1. stocks and bonds held as investments;

2. personal residence owned and occupied by you and your family;

3. personal automobile used for pleasure or commuting;

4. personal jewelry and gems;

5. gold, silver and other metals;

6. timber grown on your home property or investment property; and

7. coin or stamp collections.

When a capital asset is sold or otherwise disposed of, it results in either a capital gain or a capital loss. If you sell a capital asset for more than the basis in the asset – usually the purchase price – you have a capital gain. If you sell a capital asset for less than the basis in the asset – usually the purchase price – then you have a capital loss. While personal-use capital losses are generally NOT deductible in contrast to business-use capital losses, personal-use capital gains are generally taxed at lower capital gains rates, which are laid out below.

Capital gains and losses must be reported on Form 1040, Schedule D. The disposition of capital assets held for more than one year are considered long-term capital gains (or losses). The disposition of capital assets held for one year or less are considered short-term capital gains (or losses).

The tax rates that apply to capital gains are generally lower than the tax rates that apply to other income. The lower rates are called the maximum capital gains rates. For Tax Year 2010, the maximum tax rates for individuals are 0%, 15%, 25% and 28%. To figure the capital gains tax rate that will apply to your personal-use capital gains, use the Form 1040, Schedule and its accompanying worksheets and instructions.

For more information regarding capital gains and losses, see IRS Publication 544: Sales and Other Dispositions of Assets.

With a month and a half left before our tax code reverts back to the pre-Bush era, Obama’s debt panel released (3) new tax reform options:

The co-chairmen of President Obama’s National Commission on Fiscal Responsibility and Reform released a discussion draft in advance of its final report to be issued on December 1.  The report presents three tax reform options:

Option 1: The Zero Plan

• Consolidate the tax code into three individual rates and one corporate rate
• Eliminate the AMT, Pease, and PEP
• Eliminate all $1.1 trillion of tax expenditures
• Dedicate a portion of savings to deficit reduction and apply the rest to reduce all marginal tax rates
• Add back in any desired tax expenditures, and pay for them by increasing one or all of the rates from their zero expenditure low

Option 2: Wyden-Gregg Style Reform Individual Tax Reform

• Repeal AMT, PEP, and Pease
• Establish 3 rates – 15%, 25% and 35%
• Triple standard deduction to $30,000 ($15,000 for individuals)
• Repeal state & local tax deduction, cafeteria plans, and miscellaneous itemized deductions
• Limit mortgage deduction to exclude 2nd residences, home equity loans, and mortgages over $500,000
• Limit charitable deduction with floor at 2% of AGI
• Cap income tax exclusion for employer-provided healthcare at the amount of the actuarial value of FEHBP standard option
• Modify and repeal several other tax expenditures
• Dedicate portion of savings to deficit reduction Corporate tax reform * Reduce corporate tax rate to 26%
• Permanently extend the research credit
• Eliminate and modify several business tax expenditures, including:
• Domestic production deduction
• LIFO method of accounting
• Energy tax preferences for the oil and gas industry
• Depreciation rules
• International tax reform including a territorial system

Option 3: Tax Reform Trigger

• Call on Finance and Ways & Means Committees and Treasury to develop and enact comprehensive tax reform by end of 2012
• Put in place across-the-board “haircut” for itemized deductions, employer health exclusion, and general business credits that would take effect in 2013 if reform is not yet enacted
• Haircut would limit proportion of deductions and exclusions individuals could take to around 85% in 2015. Similarly, corporations would only take some proportion of their general business credits
• Set haircut to increase over time until tax reform is enacted

The issue: 2011 tax-withholding tables. Treasury officials usually release the tables, which determine the take-home pay of millions of wage-earners, by mid-November because it takes payroll processors weeks to adjust their systems before Jan. 1.

But congressional leaders recently postponed voting on taxes until after the election and lawmakers don’t reconvene until Nov. 15. The Senate is scheduled to take up several nontax issues when it returns and is expected to leave for Thanksgiving soon after, possibly pushing a vote on taxes into December.

