Roundup of significant tax developments for tax year 2011*
TAX RELIEF ACT OF 2010
On December 17, 2010 President Obama signed into law the Tax Relief Act of 2010. Mostly what this new law did was extend the so called "Bush-eraTax Cuts" which means maintaining the lower marginal income tax rates and the lower capital gain tax rates plus other tax deductions and credits similar to what we had in 2009. These changes, for the most part go through 2012.
It also made some significant changes to the estate and gift tax laws and exemption amounts (which had expired in 2010) for 2011 and 2012 with the ability to apply the new law to decedants estates for 2010. Please ask us if you have questions concerning this portion of the new law.
AMT patch for 2011
The AMT exemption amounts for individuals are:
$74,450 for married individuals filing jointly and surviving spouses.
$48,450 for unmarried individuals
$37,225 for married individuals filing separately
The AMT phaseout rules have not changed. Personal nonrefundable credits may offset AMT and regular tax such as dependant care credit, child tax credit, hope and lifetime learning credits, as well as others. For 2011 and 2012 many nonrefundable personal credits will be allowed against the AMT.
Tougher Rules for Charitable Contributions
Contributions of clothing and household items that are not in good used condition or better can't be deducted. In addition, the IRS may deny a deduction for any contribution of clothing or a household item with minimal monetary value, such as used socks or undergarments. A deduction may be approved for clothing or a household item not in good used condition or better that has a more than $500 claimed value and is backed up by a qualified appraisal.
New substantiation rules also apply. A taxpayer won't be able to deduct contributions of cash, check, or other monetary gift unless he maintains as a record of the contribution, a bank record or a written communication from the charity showing its name, the date of the contribution, and the amount of the contribution. Non-receipted cash contributions are no longer deductible.
Changes to note for tax year 2011 and 2012*
The standard Deduction in 2011 is $11,600 for married individuals filing joint returns and surviving spouses ($11,900 for 2012); $8,500 for heads of households ($8,700 for 2012); $5,800 for unmarried individuals ($5,950 for 2012); and $5,800 for married individuals filing separate returns ($5,950 for 2012).
The personal exemption in 2011 is $3,700 ($3,800 for 2012).
Expensing of depreciable assets under Code Section 179 for 2011 is allowable up to $500,000 of costs. For 2012 it's reduced to $139,000 of costs.
Qualified transportation fringe benefit exclusion in 2011 for a commuter highway vehicle and any transit pass is $230 per month. In 2012 the amount is limited to $125 per month. For 2011 the employee may exclude up to $230 per month for employer-provided parking. In 2012 the amount is $240.
Interest deduction on qualified education loans for 2011 is a maximum deduction $2,500 as long as the modified adjusted gross income does not exceed $60,000 ($120,000 on a joint return). The deduction is completely eliminated when modified adjusted gross income is $75,000 ($150,000 for joint returns). These adjusted gross income limitations are reduced to $50,000 and $100,000 respectively, in 2012.
The annual gift tax exclusion for 2011 and 2012 is $13,000 per person per calendar year. Additionally, there is an unlimited exclusion for payments of tuition and medical expenses paid directly to the educational institution or directly to the medical care provider or hospital.
The estate tax applicable exclusion amount for 2011 is $5 million of net assets (repealed for 2010). This means that a person dying in 2011 (or 2010 if electing the new law) with a net estate value of $5 million or less does not have a taxable estate for estate and transfer tax purposes. Any unused exclusion is transferable to the surviving spouse. The exclusion amount is $5,120,000 in 2012.
For gift tax purposes, the applicable exclusion amount for 2011 and 2012 is $5 million.
The standard mileage allowance for business use of a vehicle for 2011 is 51 cents per mile from January 1st through June 30, 2011 then 55.5 cents per mile from July 1st through the end of 2011. The standard business mileage rate for 2012 is 55.5 cents per mile.
The maximum amount you can contribute to your IRA account for 2011 and 2012 is $5,000. If you are age 50 or over, you can make a catch-up contribution of $1,000 for a total contribution of $6,000.
The maximum amount you can contribute to your SIMPLE plan for 2011 and 2012 is $11,500. If you are age 50 or over, you can make a catch-up contribution of $2,500 for a total contribution of $14,000.
The maximum amount you can contribute to your 401k plan for 2011 is $16,500. If you are age 50 or over, you can make a catch-up contribution of $5,500 for a total contribution of $22,000. In 2012 you can contribute $17,000 to your 401k plan with a catch-up payment of $5,500 if you are age 50 or over, by the end of the year.
If you have any questions or need additional information concerning these items, or others, please feel free to call our office at 303-477-1484.
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*The general information in this publication is not intended to be nor should it be treated as tax, legal, or accounting advice. Additional issues could exist that would affect the tax treatment of a specific transaction and, therefore, taxpayers should seek advice from an independent tax advisor based on their particular circumstances before acting on any information presented. This information is not intended to be nor can it be used by any taxpayer for the purpose of avoiding tax penalties.