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Looming Tax Increases in 2011

20th October 2010
By Roni Deutch in Taxes
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As we wait for Congress to take up a handful of tax and financial issues, taxpayers across the country are wondering what tax laws will change in 2011. A handful of tax cuts and incentives are scheduled to expire at the end of the year, and unless Congress takes action Americans are going to pay more taxes in 2011.

Income Tax Rates

Depending on what action Congress takes on the Bush tax cuts, income tax rates could increase significantly in 2011. President Obama has urged congress to only allow the cuts to expire for taxpayers making over $200,000. However, Congress must decide the fate of these tax rates and unless they pass legislation in the next few months, tax rates will increase for all taxpayers.

Estate Tax

As many of you already know, the estate tax expired at the end of last year and was not extended. Therefore taxpayers who inherited a sizeable amount of money this year did not have to pay the standard estate tax. Next year the tax is scheduled to be reinstated at a higher rate (55%). It will also target taxpayers receiving smaller estates. Additionally, if Congress does take up the issue they might instate a retroactive tax that could affect Americans who thought they were able to avoid the estate tax.


Qualified dividends are currently taxed at 15% because of the Bush tax cuts. However, if the cuts are allowed to expire, that rate will increase to nearly 40% for some taxpayers. This could represent a significant increase to taxpayers who rely on income from dividends.

Capital Gains

Another area the Bush tax cuts would impact is the capital gains rates. Depending on how Congress acts, the rates could rise to 20% in 2011. The increase is likely to only hit high-income taxpayers, and if you are worried about the hike then you might want to consider selling off some of your gains in 2010. However, you should always speak with a financial advisor to determine the most advantageous strategy.

Sin Taxes

Lots of taxpayers have seen drastic increases on cigarette taxes over the past year as local government agencies seek sources of additional revenue. However, these are not the only sin taxes that have increased. As part of the health care reform bill an indoor tanning tax was instituted, and going in to 2011 you can expect to see many more sin tax increases, especially at state and local levels.

Marriage Penalty

Married taxpayers should be concerned about another looming tax hike in 2011. Unless Congress addresses the issue, the "marriage penalty" will return next year, which has significant implications on couples that have significantly different income levels. Luckily, some of these taxpayers might be able to avoid the penalty by filing separately.

Deduction Caps

Although not a direct tax hike, the new deduction caps looming in 2011 will force many high-income taxpayers to pay more to Uncle Sam. President Obama has expressed interest in limiting the value of deductions at 28%, but has faced significant opposition. Many charitable groups have spoken out against this tax change, with fear that it will result in fewer donations from Americans.

Business Taxes

Small and large businesses should also expect tax increases in the next year. There are going to be higher SECA taxes for owners of S firms and partnerships, restrictions on worker classifications, and an elimination of the deduction for domestic production.

The Tax Lady Roni Deutch and her law firm Roni Deutch, A Professional Tax Corporation have been helping taxpayers across the nation find IRS tax relief for over seventeen years. The firm has experienced tax lawyers who can fight tax debts on your behalf.
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