This article in the WSJ last Friday indicates that President Obama and lawmakers are likely to allow income tax rates on the highest earners to increase in 2011. Currently, Bush-era tax cuts are set to expire at the end of the year. Assuming lawmakers don’t intervene this means that households will pay higher income taxes. Here is a chart with the changes:
However, Treasury Secretary Tim Geithner indicated in the article that President Obama and demo’s would like to see the tax cuts for income earners less than $250,000 (married filing jointly) extended. My guess is they’ll get their way and high income earners will end up paying significantly higher tax rates. If that happens then there will be more focus and planning on how to reduce taxable income. This will create a renewed focus on planning opportunities to shelter income.
One way this is possible is through qualified retirement plans where income can be deferred into retirement savings account and grow tax deferred. Charities will also benefit as more Americans look for ways to reduce taxes. The mortgage interest deduction will become more valuable making the “Effective Percentage Rate” even lower. If you are a household that is likely to be impacted by these tax increases it would be wise to schedule an appointment with your tax professional and/ or financial planner now so that you begin planning.