What kind of moves should you be making to cut that tax bill? Who knows?
"I don't know what to do," said James Jenkins, president of Jenkins & Co., an accounting firm in Southfield, Mich. "Call 1-800-PSYCHIC; try that."
Or maybe just wait until after Election Day, Nov. 2, to see what difference that might make.
Why all the uncertainty? Because $4 trillion worth of Bush-era tax cuts expire at the end of this year if Congress does nothing. Some could be extended; others likely will not.
So you may be seeing higher tax rates on capital gains and dividends.
President Barack Obama has a plan that increases the top marginal tax rates to 36 percent and 39.6 percent - up from 33 percent and 35 percent. Obama also has long promised that he would not increase taxes for most married taxpayers with incomes below $250,000 and for single taxpayers with incomes below $200,000.
Yet much is yet to be debated.
"People are still taking a wait-and-see attitude on a lot of this," said Andy Zaleski, senior director of BDO USA in Troy, Mich. "This is really an uncertain time for individual taxpayers."
Plenty of accountants and taxpayers are frustrated because it's not clear what changes are ahead.
The old year-end theories-such as delaying a bonus into another tax year or making a slew of charitable contributions before Dec. 31 - might or might not be helpful this year.
For example, taxpayers who think their tax rate will be higher next year could actually want to delay making charitable contributions until 2011. But that's not a good strategy for those who expect their tax rate to remain unchanged in 2011, said Bob Scharin, senior tax analyst for Thomson Reuters in New York.
One big question mark for investors: Where are long-term capital gains rates headed?
Under current rules, most taxpayers pay 15 percent on capital gains if they've held the property for more than one year before selling. Some individuals even pay a 0 percent rate on long-term gains if they're in the 10 percent or 15 percent income tax brackets.
Capital gains and losses are classified as long-term or short-term. If you hold an asset or property one year or less, your capital gain or loss is short-term.
If nothing is done in Congress, the long-term capital gains rate would change in 2011 to 20 percent for most individuals on assets held up to five years. The rate would be 18 percent if the assets are held longer than five years.
And beginning in 2011, again if Congress makes no moves, the long-term capital gains rate would go up to 10 percent for assets held up to five years - not 0 percent - for individuals in the 10 percent and 15 percent income tax brackets. For assets held longer than five years by those taxpayers in lower brackets, the 2011 rate would be 8 percent.
Scharin said one move that makes sense now is for some individuals in lower tax brackets to sell before Dec. 31 if they'd qualify for that 0 percent long-term capital gains rate.
This strategy could apply to married taxpayers filing a joint return on taxable income of up to $68,000. For singles, the taxable income could be up to $34,000 in 2010 to qualify for that 0 percent capital gains rate.
Scharin noted the 0 percent capital gains rate applies only to the extent the individual's taxable income does not exceed the appropriate threshold.
For example, let's say a married couple has $50,000 of taxable income, aside from capital gains. Scharin said for 2010 they can qualify for the 0 percent rate on up to $18,000 of long-term capital gains. If they have $20,000 of such gains, $18,000 would qualify for the 0 percent rate and $2,000 is taxed at 15 percent.
Scharin said it can make sense for taxpayers to lock in that 0 percent now. But you'd want to make sure how much you're selling and what level of taxable income you'd have for 2010.
If the 0 percent rate stays in place next year - that is, if Congress extended this tax break - you'd still have avoided capital gains taxes for 2010 and you'd be able to have a chance to take additional tax-free gains in 2011.
"I don't know what to do," said James Jenkins, president of Jenkins & Co., an accounting firm in Southfield, Mich. "Call 1-800-PSYCHIC; try that."
Or maybe just wait until after Election Day, Nov. 2, to see what difference that might make.
Why all the uncertainty? Because $4 trillion worth of Bush-era tax cuts expire at the end of this year if Congress does nothing. Some could be extended; others likely will not.
So you may be seeing higher tax rates on capital gains and dividends.
President Barack Obama has a plan that increases the top marginal tax rates to 36 percent and 39.6 percent - up from 33 percent and 35 percent. Obama also has long promised that he would not increase taxes for most married taxpayers with incomes below $250,000 and for single taxpayers with incomes below $200,000.
Yet much is yet to be debated.
"People are still taking a wait-and-see attitude on a lot of this," said Andy Zaleski, senior director of BDO USA in Troy, Mich. "This is really an uncertain time for individual taxpayers."
Plenty of accountants and taxpayers are frustrated because it's not clear what changes are ahead.
The old year-end theories-such as delaying a bonus into another tax year or making a slew of charitable contributions before Dec. 31 - might or might not be helpful this year.
For example, taxpayers who think their tax rate will be higher next year could actually want to delay making charitable contributions until 2011. But that's not a good strategy for those who expect their tax rate to remain unchanged in 2011, said Bob Scharin, senior tax analyst for Thomson Reuters in New York.
One big question mark for investors: Where are long-term capital gains rates headed?
Under current rules, most taxpayers pay 15 percent on capital gains if they've held the property for more than one year before selling. Some individuals even pay a 0 percent rate on long-term gains if they're in the 10 percent or 15 percent income tax brackets.
Capital gains and losses are classified as long-term or short-term. If you hold an asset or property one year or less, your capital gain or loss is short-term.
If nothing is done in Congress, the long-term capital gains rate would change in 2011 to 20 percent for most individuals on assets held up to five years. The rate would be 18 percent if the assets are held longer than five years.
And beginning in 2011, again if Congress makes no moves, the long-term capital gains rate would go up to 10 percent for assets held up to five years - not 0 percent - for individuals in the 10 percent and 15 percent income tax brackets. For assets held longer than five years by those taxpayers in lower brackets, the 2011 rate would be 8 percent.
Scharin said one move that makes sense now is for some individuals in lower tax brackets to sell before Dec. 31 if they'd qualify for that 0 percent long-term capital gains rate.
This strategy could apply to married taxpayers filing a joint return on taxable income of up to $68,000. For singles, the taxable income could be up to $34,000 in 2010 to qualify for that 0 percent capital gains rate.
Scharin noted the 0 percent capital gains rate applies only to the extent the individual's taxable income does not exceed the appropriate threshold.
For example, let's say a married couple has $50,000 of taxable income, aside from capital gains. Scharin said for 2010 they can qualify for the 0 percent rate on up to $18,000 of long-term capital gains. If they have $20,000 of such gains, $18,000 would qualify for the 0 percent rate and $2,000 is taxed at 15 percent.
Scharin said it can make sense for taxpayers to lock in that 0 percent now. But you'd want to make sure how much you're selling and what level of taxable income you'd have for 2010.
If the 0 percent rate stays in place next year - that is, if Congress extended this tax break - you'd still have avoided capital gains taxes for 2010 and you'd be able to have a chance to take additional tax-free gains in 2011.
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