5 things you can do now to get ready for huge tax hikes in 2011

In less than six months, taxes for many Americans are going up. Tax cuts originally signed into law by former President Bush are set to expire at the end of 2010 unless Congress makes a change in the Tax Code. Unfortunately for taxpayers, 2010 is also a significant election year, which, if history has taught us anything, means that Congress is unlikely to do much at all. If the law stays the same, on January 1, 2011, you can expect that the highest federal income tax rate for individuals will increase to 39.6% from 35%; capital gains tax rates will rise to 20% and dividends will lose their tax favorable status and retreat back to ordinary income status.

Even worse, state and local governments are struggling to make budgets balance. A whopping 45 states reported receiving less revenue in 2009 than in 2008, a trend that states can't sustain in 2010. Last year, at least 10 states considered major tax increases and others sought to increase or expand the tax base by hiking sales taxes or imposing excise taxes on such items as cigarettes and soda.

How can you avoid extra hits to your wallet in 2011? Here are five tips to consider: