After President-Elect Barack Obama is sworn in on January 20, 2009, what will happen to your tax bill? It's a good question without a lot of clear answers right now.

As you may recall, taxes were discussed extensively on the campaign trail with Obama pledging a cut for 95 percent of working Americans. However, candidates' promises are often vague and subject to change. Plus, the President-Elect will need the cooperation of Congress before his tax agenda becomes a reality. More importantly, the current economic crisis has caused all policies and pledges to be a moving target.

A Few Tax Planning Moves to Consider     Business Equipment Purchases: Have you taken full advantage of special depreciation tax breaks available this year? Under the Economic Stimulus Act of 2008, there is a first-year "bonus depreciation" write-off for 2008 that allows your business to immediately deduct 50 percent of the cost of a qualifying new asset.     In addition, the maximum Section 179 deduction almost doubled to $250,000 for qualifying assets placed in service this year. In some cases, businesses might be able to combine bonus depreciation with the increased Section 179 deduction for the same assets, which are purchased and placed in service in tax years beginning in 2008.     However, unless Congress takes further action, bonus depreciation will end on December 31, 2008 and the maximum Section 179 deduction will drop to $133,000 for tax years beginning in 2009. (Given the state of the economy, it is possible that another economic stimulus law will pass boosting the 2009 amount above $133,000 and extending bonus depreciation.)    Capital gains and Losses: High tax bracket investors with large gains, which may be rare in today's environment, should consider realizing them before rates rise. Conversely, before December 31, you may want to harvest losses to offset gains that occurred earlier in 2008. Of course, investment moves should only be made if they make sense for your portfolio over the long term -- not only for tax reasons.     Dividends: Closely-held companies with shareholders in the highest tax brackets should consider declaring large dividends before higher rates are enacted.

For example, during the campaign, Obama promised to repeal the Bush tax cuts before they expire on December 31, 2010 for people making above $250,000. But since the election, Obama and his aides have indicated that the tax cuts may stay in place for 2009 and 2010.

Asked recently when tax increases on wealthy taxpayers will go into effect, Obama replied: "Whether that's done through repeal, or whether that's done because the Bush tax cuts are not renewed, is something that my economic team will be providing me a recommendation on."

So keeping in mind that proposals may change several times before they become law, if they become law, here is an analysis of what could happen based on various campaign promises and post-election statements.

PROPOSALS AFFECTING INDIVIDUALS

Rates for High-Income Taxpayers

The Obama tax plan calls for letting the Bush tax cuts expire for those in the top two brackets. Specifically, President-Elect Obama stated he would replace the current 33 percent and 35 percent federal income tax rates with the pre-Bush rates of 36 percent and 39.6 percent. It was not clear during the campaign when this would take place.

Before the post-election onslaught of bad economic news, some commentators predicted this change would take effect starting with the 2009 tax year. However, based on recent statements by Obama's economic advisers, it now appears more likely that the lower rates will be allowed to expire after 2010 with the status quo kept in place for 2009 and 2010. If so, the top two brackets for 2009 will be as follows:

2009 Under Current Law	Joint Filer	Single	Head of Household
33% rate begins at income of:	$208,850	$171,550	$190,200
35% rate begins at income of:	$372,950	$372,950	$372,950

Phase-Out Rules for High-Income Individuals

In addition to raising the top two rates, the Obama plan would also restore the "phase-out rules," which can delete all of a high-income taxpayer's personal exemption deductions and up to 80 percent of most itemized deductions. These rules have been getting phased out in recent years, and are scheduled to disappear in 2010.

As things currently stand for the 2009 tax year, the phase-out rules can wipe out up to a third of your personal exemption deductions and up to 26.7 percent of affected itemized deductions.

If the phase-out rules are fully restored, we don't know when it might happen. If Congress doesn't act, the rules will come back in full force after 2010, as part of the expiration of the Bush tax cuts. If the status quo is allowed to stand for 2009, the phase-out rules will kick in at the adjusted gross income (AGI) levels shown below.

Tax Rates on Capital Gains and Dividends

President-Elect Obama promises to leave the current federal income tax rate structure on long-term capital gains and dividends in place for all except those in the highest two tax brackets. For them, the rate would be increased to 20 percent, up from the current 15 percent. Given the state of the stock market and the economy, it would not be surprising if the taxpayer-friendly status quo is allowed to continue for 2009, and even 2010.

Alternative Minimum Tax

President-Elect Obama has said he will continue the current policy of increasing the AMT exemption amounts each year to account for inflation. In other words, the annual AMT patch would continue to be applied to prevent a huge increase in the number of taxpayers liable for the alternative tax.

The Estate Tax

The Obama tax plan includes installing a permanent $7 million federal estate tax exemption for married couples or $3.5 million for single people. Any excess estate tax value would be taxed at the rate of 45 percent. This is the same deal that will apply for 2009 if the current rules are left in place. Few people would find fault with making those rules permanent for 2010 and beyond.

Social Security Tax

As things currently stand, the 12.4 percent Social Security tax will hit the first $106,800 of 2009 wages or self-employment income. Income above the $106,800 ceiling will be exempt.

With wages, half of the Social Security tax is paid by employers, and the other half is withheld from employees' paychecks. Self-employed people pay the whole 12.4 percent themselves.

On President-Elect Obama's Web site, it states that he will consider asking Congress to assess additional Social Security tax on income above $250,000 at a rate between 2 and 4 percent, presumably without any income ceiling. It is unclear when this tax increase might become effective. If it happens, it will likely be after 2010.

Senior Citizens

The Obama tax plan includes a promise to completely eliminate the federal income tax for individuals over age 65 who make less than $50,000. It would not be surprising if this change (or some variation) is made effective for the 2009 tax year as part of an upcoming economic stimulus package.

New and Expanded Tax Credits

Federal income tax credits (such as the child credit and the Hope Scholarship and Lifetime Learning credits) can be used to offset up to 100 percent of your federal income tax bill. The Obama tax plan includes a number of new and liberalized "refundable" tax credits. They are labeled "refundable" because the government pays them out to eligible individuals even if they don't have any federal income tax liability to offset--which makes them objectionable to those who prefer straightforward tax policies. That said, Obama did not invent the idea of refundable tax credits. They have been around for a while. In any case, there's

The IRS recently released the 2009 standard mileage rates for business driving, and based on gas prices, the amount has gone down from the last six months of 2008. Beginning January 1, 2009, the standard mileage rates for the use of a car, van, pickup or panel truck, will be 55 cents per each business mile. (For 2008, the rate was 58.5 cents for July 1 to December 31 and 50.5 cents for January 1 to June 30.)     Although the standard mileage rate is easier for recordkeeping purposes, you almost always get a larger deduction by keeping track of actual expenses. You can write off the business-use percentage of operating costs such as gasoline, oil, maintenance and insurance. Plus, you can deduct depreciation.

a good chance that most of the proposed tax credits summarized below will become law, and they could kick in as early as next year.

Working People: The new "Making Work Pay Credit" would be a new refundable credit of up to $500 for working singles and up to $1,000 for working couples. Under the plan, 95 percent of working individuals would be eligible for the credit (it would be phased out for singles earning over $75,000 and for couples earning over $150,000). For lower-income individuals, this credit would apparently be on top of the existing earned income credit. (The earned income credit is also refundable, and the Obama plan promises to make it more generous as explained below.)

Education Costs: The "American Opportunity Credit" would be a new refundable credit of up to $4,000 to offset qualified college tuition expenses. It would replace the existing Hope Scholarship and Lifetime Learning education tax credits.

Mortgage Interest: If enacted, the "Universal Mortgage Interest Credit" would be a refundable credit to offset up to 10 percent of mortgage interest expense for taxpayers who don't itemize. The maximum credit would be $800, and it would apparently be limited to lower and middle-income taxpayers.

Low Income Families: The Obama tax plan would increase the number of individuals who are eligible for the existing refundable Earned Income Credit and provide larger credits to noncustodial parents who fulfill their child support obligations, low-income married couples, and families with three or more children.

Taxpayers Saving for Retirement: The Obama tax plan would modify the existing Retirement Savers Credit by having the federal government match 50 percent of the first $500 of retirement account contributions for singles and $1,000 for couples. It would also make the credit refundable.

Parents: The Obama tax plan would liberalize the existing child care credit to allow low-income families to claim a credit of up to 50 percent of the first $6,000 of child care expenses (maximum credit of $3,000) and make the credit refundable.

Owners of Clean Vehicles: The Obama tax plan would extend the existing credits for buying alternative fuel vehicles and provide a new credit of up to $7,000 for buying advanced technology vehicles.

Tax Simplification

Most people agree that our existing federal income tax system is far too complicated. How to simplify it is another matter. The Obama tax plan stipulates that after expanding and consolidating various personal tax credits (described above), the 40 million taxpayers who currently take the standard deduction could be given the super-simple option of having the government prepare their tax returns for them. Many people might consider that to be an alarming idea.

Research and Development: The Obama tax plan would make the R&D tax credit permanent.

Small Business Healthcare Credit: The Obama tax plan would provide a refundable tax credit equal to 50 percent of the premium costs for small businesses to provide health insurance coverage for employees.

Zero Capital Gains Tax on Small Business Investments: Obama would eliminate all federal capital gains taxes on investments in small and start-up firms.

Taxes on Large Corporations: Obama promised to reform the international tax rules to reduce incentives for companies to locate operations and jobs overseas. He would also close domestic tax loopholes to reduce the gap between the nominal 35 percent corporate tax rate and the much lower rate that most corporations actually pay. Obama also promises to eliminate certain tax breaks for oil and gas companies (such as the Section 199 domestic producer deduction and quick write-offs for geological and geophysical costs) and impose a windfall profits tax that would be used to fund "emergency tax rebates" of $500 for single individuals and $1,000 for married couples.

While these campaign promises may please many people, history shows that making meaningful changes in the corporate tax arena is easier said than done. In addition, the troubled economy weighs against moves to impose higher corporate tax burdens.

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