.

Income: $50,000

Status: single, no children

Old taxes: $6,400

New taxes: $6,000

Difference: $400 less in taxes

The big change for single people earning up to $75,000 would be receiving $400 from the tax cut in the economic stimulus plan. The average single person and average family both fall in this range. For couples earning up to $150,000, the tax cut is $800.

Income: $125,000

Status: single, no children

Old taxes: $21,400

New taxes: $21,400

Difference: $0

The main Obama tax provisions would not affect taxes paid by individuals earning between $100,000 and $125,000 (or couples earning between $200,000 and $250,000).

Income: $150,000

Status: married, one child under 17, one in college

Old taxes: $22,300

New taxes: $15,500

Difference: $6,800 less in taxes

Without a fix to the alternative minimum tax, this family might get hit. In addition to still being eligible for the Making Work Pay credit, this family could save money from the stimulus plan's American Opportunity Tax Credit (.pdf file), a tax break for the cost of higher education.

Income: $300,000

Status: married, two children under 17

Old taxes: $59,100

New taxes: $60,200

Difference: $1,100 more in taxes

This well-to-do family likely would get hit by the alternative minimum tax, but less so under Obama's budget than under current law. It would still see its taxes rise from an increase in tax rates for those earning above $250,000 and from new limits on itemized deductions and personal exemptions.

 

Income: $500,000

Status: single, no children

Old taxes: $121,500

New taxes: $140,700

Difference: $19,200 more in taxes

The single and very successful would be hit by a hefty increase. The increased tax rate would cost this person $7,800 more a year. The restoration of limits on itemized deductions and personal exemptions would cost $3,200 extra, and the limit on tax benefits for itemized deductions would total an additional $8,200.

 

Income: $500,000

Status: married, two children under 17

Old taxes: $120,400

New taxes: $131,700

Difference: $11,300 more in taxes

The doctors next door and their kids currently would get hit by the alternative minimum tax. The increased tax rates plus limits to itemized deductions and tax benefits would mean this family could avoid the AMT. But its taxes still would go up.

 

Income: $1 million

Status: married, two children under 17

Old taxes: $256,900

New taxes: $310,000

Difference: $53,100 more in taxes

Only about 1% of married people filing jointly have an income this high, according to the Internal Revenue Service's Statistics of Income division. Someone earning $1 million a year would see a big tax increase under the Obama plan, paying an additional $25,400 from higher tax rates and an estimated $27,700 from the limitations on itemized deductions and personal exemptions.

 

Now, hopefully we have captured the effect of these adjustments on you. Granted there is no way of knowing where these adjustments are headed. The GOP is currently jousting with Obama and others over this plan and negotiations don’t seem to be progressing as some may have hoped. The bottom line is change is coming and we’d like to know your thoughts. Comment away folks and we’ll post an addendum to this article.

Comments (1) -

Too bad you don't mention how this is affecting the lower income tax bracket single, no dependents. From the taxes that I have prepared this year, it is evident that it is the single person that is being hit hardest by the new tax laws. Half of what they have received from a refund in previous years.

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