... beginning with full time dancers potentially being subjected to the Alternative Minimum Tax in 2010 ...
(snip)"Neal said the Ways and Means panel likely will defer extending a so-called “patch” of the alternative minimum tax that spares about 30 million households from paying about $70 billion in higher income taxes this year. Congress would have to extend the patch in 2010 to keep the higher taxes from taking effect then. "(snip)
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(snip)Under current law [which will again take effect if no new AMT 'patch' is passed by the US congress - sic], AMT coverage will skyrocket. By 2010, the AMT will affect 33 million taxpayers—about one-third of all tax returns—up from 1 million in 1999. This would make the AMT almost as common as the mortgage interest deduction is today. The AMT will be the de facto tax system for households with income between $100,000 and $500,000, 93 percent of whom will face the tax. It will encroach dramatically on the middle class, affecting 37 percent of households with income between $50,000 and $75,000 and 73 percent of households with income between $75,000 and $100,000 (compared to less than 3 percent for each group in 2002). (snip)
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If you are not familiar with the AMT, in essence it is an 'overriding' tax rate that begins to disallow tax deductions as income levels increase. This has the effect of increasing 'real world' US federal income tax rates for people living / working in high tax rate states, for people with large deductible expenses ( like home mortgage interest ), etc. The 2008 US congress passed an AMT 'patch' which raised the 2009 annual income threshold over which the AMT starts to apply to $ 46,200 for single filers. If the current US congress does not pass a new 'patch', the 2010 annual income threshold over which the AMT would start to apply will be reduced to $ 35,750 for single filers ( as originally set in the original 1969 law ... when $35,750 was considered a LOT of income ).
With these latest indications that a 2010 AMT 'patch' is not likely to be passed, this generally means that full time dancers may be subjected to significantly higher 'real world' tax rates in 2010 than they are for 2009. From a tax planning standpoint, the remaining weeks before the end of December provide an opportunity to 'realize' income under lower 2009 income tax rates, as well as to 'exercise' transactions that would result in large tax deductions that are more likely to be fully allowed under 2009's AMT 'patch'.
- this might be a good time to consider selling off some of your investments that have been accumulating as-yet 'unrealized' capital gain income. Even if you turn right around and reinvest the proceeds into similar investments, at least you'll be booking past years' 'unrealized' income at tax rates that are likely to be significantly lower than in future years.
- for dancers living and working in low tax rate states, who claim state and local sales taxes in lieu of claiming state and local income taxes, if you are considering a major purchase in 2010 ( that would result in a large sales tax deduction ), you may want to consider advancing that purchase into 2009 so that the 'full value' of corresponding sales tax deduction can be used to reduce 2009 tax liabilities.
- for dancers who will earn less than the $100,000 exclusionary limit in 2009, and who have a 'tax deferred' gov't sanctioned retirement account i.e. an IRA, SEP IRA, 401k etc., you may want to consider converting your 'tax deferred' account to a Roth IRA before the end of 2009. The reason of course is that money withdrawn from a 'tax deferred' account counts as additional taxable income at the time of withdrawl, whereas money withdrawn from Roth IRA's is NOT taxable. As such, booking additional income from a 2009 conversion is likely to result in significantly lower tax consequences than performing a similar conversion in future years - or not converting your 'tax deferred' account thus having to pay higher future tax rates on withdrawn money ( and / or sacrifice gov't retirement benefit eligibility ) when you reach retirement age. Given that this issue is complex, you may want to look at for more specific information.
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