Interesting time for taxes
Now that we know the make-up of the House and Senate in Washington, we can make some educated guesses as to what is going to happen to our tax system in 2011. We will find out if the politicians really do listen to the voters. Based on their hearing capacity, the conclusions reached by each person may be drastically different.
Health Care Reform is an excellent example. Most people were in agreement that the system was broken and that it needed fixing. Congress and the President heard this and agreed. The point at which people disagreed is this: Was a total revamping necessary or could the system have been selectively fixed? Insurance companies should not have been able to deny insurance coverage because of pre-existing conditions. Could that have been fixed in one or two pages of legislation as opposed to 2,700 pages? Perhaps. Non-dependent children living at home should be able to buy insurance as part of their parent’s plan. I bet some smart technical writer in Washington could have written that up in a page or two. Ditto for insurance companies canceling a taxpayer’s policy because the insurance company was spending too much money on that person.
Of course, the biggest controversy of all seems to be: Does the federal government have the right to force taxpayers to buy insurance? Congress will now be trying to answer this question: Did the American public vote to have Health Care Reform repealed or do they want it further reformed to keep the good things and repeal the other 2,690 pages? I guess we will see what they heard in a very short time.
It appears that Congress and the President did hear that the public would very much like to see the Bush Tax Cuts extended. There is some negotiating going on, but it appears that the majority of the cuts will be extended at least through 2011.
I know it is hard to figure out where a politician is coming from, but if a Democrat-controlled Congress is going to extend the tax cuts for a year after the election, why would they not have extended them before the election? By acting before the election, it might have saved them a vote or two. By remaining silent on the subject, this must surely have cost them many votes.
Another item being acted on right now is extending relief to millions of taxpayers that may be subject to the Alternative Minimum Tax (AMT). The AMT is a silent tax that was meant to tax only a few very wealthy taxpayers when it was initially instituted. It has grown in importance over the years and more than a few non-wealthy taxpayers—using any definition you want to use to define “wealthy and non-wealthy”—are caught in the web of the AMT.
Apparently, in response to what happened November 2, the House has passed a relief bill. The Senate will soon follow, and the President has assured all that he will sign the bill. Again, why wasn’t this done before the election? It would have taken an arrow out of the quiver of the Tea Party and Republicans in general.
A third item to be dealt with is the estate tax. The tax itself did expire on December 31, 2009. For anyone dying in 2010, there is no estate tax. I would bet that the heirs of billionaire George Steinbrenner were most appreciative that George passed this year. If he had taken his leave in 2009, the estate taxes due would have totaled up to 55% of his multibillion dollar estate. They might have had to sell the Yankees to pay the bill.
I’m not sure the public, as a whole, has much of an opinion on the subject of estate tax. However, a provision of the estate tax does affect most people who inherit an asset. That provision allows people to inherit assets at fair market value. They get to step up the taxable basis of an asset from the original owner’s cost to the fair market value on the date of death. This is quite a tax advantage and it applies to most inherited assets. When that asset is sold, profit or loss is only calculated from the date of death.
What a good deal this is. Without this provision, that cottage on Silver Lake purchased in 1967 for $50,000 and now being sold for $450,000 would result in a $400,000 taxable income tax profit to the heirs. With the step-up provision, if the cottage had a fair market value of $450,000 at the date of death and was being sold for $450,000 there would be no taxable gain or loss. Even though the deceased person did not have an estate that was large enough to be taxable, the heirs were able to take advantage of the step-up estate tax provisions. It’s important that Congress extend this particular portion of the estate tax law. It’s a provision that all taxpayers might take advantage of.
This is a very interesting time when it comes to income tax. There is a lot of activity in this area. I will keep you posted as laws are passed and signed by President Obama. This is Jerry Coon signing off.
Jerry Coon is an Enrolled Agent. He owns
Action Tax Service in Rockford. Contact Jerry