Wall Street Journal, Delays to Tax Tables May Dent Paychecks, by Laura Saunders:

“Things get very dicey after the first of December” because of employers’ need to know the 2011 rates, said Michael Graetz of Columbia University Law School, a former Treasury official. …

Some Capitol Hill tax staffers have suggested that the Treasury could set 2011 withholding at current levels for joint filers earning less than $250,000 ($200,000 for single filers), on the assumption that Congress seems likely to enact this change. Others have suggested that if Congress doesn’t act in time, Treasury officials might consider a one- or two-month grace period in which it maintains current tables until Congress passes tax legislation.

Treasury officials declined to discuss what they will do if lawmakers don’t come to a quick decision. … Treasury officials’ most obvious option is the least attractive. If they publish tables based on expiration of the Bush tax cuts, which occurs Jan. 1, millions of low- and middle-income taxpayers who have paid little or no income taxes for a decade would likely see increases in January. Prof. Graetz estimates that higher withholding could take up to $10 billion a month out workers’ pockets due to higher tax rates alone.

The estates of those who died this year might be allowed to be taxed as if they died in 2009, in order to resolve a problem created by the repeal of the estate tax, a Treasury Department official said.

Allowing those estates to elect 2009 law instead of the current rules is “one of the options on the table” in discussions between Congress and the administration of President Barack Obama, said Michael Mundaca, assistant secretary of the Treasury.

Give Momma one more year of jet-setting!

New York Times columnist Paul Krugman famously  dubbed the Bush 2001 tax cuts the “Throw Momma From The Train Act”, because the estate tax was eliminated for just one year—2010. But as 2010 grinds on without a federal estate levy, it’s becoming clear that Krugman got it wrong.  Any Momma who would ride the rails (even the pricey Acela) probably isn’t worth shoving to a grisly demise.  It’s the Mommas flying on their private jets who need to pack parachutes or watch their backs. Without a doubt, the one- year lapse in the federal estate is a boon to heirs of the superrich. (At  least four billionaires, including George Steinbrenner have died so far this year.)  But for ordinary families, it is creating all sorts of grief and unintended consequences and might even cost some of them extra federal tax, to say nothing of lawyers’ bills.

One set of problems relates to wills that were written assuming there would be a tax; provisions  in such documents could inadvertently disinherit children or a spouse, or could subject an estate to unnecessary state estate tax.  (For more on these issues, click here. For a map showing 2010 state estate taxes, click here.)

Another set of problems relates to a trade-off Congress made in the 2001 law: In return for eliminating the estate tax in 2010, it also did away with the full “step-up” in basis for capital assets for 2010. In other years,  the basis cost of a  decedent’s capital assets–stocks, bonds, jewelry, real estate, artwork and so on– gets adjusted to its market value at his death, or six months afterward.  (The executor gets a choice.) Conveniently, that allows heirs  to sell all the property immediately with no capital gains income taxes due. But for those dying in 2010, the step-up in assets going to non-spousal heirs is limited to $1.3 million, with another $3 million in step-up allowed for assets left to a spouse.   This means some heirs of estates worth several million could end up paying more in total federal tax than they would have had their benefactor died in 2009, when all assets got a step-up in basis and the first $3.5 million of an estate going to non-spousal heirs was exempt from estate tax. (Amounts left to a citizen-spouse aren’t subject to estate tax, since Uncle Sam figures to get his when the second spouse dies.)  These moderately well-to-do families get hit with extra capital gains taxes because their benefactor died in 2010 instead of 2009, but they don’t save much or any estate tax, compared to 2009

While an unknown number of families may pay more, a greater number of them are having to shoulder a big paperwork and administrative burden.  Assuming capital assets (including a home and stocks) total more than $1.3 million, family members and executors must locate old records showing what assets were purchased for (if such records even exist) and deal with all sorts of complicated and potentially divisive issues such as which assets, going to which heirs,  get allocated the limited basis step-ups…

Considering the complicated nuances, it might be wise to keep Momma – and her private jet – around for another year.

