There's little in tax bill for average citizen

Your Money


A potpourri of tax cuts passed in 2001 left Americans hanging, unsure whether to plan for their future based on tax benefits that were scheduled to vanish between 2006 and 2010.

The $70 billion tax bill passed by Congress last week provides a couple more years of certainty about capital gains and dividends and gives affluent people their first opportunity to have Roth IRAs.

But a significant amount of uncertainty remains. For example, families planning to send their children to college after 2010 still can't count on 529 college savings plan money to be free of taxes when the tuition bills start rolling in. And wealthy people who want to avoid the estate tax completely still must die in 2010 - not a year before or later.

Taxpayers worried about being hit with the dreaded alternative minimum tax might get a breather for a year, but there's no long-term change. And families using the popular college tuition deduction aren't going to have it any more unless Congress restores it.

If you've been too affluent to have a Roth individual retirement account, you have been given a dandy deal. Roth IRAs are a retirement savings device similar to IRAs, but they offer investors the peace of mind that they will owe Uncle Sam no taxes on the savings once they've retired.

Until the new tax law, people with incomes over $100,000 couldn't convert a regular IRA into a Roth IRA. But the new law lets anyone convert an IRA to a Roth IRA beginning in 2010.

If you like low capital gains/dividend taxes, you can count on the maximum 15 percent long-term capital gains rate at least for the next four years. The low rate was to end in 2008. Now it's in effect until the end of 2010.

If your income is relatively low - placing you in the 10 percent or 15 percent tax brackets - the long-term gains you receive from investments such as stocks, bonds and mutual funds will be taxed at only 5 percent this year and 2007. Then for 2008 through 2010, they fall to zero. The zero percent rate is only in effect for 2008-2010.

Congress didn't revisit the rules on 529 plan college savings. So after 2010, students using 529 savings plans to pay for tuition, room and board would be taxed.

If you worry about the alternative minimum tax, you may be safe for another year, because Congress has increased the AMT exemption amount to $42,500 from $40,250 for singles and to $62,550 from $58,000 for couples.

The changes are expected to be especially helpful to people with incomes in the $160,000 to $180,000 range.

The new tax provisions give taxpayers a chance to reduce their AMT payments by using tax credits and deductions such as the dependent care credits and the Hope and Lifetime College Credits.

If you are rich and die any time other than 2010, you still could owe Uncle Sam estate taxes. Through 2008, if you die, you will owe estate taxes if you leave more than $2 million to heirs.

In 2009, you will pay taxes if your estate is worth more than $3.5 million. In 2010, you get a complete pass. In 2011, the estate tax kicks in again at $1 million.

Messages for Gail Marksjarvis can also be left at 312-222-4264.

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