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We’d like to extend our sincere gratitude to Jim Counts of Counts Consulting, LLC for allowing us to post their previously published article. Permission granted VIA email 10/13/11. All articles are reprinted in their entirety as originally published.

Preparing for 2011

I hate to be the bearer of bad news, but what you don’t know can hurt you. This has never been truer that right now.

Earlier this year, Erskine Bowles was appointed to co-chair President Obama’s “Debt Commission”. Mr. Bowles was also chief of staff under President Clinton. On June 30th, 2010, Mr. Bowles announced the findings of the commission. He said, “If we (the U.S.) don’t restore some fiscal sanity around here as a nation, we are going to go broke“. He went on to say, “We face the most predictable economic crises in history; our debt will consume us like a cancer from within“. See http://www.washingtonpost. com/wp-dyn/content/article/2010/07/11/AR2010071101956.html for more details.

Here’s another quote from Ryan Ellis of the Americans for Tax Reform pointing out what will happen in January 2011 unless Congress and President Obama change the outcome in the next few months.

“In less than six months, the largest tax hikes in the history of America will take effect. They will hit families and small businesses in three great waves on January 1, 2011:

First Wave. Expiration of 2001 and 2003 Tax Relief.

In 2001 and 2003, the Congress enacted several tax cuts for investors, small business owners, and families. These will all expire on January 1, 2011:

Personal income tax rates will rise. The top income tax 
rate will rise from 35 to 39.6 percent (this is also the rate at which two-thirds of small business profits are taxed). The lowest rate will 
rise from 10 to 15 percent. All the rates in between will also rise. Itemized deductions and personal exemptions will again phase 
out, which has the same mathematical effect as higher marginal 
tax rates. The full list of marginal rate hikes is below:

• The 10% bracket rises to an expanded 15%.
• The 25% bracket rises to 28%.
• The 28% bracket rises to 31%.
• The 33% bracket rises to 36%.
• The 35% bracket rises to 39.6%.

Higher taxes on marriage and family. The “marriage penalty” (narrower tax brackets for married couples) will return from the first dollar of income. The child tax credit will be cut in half from $1000 to $500 per child. The standard deduction will no longer be doubled for married couples relative to the single level. The dependent care and adoption tax credits will be cut.

The return of the Death Tax. This year, there is no death tax. For those dying on or after January 1, 2011, there is a 55 percent top death tax rate on estates over $1 million. A person leaving behind two homes and a retirement account could easily pass along a death tax bill to their loved ones. (This tax could put a lot of companies out of business when the owner dies.)

Higher tax rates on savers and investors. The capital gains tax will rise from 15 percent this year to 20 percent in 2011. The dividends tax will rise from 15 percent this year to 39.6 percent in 2011. These rates will rise another 3.8 percent in 2013.

There are over 20 new or higher taxes in the new health care legislation. Several of these go into effect on January 1, 2011.

Some of this has been in the news recently, however, I don’t think most people truly understand the impact it will have on our business and the economy.

So what does all this mean to recyclers? Actually, several things should be considered:

Number 1: Consider moving as much taxable income as possible into 2010. You can believe that other businesses and all savvy investors are already doing this. This “take it now” profit is part of the recovery the news media keeps talking about which is not really a recovery; it’s simply a way of avoiding the higher taxes of 2011. Here’s an example: If you make $50,000 this year, the government will take $7,500 as taxes. The tax on the same amount will be $19,800 in 2011 and thereafter. Therefore, if you have retained earnings in your corporation, you may want to take them as a dividend this year. Also, it may be cheaper to borrow short term money and take it as income this year and then pay off the loan in 2011 instead of taking income or dividends at a later date.

Also consider the ramifications of this to the 2011 economy. With businesses moving all this taxable income into 2010 and tax write-offs being delayed to 2011, doesn’t it follow that the economy will take a beating next year as these delayed write-offs are used and profits are artificially lower in 2011. This is why you keep hearing the economists refer to a possible “double dip” recession.

Well, I’m out of room again, so for more suggestions on what you can do to prepare for these unprecedented increases in taxes, visit our website www.CountsConsulling.com and look on the right under “Free Information” and the title of Preparing for 2011 tax increases.

www.CountsConsulting.com   –  JimCounts@USA.com  – 817-238-9991