We are likely to see one of the following scenarios (or a combination thereof):

1. Congress does nothing and allows the Bush tax cuts to expire (the tax laws from 2001 will reactivate on Jan. 1, 2011);
2. Congress passes legislation to extend ALL of the Bush tax cuts (Congressional Republican’s Position);
3. Congress passes legislation extending SOME of Bush’s tax cuts (Obama’s Plan- extend some of the stimulus measures, place new limitations on itemized deductions and allow the tax cuts benefiting taxpayers making $250,000+ to expire); or
4. Congress passes the legislation recently proposed by Congressional Democrats (similar to Obama’s plan but without extending stimulus measures and with no additional limitations on itemized deductions).

Despite the legislative unpredictability, taxpayers can still stay a step ahead by putting together a game plan for each of the possible tax scenarios above.

So check www.MyTaxBurden.org to see where you stand…however Congress decides to act (or not act).

Below is a starting point for assessing your 2010 tax situation and determining whether or not consulting a tax attorney might help you reduce your bottom line this year.

Basics

Because many tax benefits are tied to or limited by adjusted gross income (AGI) — IRA deductions, for example — a key aspect of tax planning is to estimate both your 2009 and 2010 AGI. Also, when considering whether to accelerate or defer income or deductions, you should be aware of the impact this action may have on your AGI and your ability to maximize itemized deductions that are tied to AGI.

Traditional IRAs:

Individuals who are not active participants in an employer pension plan may make deductible contributions to an IRA. The annual deductible contribution limit for an IRA for 2009 is $5,000. For 2009, a $1,000 “catch-up” contribution is allowed for taxpayers age 50 or older by the close of the taxable year, making the total limit $6,000 for these individuals.

Individuals who are active participants in an employer pension plan also may make deductible contributions to an IRA, but their contributions are limited in amount depending on their AGI. For 2009, the AGI phase-out range for deductibility of IRA contributions is between $55,000 and $65,000 of modified AGI for single persons (including heads of households), and between $89,000 and $109,000 of modified AGI for married filing jointly. Above these ranges, no deduction is allowed.

Roth IRA conversions:

Regardless of income, taxpayers can convert traditional IRA accounts to Roth IRA accounts. Previously, taxpayers with modified adjusted gross income over $100,000 could not make the conversion. Also, married persons filing separate returns are now eligible to make the conversion. Note that the converted amounts are includible in income, however, for conversions taking place in 2010, a taxpayer can elect to ratably include the amount over two years in 2011 and 2012.

Lower capital gains rates:

The 15% capital gains rate (0% for taxpayers below the 15% tax bracket) will increase to 20% in 2011. Qualifying dividends taxed at reduced capital gains rates will be taxed at ordinary income rates beginning in 2011.

Lower income tax rates:

Legislation in 2001, reduced the tax rates on ordinary income through 2010.  Accordingly, these rates will likely change beginning in 2011.

2009 Tax Rates: 10%, 15%, 25%, 28%, 31%, and 35%

2010 Tax Rates: 10%, 15%, 25%, 28%, 33%, and 35%

This is the rate at which your last dollar of income is taxed. Although tax brackets are indexed for inflation, if your income increases faster than the inflation adjustment, you may be pushed into a higher bracket. If so, your potential benefit from any tax-saving opportunity is increased (as is the cost of overlooking that opportunity).

a)  Married individuals filing joint returns and surviving spouses -

There is hereby imposed on the taxable income of—

(1)  Every married individual who makes a single return jointly with his spouse, and

(2)  Every surviving spouse, a tax determined in accordance with the following table:

b)  Heads of households

Tax imposed on the taxable income of every head of a household shall be determined according to the following table:

c)  Unmarried individuals (other than surviving spouses and heads of households)

The tax imposed on the taxable income of every individual (other than a surviving spouse or the head of a household) who is not married, shall be determined iaccording to the following table:

d)  Married individuals filing separate returns

There is hereby imposed on the taxable income of every married individual who does not make a single return jointly with his spouse, a tax determined in accordance with the following table:

e)  Estates and trusts

A tax is hereby imposed on the taxable income of—

(1) every estate, and

(2) every trust,

According to the following table: