The Tax Man Cometh

Monday, May 24th, 2010 by Charles Mayfield, CFP®


 In recent weeks, Cass and I have devoted a great deal of time talking about the unique opportunities for our clients in 2010 regarding taxes.  From Roth IRAs to Long Term Capital Gains, there is much to discuss and be aware of in this ever-evolving environment.

Part of the tax cuts implemented by the Bush administration in 2003 established more favorable tax treatment for most ordinary dividends.

Prior to this legislation, taxes levied on these dividends were paid at ordinary income tax rates.  Since then, a more favorable treatment has benefited many Americans.  Equalizing the tax treatment of ordinary dividends with that of Long Term Capital gains effectively gave many folks in higher tax brackets more money in their pockets.

In 2011, these tax cuts will expire.  Taxation will revert back to the old system that treats ordinary dividends as income and taxes them accordingly(as high as 39.6% for those in higher tax brackets).  This will undoubtedly have a sweeping impact on investor sentiment toward dividend paying instruments and tax-exempt options.

Consumers with a heavy reliance on dividend income as a primary source of retirement income should weigh their options carefully.  These tax changes will inevitably impact the ‘net’ income coming from these sources.  There is opportunity in every situation.  Make sure you make informed decisions to better yourself and your portfolio. Talk to your investment advisor and accountant about how this will impact your particular situation now. 

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