Tax Cuts and How They Affect You

President Bush implemented tax cuts several years ago and some of those tax cuts you have enjoyed in the past will end this year.

Currently the standard deduction in 2010 for married couples is $11,400 which is twice that for single filers, $5,700. In 2011, the standard deduction for married tax filers will be reduced to approximately $10,000 which may cause higher taxes for lower and middle income couples.

There are currently 6 tax rate brackets as defined by the IRS: 10%, 15%, 25%, 28%, 33%, and 35%. A proposal is set in place to reduce the rate brackets to five: 15%, 28%, 31%, 36%, and 39.6% which will cause all Americans to pay more in taxes in 2011 if implemented.

The current federal rate on long-term capital gains (an increase in the value of an investment or real estate that gives it a higher worth than the purchase price and the gain is not realized until the asset is sold. A capital gain may be short-term or long-term and must be claimed on your taxes) is 15%.

In 2011, a phase-out rule could eliminate up to 80% of income for itemized deductions for charitable donations, state and local taxes and mortgage interest for those in the higher income brackets. The phase-out rules begin for those filers who have adjusted income over $170,000.

In 2011, another phase-out rule will cause some filers to lose out on personal exemption deductions if your adjusted gross income exceeds $250,000 for joint filers; $168,000 for single filers or $210,000 for head of household.

In 2011, the maximum rate on gains will increase to 20%. The maximum rate on dividends (a distribution of a portion of a company's earnings to its shareholders) will increase to 39.6%.

Filers in the 10% and 15% tax bracket get a break this year and get a 0% rate on long-term gains and dividends. However in 2011, they will pay 10% on long-term gains and 15% and 28% on dividends.

Be sure to visit the IRS website to learn about all the tax cuts and how they will affect you and your family to be sure you don't owe money at the end of the year and are not missing out on some deductions.