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IRS decision key to January tax hikes

November 24, 2010

The IRS is waiting, just like the rest of us, for Congress to act on the expiring tax rates.

As I mentioned in my post last week, the IRS can't just take Congress' word that it will do its job. The agency operates under the tax laws as they now exist.

That means the Bush tax cuts will expire and withholding tables for 2011 will reflect that.

And that means smaller paychecks as next year's withholding calculations account for higher taxes for us all.

Direct deposit check on desk

There is, however, a slim hope that the withholding dilemma will work out for workers.

The IRS has some discretion to adjust withholding tables because they are projections of tax liabilities, not final payments, John Harrington, a former Treasury official now in private practice advising employers, told Reuters news service.

But, Harrington noted, it is always safer for the IRS to stick with the law.

"If they do anything that departs from current law, there is a risk you'll be pulled in front of some Congressional committee," he said.

So we wait.

I suggest if you get any cash as a holiday gift this year, you sock it away to cover the potential income shortfall you'll likely see when you get your first few paychecks of 2011.

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TAX-SAVVY WAYS 
TO WRAP UP 2026

It’s over! With October’s extended filing deadline behind us, it is now time to focus on year-end moves to reduce your 2026 tax bill. 

You’ll find ways to do just that on the Tax Tips page (see the More Tax Posts drop-down menu at the top of the blog), as well as the separate tax tip pages for each month, notably October through December. If you’re on the Tax Tips page, you’ll find a monthly list at the end of this column. If you’re on another blog page, you can head straight to the October tips; at the bottom of that tips page you’ll find links to all the other 11 months’ collections of tax advice.

Not to spoil what you’ll find in that tax advice, but it does cover such things as tax deductions for charitable donations, investment moves that could reduce tax due, and ways to max out your tax-favored retirement savings. 

Finally, as the year winds down, things get hectic. There are lots of other things to occupy our time, like the much more fun upcoming holidays. But don’t lose sight of taxes, since timing is key. To be of use, most tax moves must be made by the end of the tax year. That’s Thursday, Dec. 31, which also is the last business day of the year. 

So that you don’t miss that final tax year deadline, also keep an eye on the countdown clock below. It will keep you on top of just how much time is left to make important, tax-saving moves. (Note: I’m in the Central Time Zone, so adjust accordingly for where you live.)

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