January 2012

Due to the passing of the Tax Relief Act in mid December, 2011 taxes are very similar to 2010 taxes. The act extended many provisions expired or due to expire. Tax rates and long-term capital gains rates remain the same. Due to the passing of the Tax Relief Act, employee Social Security withheld will remain at 4.2% of wages for the first 2 months of 2012. The maximum earned income subject to the 4.2% rate is $ 18,350 for the 2 months. Anything above will be taxed at 6.2%. The Social Security taxable wage base for 2012 is $ 110,100.

Due to inflationary increases, personal exemptions, standard deduction, and income tax brackets have been adjusted, see Annual Limits.

Some of the items extended due to the Tax Relief Act include: deductibility of mortgage insurance premiums, tax free distributions from IRA’s when contributed to a charity, deduction for tuition and related expenses, state and local sales taxes, school teachers deduction, and non business energy credit( at a reduced rate).

Some of the items extended until December 31, 2012 include: marriage tax penalty relief, child tax credit, increased earned income credit, liberalized child and dependent care credit rules, and student loan interest deductions.

The provision for 2010 that allowed self-employed individuals to deduct health insurance premiums when calculating income subject to Social Security and Medicare was not extended.

Beginning in 2011, credit card companies are required to report payee’s transactions in a new Form 1099K.

The contribution limit for employees contributing to 401k, 403b, and 457b plan increases from $16,500 to $17,000. Contribution limits for IRA’s and Simple IRA’s remain the same. The over 50 catch up contribution has remained the same.

There no longer is an income limitation to qualify to roll a traditional IRA to a Roth IRA. For all conversions beginning in 2011, the income tax is due in the year of conversion.

The making work pay credit expired at December 31, 2010.

Beginning in 2011 all tax returns have to be electronically filed.

Beginning in 2011, Form 1099-B, Proceeds from Broker and Barter Transactions will now include the cost basis of the securities sold.

December 2011

During this past year no new tax legislation was passed by Congress. Some of the changes taking effect in 2011 and 2012 are as follows:

• There is a 2% reduction in employee Social Security tax withheld in 2011. In 2012 the taxable Social Security base will increase to $110,100 and the rate will revert to 6.2% of taxable wages.
• The federal unemployment rate was decreased to .6% for taxable wages paid after June 30, 2011
• The maximum amount of capital asset purchases qualifying for section 179 is $500,000 in 2011. In 2012 the deductible maximum amount will decrease to $139,000.
• 50% first year bonus depreciation for qualified asset purchases is continued through 2012.
• The new form 1099 reporting requirements due to take effect in 2012 have been repealed.
• The current income tax rates will be retained for two years (2011 and 2012), with a top rate of 35% on ordinary income and 15% on qualified dividends and long-term capital gains. The American Opportunity Tax Credit and the Higher Education Expenses deduction were extended for 2012. No phase out of itemized deductions until 2013.
• A two-year AMT “patch” for 2010 and 2011 will keep the AMT exemption near current levels and allow personal credits to offset AMT. Without a new patch the AMT exemption will drop in 2012 and more taxpayers will be subject to AMT
• Taxpayers who elected to convert traditional IRA’s to Roth IRA’s in 2010 will have to report 50% of the conversion on the 2011 tax return.
• Non business energy property credit was extended through December 31, 2011 under more restrictive rules.
• In 2012 there will be inflationary increases to the Standard Deduction, Personal Exemption, and Taxable Estates. Contributions to pensions, 401K, 403b and 457 plans also have inflationary increases.

I hope this information is helpful. If you would like any additional information, please contact the office.

Happy Holidays!