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Long Term Capital Gains Tax Rates Increase in 2011

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Stock Market Floor TraderWhen people talk about the Bush-era tax cuts, they’re usually referring to the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) signed by President Bush in June of 2001. Many of the provisions were set to phase in over 9 years but those were accelerated when the Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA) was signed just two years later. Many of those cuts are set to expire this year, the two big items being income tax rates and capital gains rates.

President Obama has publicly said that he will let the Bush-era capital gains tax cuts expire on schedule this year, so it’s important to know how they will affect your investments.

2010 Capital Gains Tax Rates

Here’s what the rates are this tax year:

2009-2010
Tax Bracket Short Term Long Term
10% 10% 0%
15% 15% 0%
25% 25% 15%
28% 28% 15%
33% 33% 15%
35% 35% 15%

Update: With the extension of the Bush tax cuts, long term capital gains rates will be extended to 2012. The text below this point no longer applies.

2011 Capital Gains Tax Rates

One of the changes Bush implemented was an adjustment to the tax brackets themselves. The Economic Growth and Tax Relief Reconciliation Act of 2001 introduced a 10% tax bracket and the brackets themselves were lowered. The 28% bracket was lowered to 25%, the 31% went to 28%, etc. If we assume the pre-cut brackets along with the pre-cut capital gains rates, we have the following:

2011 Onward
Tax Bracket Short Term Long Term
15% 15% 10%
28% 28% 20%
31% 31% 20%
36% 36% 20%
39.6% 39.6% 20%

As for dividend income, they are set to be taxed as ordinary income in 2011.

It’s almost certain that taxes, especially capital gains taxes, will increase. Even though it’s June, now’s the time to start thinking about what your plans are for the upcoming months. Does it make sense to cash out some winners and save 5% on your capital gains taxes?

(Photo: artemeustra)

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19 Responses to “Long Term Capital Gains Tax Rates Increase in 2011”

  1. Ryan says:

    So does this expire Dec 31 or before?

    • Bob says:

      This is a tax on something that has already been taxed. I’m a small business owner, used net after tax $ to get this going, took all the risk, such as my house as collateral, grew along the way, hired a number of folks, provided health care, and I always feel the government just wants so much more-frankly I’m tired of it. I and my business are debt free-is our government? Of course not…..

      • Pete says:

        No, it’s taxing your new income on the money youve already been taxed on. The base of the investment is not taxed so relax and enjoy your gains!

        • Ronald says:

          Pete, I know exactly where Bob is coming from which Bob is right. While you may be right from the stand point of view of “New Income” with that mind mode of thinking, you evidently have not learned about Double and Triple Taxation as taught in Accounting.

          Let’s take Investment in Stocks for example:

          If you have that money in a tax shelter account such as an IRA, that income is only taxed at one time (rather it be before it was put into the IRA like ROTH IRA or Non-Deductible Traditional IRA, or it be at the time of withdrawal like in a Deductible Traditional IRA or regular 401(k) plan). As such, it doesn’t eat up the money so much over the 30 years. If you have that same money invested in the same stocks, but not in a tax shelter account such as brockerage account, then the dividends and any capital gains in it are taxed annually (Again, that money put into the account after the income from wages was already taxed once), which means in the end, when you compare a ROTH IRA vs the brockage account with that same initial money in each account invested in the same stock, the brockage account’s value ends up being way lower than the value in the ROTH IRA over that same 30 year period.

          Another example of such situation. Corporate earns income, which then is taxed. They provide dividends to shareholders with money that has already been taxed, which then shareholders has to pay taxes on that dividend (hence another example of double taxation).

          Therefore, before you say someone is not correct, be sure you are looking at it from the same perspective as they are looking at it and be sure to learn the terminologies along with the various implications they each have on each other.

  2. cubiclegeoff says:

    I would think if you have large gains over the past couple of years, or you’re wealthy, it may make sense, if you need the short term cash. If you’re in for the long term and don’t generally carry specific stocks that you plan to trade, then it’s not worth the hassle, since it’s still better to keep the money invested.

  3. Fred says:

    I think we may see capital gains taxes tick up a few points on the upper tax brackets (even beyond the 20%) – a lot will depend on what the dems can accomplish before january and whether there’s any reversal in the house/senate. Repubs are likely to run on a “reduced spending, reduced taxes” platforms and should they get control of either house, there will be a bit of a stalemate I would think.

    In any event, unless you believe that at some point in the future (1) you’ll be in a low enough bracket to take advantage of the lower cap gains rates, or (2) congress & the prez are going to roll back the gains tax again, I think it makes a lot of sense to take the profits this year and re-invest the after-tax amount at the new basis.

  4. Ron says:

    The problem is that people with money will take those capital gains this year and do something with their money to reduce their tax bite in subsequent years. It’s political shortsightedness (surprise, surprise) to get a boost in the fall only to get a possible double dip recession after the elections.

  5. cdiver says:

    This is just the begining. Thank got for Roth IRA’s.

    • eric says:

      The govt better not change those either!

      • billsnider says:

        It is only a matter of time.

        Bill Snider

        • Mike says:

          All it takes is for the president to declare a “fiscal emergency” in order to get congress to renege on their promise to not tax roth gains. I will feel sorry for those that get screwed when that time comes.

  6. Another way to screw retirees! Believe me, them that’s got money has got tax lawyers & accountants, too…and they won’t be paying these gouges.

    • Tommy says:

      When is it going to stop? We the people are getting gouged worse every year, for trying to better ourselves. We need to stop this madness.

      • Carlos Castanedo says:

        yeah vote for Obama again – get some more “Change”….

        (well that “Change” is the coins you have left from your earnings)

      • Ronald says:

        Learn the ins and outs of the system and beat them at their own game. That’s what I had to do as early as 8th grade. Ever since I had to learn this fact including the unwritten rules, I been very successful in beating others at their own game. But then again, in grade school, I was more or less backed into the corner with no help from anyone else, so I had to fight back, which meant I had to learn all of the rules and not only that (God forbid what was to happen to me if I was to break even one of those rules), but stragetize how to beat them at their own game while staying within the rules of the game with the rules setup to be against me. Hate to say it, but businesses and government work a lot like that too, so you have to learn those rules and learn how to turn those rules around to work in your advantage against them.

  7. ziggy says:

    Heavier taxation encourages cheating (with or without lawyers) so the net effect of all the paperwork and tricky thinking is for naught!
    ziggy

  8. Anonymous says:

    The tax cuts were extended! Get up to date!

  9. drew says:

    40% cap! Seriously, FUCK THE GOV!


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