Magazine article Business Credit

At the Rate We're Going

Magazine article Business Credit

At the Rate We're Going

Article excerpt

The key element of the Omnibus Budget Reconciliation Act of 1993 (OBRA 1993) is an increase in the tax rates. Just how will these rates affect you?

Tax Increase for Individuals

For marrieds filing jointly, a 36 percent tax rate applies to taxable income over $140,000. For heads of household, that rate applies to taxable income over $127,500. For individuals, the rate applies to taxable income over $115,000; and for marrieds filing separately, to taxable income over $70,000.

The "Surtax on High-Income Taxpayers," as it is referred to in OBRA 1993, results in a 39.6 percent tax hit to taxable incomes over $250,000 for marrieds filing jointly, heads of household, or individuals. For marrieds filing separately, the threshold is $125,000.

For the income taxation of estates and trusts, the rates are the same as for individuals as amended by OBRA 1993 and are effective for fiscal years beginning in 1993. The brackets, however, have been significantly compressed. The 15 percent rate now applies to taxable income up to $1,500 ($3,750 under prior law), the 28 percent rate now applies to taxable income between $1,500 and $3,500 (between $3,750 and $11,250 under prior law), and the 31 percent tax rate now applies to taxable income between $3,500 and $5,500. (This was the top rate under prior law applicable to taxable income over $11,200.) Under the new law, the 36 percent bracket applies to taxable trust or estate income over $5,500, and the 39.6 percent rate will hit such taxable income over $7,500. Thus, unless there are compelling reasons to the contrary, income earned by estates and trusts should be distributed to the beneficiaries who may be in a lower bracket and almost certainly will not be in a higher bracket. No Change in the Long-Term Capital Gains Rate

In a backhanded way, perhaps the one boon of OBRA 1993 is the decision not to raise the maximum rate of 28 percent for net long-term capital gains. The significant differential between the new rates and the maximum net long-term capital gains rate has effectively restored the incentive for long-term capital investing.

Estate and Gift Tax Rates

Although hardly noticed when it occurred on Jan. 1, 1993, the existing top estate and gift tax rates (53 percent for taxable estates and gifts between $2,500,000 and $3,000,000 and 55 percent for taxable estates and gifts over $3,000,000) were eliminated, leaving the maximum estate and gift tax rate at 50 percent for taxable estates and gifts above $2,500,000. …

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