I hate to be the bearer of bad news but what you don't know can hurt you.  This has never been truer that right now.

      Earlier this year Erskine Bowles was appointed to co-chair President Obama's "Debt Commission".  Mr. Bowles was also chief of staff under President Clinton.  On June 30^th,  2010 Mr. Bowles announce the findings of the commission.  He said "if we (the U.S.) don't restore some fiscal sanity around here as a nation we are going to go broke".  He went on to say "we face the most predictable economic crises in history; our debt will consume us like a cancer from within".   See http://www.washingtonpost.com/wp-dyn/content/article/2010/07/11/AR2010071101956.html for more details.

Here's another quote from Ryan Ellis of the Americans for Tax Reform pointing out what will happen in January 2011 unless Congress and President Obama change the outcome in the next few months.

"In less than six months, the largest tax hikes in the history of America will take effect.  They will hit families and small businesses in three great waves on January 1, 2011:

  First Wave: Expiration of 2001 and 2003 Tax Relief

In 2001 and 2003, the Congress enacted several tax cuts for investors, small business owners, and families.  These will all expire on January 1, 2011:

  Personal income tax rates will rise.  The top income tax rate will rise from 35 to 39.6 percent (this is also the rate at which two-thirds of small business profits are taxed).  The lowest rate will rise from 10 to 15 percent.  All the rates in between will also rise.  Itemized deductions and personal exemptions will again phase out, which has the same mathematical effect as higher marginal tax rates.  The full list of marginal rate hikes is below:

- The 10% bracket rises to an expanded 15%
- The 25% bracket rises to 28%
- The 28% bracket rises to 31%
- The 33% bracket rises to 36%
- The 35% bracket rises to 39.6%

  Higher taxes on marriage and family.  The "marriage penalty" (narrower tax brackets for married couples) will return from the first dollar of income.  The child tax credit will be cut in half from $1000 to $500 per child.  The standard deduction will no longer be doubled for married couples relative to the single level.  The dependent care and adoption tax credits will be cut.

  The return of the Death Tax.  This year, there is no death tax.  For those dying on or after January 1 2011, there is a 55 percent top death tax rate on estates over $1 million.  A person leaving behind two homes and a retirement account could easily pass along a death tax bill to their loved ones.  (This tax could put a lot of companies out of business when the owner dies.)  

  Higher tax rates on savers and investors.  The capital gains tax will rise from 15 percent this year to 20 percent in 2011. The dividends tax will rise from 15 percent this year to 39.6 percent in 2011.  These rates will rise another 3.8 percent in 2013.

There are over twenty new or  highter taxes in the new health care legislation.  Several of these go into effect on January 1, 2011."

      Some of this has been in the news recently but I don't think most people truly understand the impact this will have on our business and the economy. 

So what does all this mean to recyclers? 

Actually several things should be considered: 

       Number 1: Consider moving as much taxable income as possible into 2010.  You can believe that other businesses and all savvy investors are already doing this.  This "take it now" profit is part of the recovery the news media keeps talking about which is not really a recovery; it's simply a way of avoiding the higher taxes of 2011.  Here's an example, if you take a $50,000 this year the government will take $7,500 as taxes.  The tax on the same amount will be $19,800 in 2011 and thereafter.   Therefore, if you have retained earnings your corporation you may want to take them as a dividend this year.  Also, it may be cheaper to borrow short term money and take it as income this year and then pay off the loan in 2011 instead of taking income or dividends at a later date.

Also consider the ramifications of this to the 2011 economy.  With businesses moving all this taxable income into 2010 and tax write-offs being delayed to 2011, doesn't it follow that the economy will take a beating next year as these delayed write-offs are used and profits are artificially lower in 2011.  This is why you keep hearing the economists refer to a possible "double dip" recession.

      Number 2: Re-consider any major expenditures.  Check with your CPA to see if you would be better off delaying the expense until next year.

      Number 3:  If you have been considering selling a house, land, business or any asset which would be subject to capital gains tax you may want to get that sale into this year.  You could save 5% on your taxes by closing the sale in 2010.

      Number 4:  With much of the burden of the new health care being dumped on employers, 2011 is not the time to have spare people on the payroll.  Trim any and all employees you can do without.  Remember, just because your employees get behind does not mean you need more help.  Use incentive pay everywhere you can so you pay for work done instead of just hours on the clock.  Look on the top right or this website for Pay For Performance systems. 

      Number 5:  Eliminate overtime pay.  You never get work and a half for time and a half.  Actually overtime pay encourages employees to get behind so you will pay them extra for what they didn't do during regular hours. 

      If there's any good news in all of this it may be that the U.S. citizens won't be able to dispose of vehicles so easily and buy new ones.  Therefore, we may be the beneficiary of increased demand for recycled auto parts.  Maybe this is one of those situations where the old saying "Every cloud has a silver lining" comes true for recyclers. 

      Bottom line, contact your CPA and see what you can do to reduce your taxes in 2011 by taking appropriate action now.

                                                                                Jim Counts

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