Showing posts with label Pease Limit. Show all posts
Showing posts with label Pease Limit. Show all posts

Jan 28, 2011

Taxing Matters

Here are a few of the tax changes you might be affected by this year.

• Income taxes. Same as 2010, but the brackets are a bit higher Expires: end of 2012.

• 'Stealth' income taxes. Affluent taxpayers won't have deductions reduced. The old Pease limit cut 3% of itemized deductions and PEP cut the personal exemption, which is $3,700 for 2011. Expires: end of 2012.

• Investment taxes..For taxpayers in the 15% income tax bracket and below, the rate is zero. For those in the 25% bracket and above, the rate is 15% Expires: end of 2012.

• Estate and gift taxes. Top rate of 35% and one exemption of $5 million per individual for estate, gift and generation-skipping taxes. Expires: end of 2012. The annual exclusion for tax-free gifts remains $13,000 per donor. A giver may make an unlimited number of $13,000 gifts, as long as they are to different individuals. Gifts of tuition and payments for medical care also are exempt.

• Payroll taxes. A temporary two-percentage-point cut in the employee's share of Social Security taxes, saving a maximum of $2,136 per worker.No upper limit and each partner of a married couple can get the rebate. Expires: end of 2011. Will show up as an automatic adjustment to withholding. For the self-employed (whose tax rate falls to 10.4% from 12.4%), it will be built into a quarterly withholding worksheet the IRS hopes to release soon.

• Alternative Minimum Tax (AMT). The AMT exemption limit is $47,450 for single filers and $74,450 for married couples Expires: end of 2011.

• Roth IRA conversion. The income limit for conversions has been permanently removed, so this year all taxpayers may still convert ordinary IRAs into Roth IRAs. But taxpayers who convert to Roth IRAs in 2011 no longer have the option of deferring conversion income into later years, as was true for 2010 conversions. Those who converted in 2010 do have until next Oct. 17 to decide whether to use this deferral.

• Foreign-account reporting. A new IRS reporting requirement on those with foreign financial assets above $50,000 in 2011. Details remain unclear, as the IRS hasn't yet issued regulations.

• Medical expenses. Workers with Flexible Spending Accounts (FSAs) may no longer use pretax funds to pay for many over-the-counter medicines—aside from insulin—without a prescription. But FSA funds may still be used for other, nonprescription medical items such as crutches, contact-lens solution or a wig after chemotherapy, if the individual plan allows it.

• Energy tax credits for homeowners. Extended the "25(C)" credit for energy-efficient improvements, but in a way that will be useful to few. The amount of the credit has shrunk to a maximum of $500 per taxpayer per lifetime, so those who took last year's $1,500 credit under this provision don't qualify. The current version expires at the end of 2011.

• Other changes. A deduction for state sales taxes in lieu of the state income tax deduction; and the tax-free donation of IRA proceeds to charity. They expire at the end of 2011. The American Opportunity Tax Credit of up to $2,500 for education expenses was renewed for 2011 and 2012.