No Changes
to Tax Rates
The new tax
law averted an increase in the tax brackets. Low income taxpayers still benefit from the 10% bracket. High-income tax payers
will remain in the 35% bracket. The marriage tax penalty, where married couples pay more than they would if each person filed
a single return, will NOT return until 2013.
Payroll Tax Cut
The temporary tax rate extension passed in December 2010 included a new provision
for 2011. All wage earners will see a temporary reduction in the payroll tax from 6.2% to 4.2%. This applies on up to the
first $106,800 of W-2 or Self Employment income earned by each individual. For example, if you earn $106,800 per year this
translates into a $2,136 savings. If you earn $50,000 per year, this translates into a $1,000 savings.
Personal Exemption Phaseouts Delayed
According to the tax law each person covered by a return
entitles the tax payer to reduce their taxable income by $3,750. This remains the case for 2011 and 2012. However, starting
in 2013, the personal exemption phaseout returns. Under this rule, the amount you can claim starts decreasing around $166,000
and goes to zero by $291,000.
Itemized Deduction Limits Delayed
The limits on itemized deductions have been repealed for 2011 and 2012.
If you itemize your deductions, the amount you can deduct would have been phased out above a certain income amount ($169,750
for all returns). Fortunately, this scheme will not return until 2013.
The Return of the Estate Tax
In 2010 the estate tax was repealed entirely, meaning any
wealth you accumulated during your life could be passed tax-free to your heirs. But that goes away in 2011, when the 35% tax
on assets returns, with a $5,000,000 exemption ($10,000,000 for married couples). Estate
taxes will rise again in 2013.
Stable Investment Taxes
The capital gains tax rate will remain 0% for earners in the 15% income tax bracket or lower. Capital
gains taxs on other earners remains 15%. Income from dividends is taxed at capital gains rates.
Tax Credits
·
Child Tax Credit
The child tax credit was going to drop from $1,000 per child to $500; however,
that drop is delayed until 2013. The credit is still refundable for certain filers.
·
Payroll Tax Credit (Making Work Pay)
The partial credit of 6.2% for payroll taxes that low income
earners pay is eliminated. This will increase the tax liability of low-income single payers by $400, and joint filers by $800.
The payroll tax cut mentioned above will take the place of this credit.
·
Earned Income Tax Credit (EITC)
The economic stimulus act provided for a 45% increase of
the EITC credit for families with three or more children, and higher income limits for qualifying for the credit. This provision
is extended for 2011 and 2012. It is set to expire in 2013.
·
College Tuition Tax Credit
The economic stimulus act (“American Recovery and
Reinvestment Act of 2009”) tax credit is renewed and now expires in 2013.
·
Energy Savings Credit
The 2011 credit of 30% (up to $1,500) for energy efficiency
improvements to principal residences expires. In its place is a 10% credit (up to $500). There are additional limitations
specific items such as furnaces, water heaters, and windows.
College Savings Plans
With the expiration of the Bush tax cuts in 2011, 529 Plans can no longer be used to
pay for a computer or broadband access.
Section 179 Expenses
One of the main tax breaks for small businesses is the Section 179 expense deduction. Currently
$250,000, it increases to $500,000 in 2011. This will allow businesses to expense a much larger amount of equipment and avoid
needing to depreciate their expenses over many years, causing the tax bill to be much lower in the nearer term. The section 179 limit will return to $125,000 in 2012.
Bonus Depreciation
For 2011 only, bonus depreciation is increased to 100% for purchases of certain
qualifying property. Bonus depreciation will return to 50% in 2012.
Mortgage Insurance Premiums
As of January 1, 2012, taxpayers will no longer be allowed
to deduct mortgage insurance premiums from their tax returns. In 2010, homeowners making less than $100,000 who were paying
insurance premiums on mortgages established after December 31, 2006 were able to take this deduction. This provision was set
to expire in 2011, but the temporary tax cut law extended it to 2013.
Student Loan Interest Deduction
The Student Loan Interest Deduction has been extended for
two more years. Starting in 2013, income limits for individuals or married couples drop and taxpayers can only deduct interest
from the first 5 years of their student loans.
Medicine Cabinet Taxes
The recent Healthcare law imposes a new rule in 2011 that Health Savings Accounts (HSAs),
Health Reimbursement Accounts (HRAs) and Flexible Spending Accounts (FSAs) cannot be used for non-prescription medicine.
The
Tanning Tax of 10% that just began in July continues next year. Alert!Our Victory was only temporary.
Taxes will go up in 461 days 8 hours 5 minutes and 34 seconds. Latest News:
