Americans are facing a large tax increase in 2011 unless Congress enacts legislation to prevent it. There appear to be three windows of opportunity for Congress to act:

1. 1. When they come back in session after Labor Day and before they go away for the elections in November;
2. 2. In a lame duck session after the elections and before this Congress adjourns;
3. 3. Next year after the new Congress convenes in January, if it were to pass legislation retroactive to
   January 1, 2011.

Our view is that nothing will get done by this Congress this year (indeed, so many incumbents are likely to get defeated in November that they may decide not to have a lame duck session, and the chances of anything except talk happening before the election seems remote in our view).

If we are correct, then on January 1, 2011, the following happens:

• - Income tax rates go up for everyone, with the top bracket going from 35% to 39.6%
• - Long term capital gains tax rates go to 20% from the current 15%
• - Taxes on dividends go from the current 15% to 36.9%
• - Estate taxes are re-imposed at 55% with a $1 million per person exemption compared to the 2009 rate of 45% with a $3.5 million per person exemption (there is no estate tax in the United States in 2010)

Thus you may want to meet with your tax advisor to discuss the following:

• - Should you accelerate income into 2010 and defer deductions to 2011 (the reverse of the usual advice)?
• - Should you take more than your required minimum deduction from your tax-deferred account(s) in 2010, paying at the lower 2010 income tax rate and lessening the amount in those accounts that will be withdrawn in later years at higher income tax rates?
• - If you are younger than 70 years and 6 months and older than 59 years and 6 months, should you take money out of your IRA account for the same reason?
• - Should you convert some or all of your IRA money into a Roth IRA for the same reason?
• - Should you take capital gains in your taxable account(s) before December 31st in order to take capital gains at this year’s lower rate?
• - Do you need to make any changes to your estate plan in light of the significantly lower exemption ($2 million per couple vs. $7 million per couple in 2009) and the higher estate tax rate?

For Starmont clients, we would be happy to be part of those conversations, either in person or by phone.