Capital Corner:  Roll with the Changes

Jim Brandenburg, CPA, MST, Shareholder - Tax   email | bio
April 2009

On the heels of enacting economic stimulus legislation at the federal and state levels, both President Obama and Governor Doyle offered their budgets for the upcoming years. Selected tax provisions in these budgets are summarized below.

Proposed Federal Changes

• Higher individual rates. The maximum tax rates of 35 percent and 33 percent will be allowed to expire at the end of 2010. The new maximum rates will rise to 39.6 percent and 36 percent.
   
• Higher tax on capital gains and dividends. The 15 percent tax rate on capital gains and dividends will increase to 20 percent in 2011. This represents a 33 percent increase in the tax on this income.
   
• Lower deductions. Another proposed change affects the tax treatment of itemized deductions for charitable contributions, mortgage interest, and state and local taxes. The tax rate for deductions will decline to 28 percent.
   
• Inventory. The LIFO inventory method, long used by many businesses, will be repealed over a period of ten or more years. All prior years’ tax benefits will be lost and no future savings will be permitted. The LIFO reserve of these companies is significant and, in some cases, exceeds their equity.

Proposed Wisconsin Changes

• Tax Rates. Upper income individuals will see their Wisconsin taxes increased by nearly 15 percent.
   
• Capital Gains. Wisconsin taxpayers are currently taxed on 40 percent of their long-term capital gains. This will rise to 60 percent. This is an increase of at least 50 percent (and as much as 72 percent) in the Wisconsin tax on long-term capital gains.