Recent tax legislation
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Before acting on any of these topics,
you need to consult
with your professional advisor.
The following topics are the changes that will affect the majority
of our individual clients. Provisions affection very high income
(or very wealthy individuals are not covered.
In 2011, your net pay will be a little higher. The withholding on Social Security Taxes will decrease from the present rate of 6.2 down to 4.2. The withholding on Medicare taxes (1.45%) will not change. Also, the employer’s share of the Social Security taxes and the Medicare taxes will remain at the present rate of 7.65%.
The more generous tuition credits extended
Tuition credits got a big boost in 2008 and 2009 with the American Opportunity Credit. This credit, which can result in a credit against your income taxes of up to $2,500, was set to expire at the end of year 2010. Now the credit has been extended through 2012. For more information on this credit, press here
The Alternative Minimum Tax is a very complex topic. Essentially, the Alternative Minimum Tax rates are lower than the regular tax rates. However, there are few deductions allowed in addition to an exemption ranging from approximately $33,000 up to $75,000 depending upon your filing status. If the Alternative Minimum Tax results in a higher tax, you pay the Alternative Minimum Tax.
Generally, this tax only affects taxpayers whose income exceeds $80.000. If the tax extension act had not been passed, the exemptions, for year 2010 and thereafter, would dropped by amounts up to have fallen to the much lower pre-2007. The result would have been much higher tax bills for many individuals affected by the Alternative Minimum Tax. For very high earning individuals (e.g. incomes above $400,000) the increased exemptions won’t make any difference.
The following table lists the exemptions for years 2009, 2010 and 2011.
| Filing Status |
2009 |
2010 |
2011 |
| married filing jointly |
$70,950 |
$72,450 |
$72,450 |
| married filing separately |
35,475 |
36,225 |
37,225 |
| single & head of household |
46,700 |
47,450 |
48,450 |
| estates & trusts |
22,500 |
22,500 |
22,500 |
The exemption amounts discussed is phased out by an amount equal to 25 percent of the amount by which the individual’s AMTI exceeds (1) $150,000 in the case of married individuals filing a joint return and surviving spouses, (2) $112,500 in the case of other unmarried individuals, and (3) $75,000 in the case of married individuals filing separate returns or an estate or a trust. These amounts are not indexed for inflation. While the much lower (almost $30,000 lower) exemptions are scheduled to
Reduced Tax on Dividends and Capital Gains continues
The “ACT” extends through year 2012, the reduced tax on qualified dividends and long term capital gains income.
Essentially, if your tax bracket is 15%, the tax applied to the portion of your income consisting of qualified dividends and long term capital gains is -0-. If your tax bracket is higher (25 or 28%), the portion of your income from qualified dividend and long term capital gains income is tax at the preceding lower tax brackets.
Similar to the pre-extended law, there are limitations on certain types of capital gains such as the sale of real estate held out for rent.
More generous child related credits extended
The more generous child related credits have been extended for two more years, through 2012.
These credits are the earned income tax credits, the dependent care (child care) credit, and the earned income tax credit.