Last week, Congress passed a $70 billion tax bill, The Tax Increase Prevention and Reconciliation Act of 2005 (“TIPRA”). Seriously. That’s the name. The President is expected to sign the bill shortly.
Clients and advisors should make note of a few key provisions:
- The 15% long-term capital gains tax rate (down from 20%) is extended for two more years to 2010 but note this is only available to singles earning $30,650 or less and couples earning $61,300 or less
- The “kiddie tax” which taxes children at their parents’ marginal rates on any income over $1,700 per year has been expanded to include kids up to 18 years old. My advice: Use 529 plans inside of trusts to eliminate income tax for kids and keep parental control over the assets.
- In 2009 (but not now… wait…. wait….), Roth IRA conversions (previously available only to taxpayers with $100k in income or less) are now available to everyone. My advice: If you have a traditional IRA or a 401(k) that can be rolled over into an IRA, make an appointment in December 2008 to see your financial advisor and project whether a Roth IRA conversion will save you money.
And big shocker:
No action was taken on the Estate Tax!
We are still facing a return of the $1,000,000 exemption in 2011 and forevermore.