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Tax Accountant says Tax Rates may not be Finalized until 2011

Wilmington CPA firm and tax accountant offers IRS Form 1040 tax preparation

Gary Bode, CPA: If you'd like a free initial consult on Form 1040 tax preparation and strategy, please consider calling us at (910) 399-2705

Form 1040 tax rates for 2010 may not be available before January of 2011.  Update – Actually they were passed on Dec 17th!  So late the IRS was caught with its systems down.  Tax filing in 2011 will be be delayed until mid to late February for millions of taxpayers.

Ouch!  Which has made last quarter tax planning difficult for clients.  It may also temporarily impede 2011 tax preparation.  Three distinct tax rate plans have been widely discussed, and no resolution this late in the tax year is unusual.  For more info, please read our previous post on President Obama’s proposed tax rates, which include tax scenario examples.

If you’d like a free initial consult with a tax accountant in a Wilmington NC CPA firm, please consider calling us at (910) 399-2705.  We feel accurate tax preparation of this year’s Form 1040 is only the first step.  Tax positioning, to pay the least amount of taxes in the future is always a goal with us.

Some background on taxable income and progressive/aggregate tax rates follow.

Basic Steps in IRS Form 1040 Tax Preparation:  Gross Income isn’t all Taxable Income

  • Gross Income.  Here your income from all sources is collected and totaled.
  • Adjustments.  Allowable adjustments are deducted from Gross Income.  Common examples include Moving Expenses, one half of any Self Employment tax and IRA contributions.
  • Standard or Itemized Deduction:  this further reduces Adjusted Gross Income.
  • Exemptions: deductions for yourself, spouse and dependents.
  • Taxable Income: what’s left of gross income after whittling it down from every legitimate angle.  So, taxable income is always lower than gross income.

Progressive Tax Rates vs. Aggregate Rates

The IRS uses a progressive tax rate system IE the last part of your income is taxed at a higher rate than the first part.  Here’s an example from 2009:

  • 10%, up to $8,375 of taxable income.
  • Then 15% on taxable income of $8,376 to $34,000. 
  • Then 25% from $34,001 to $82,400. 
  • Then 28% from $82,401 to $171, 850. 

The progressive tax rates make it harder to discuss tax strategy.  So sometimes CPAs and tax accountants use an aggregate rate that calculates in all the progressive rates for a relevant range of income.  Just as an example, if President Obama allows the highest progressive rate of 39.6% to return, the aggregate rate would be 32.4%

IRS tax regulations are changing faster than ever, making tax planning and positioning more dynamic.  We remain committed to helping clients pay the least amount of taxes through legitimate planning and application of all tax strategies.  If you’d like a free initial consult with a Wilmington NC CPA firm who believes in tax planning, please consider calling us at (910) 399-2705.

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