2011
Feature Articles
Tax Tips
- Personal Exemptions, Standard Deductions and Tax Brackets for 2011
- IRS Announces 2011 Standard Mileage Rates
- Receive a Faster Refund with Direct Deposit
- Filing Requirements for Dependents
- Tax Changes for Individuals Comprehensive Overview
- Tax Changes for businesses Comprehensive Overview
The Tax Cuts of 2010 – Good News for Businesses
Do you own a business? Are you wondering how your company is affected by the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 – aka the Obama Tax Cuts?
If so, read on. We explain how your business can benefit from the new tax cuts. We also tell you about your responsibility to enact the payroll tax cut for your employees.
Paying Less Tax Under the New Legislation
The Bonus Depreciation Doubled in Size
Under the Obama Tax Cuts, the bonus depreciation amount jumped from 50% to 100%. This means businesses can write off 100% of eligible purchases (e.g., equipment and off-the-shelf computer software) bought and put in service between September 9, 2010 and December 31, 2011.
Note: In 2012, business owners can still take a bonus depreciation, but it will be back at the 50% level.
Section 179 Deductions Also Got a Boost
Section 179 deductions allow businesses to deduct the full purchase price of property from their gross income.
Section 179 deductions differ from standard depreciations because they allow you to write off your expenses in the same year you bought property, rather than spreading it out over time.
Section 179 was bolstered under the Small Business Jobs Act of 2010 (signed September 27, 2010), with the allowable deduction set at $500,000 for 2010 and 2011. Now, under the Obama Tax Cuts, the maximum deduction will fall only to $125,000 in 2012, rather than to $25,000, as it would have without the recent tax cut package.
This should inject confidence in the business owner that she can continue to invest in her business for the next few years – which is beneficial not just for her, but for the U.S. economy as a whole.
Caution: Estates and trusts cannot take a section 179 deduction.
Section 179 Vs. Bonus Depreciations – Which Is Better?
Section 179 deductions are available on all new and used equipment, whereas the bonus depreciation (set now at 100%, with no limit) is for new equipment only.
Think of the bonus depreciation as an extra deduction you can take – but you must take it in the first year only.
To figure out which type of deduction is right for your business for tax year 2010, give us a call.
Complying with the New Payroll Tax Cut
The Obama Tax Cuts instituted a one-year reduction in the Social Security tax for employees, from 6.2% to 4.2%. This means the single taxpayer making $50,000 will save $1,000 on taxes in 2011.
Note: This reduction in Social Security tax will not impact the employee’s future Social Security benefits.
But it’s up to business owners to adjust their employees’ withholdings. They must do so as soon as possible in January 2011, but no later than January 31, 2011. Notice 136 lists the new amounts you should withhold from employees’ paychecks.
Caution: If you withhold too much Social Security tax during January, you will need to make an offsetting adjustment in your employees’ pay as soon as possible and no later than March 31, 2011. Ask us for more details.
Self-Employed Folks See a Reduction, Too. Those who own businesses with no other employees should also be aware of their new Social Security withholding amount, which fell from 12.4% to 10.4%. This combined with the 2.9% Medicare rate brings the total of the 2011 self-employment tax rate to 13.3%.
Confused? We’re Here to Help
The Obama Tax Cuts are designed to bolster the economy by putting more money back in the pockets of business owners, thus allowing them up to hire more workers.
But to take advantage of the new rules for deductions and depreciations, you have to understand the new law.
That’s where we come in. To find out more about how to improve your business with certain investments now and in 2012, give us a call.
Confused? We’re Here to Help
The Obama Tax Cuts are designed to bolster the economy by putting more money back in the pockets of business owners, thus allowing them up to hire more workers.
But to take advantage of the new rules for deductions and depreciations, you have to understand the new law.
That’s where we come in. To find out more about how to improve your business with certain investments now and in 2012, give us a call.
2010 Tax Relief Act – Personal Income Tax
On December 17, 2010, The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 was signed into law by the President. The personal income tax provisions in this law provide for an extension of the Bush-era tax cuts which were scheduled to expire at the end of 2010. The 2010 Tax Relief Act temporarily extends most of the tax cuts for 2011 and 2012 only.
Income Tax Rates
Individual income tax brackets will remain unchanged for 2011 and 2012, keeping the current structure ranging from 10-35%. The capital gains tax rates will also remain as is for the next two years.
Payroll taxes are reduced by 2 percentage points. Social Security tax rate for the employee-portion will be reduced temporarily to 4.2% for 2011 only. The employer-portion will remain at 6.2%. The Social Security wage base remains at $106,800 for 2011. Medicare tax rates remain unchanged. The self-employment tax rate is temporarily reduced 2 percentage points to 13.3% for 2011 only.
Extension of Tax Credits
The Act extended many personal tax credits through 2012. These credits were either scheduled to expire or reverted back to previous levels in 2011.
- Child Tax Credit
- Earned Income Credit
- Dependent and Child Care Credit
- Adoption Tax Credit
- American Opportunities Credit
Estate Tax
The Estate Tax Credit was enhanced under the Act. The 2011 Estate Tax exempts the first $5.0 million of the estate and then imposes a 35% tax rate on the reminder. This is a significant change from the 2009 level of $3.5 million exemption and 45% tax rate. Further, without this provision, the estate exemption level would have reverted back to $1.0 million.
Other Deductions
- For higher-end taxpayers, there is a two year extension to the elimination of the itemized deduction limitation and the personal exemption phaseout. Both of the temporary repeals have been extended until the end of 2012.
- Retention of marriage relief penalty for certain tax brackets
- Deductions for educator expenses, student loan interest, qualified tuition and state sales tax have all been extended for one or two years.
As can be seen, the 2010 Tax Relief Act provides many tax saving opportunities for individuals. Please contact us for further information regarding your personal tax situation.
Personal Exemptions, Standard Deductions and Tax Brackets for 2011
In 2011, personal exemptions and standard deductions will rise and tax brackets will widen due to inflation.
These inflation adjustments relate to eight tax provisions that were either modified or extended by the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 that became law on Dec. 17. New dollar amounts affecting 2011 returns, filed by most taxpayers in early 2012, include the following:
- The value of each personal and dependent exemption, available to most taxpayers, is $3,700, up $50 from 2010.
- The new standard deduction is $11,600 for married couples filing a joint return, up $200, $5,800 for singles and married individuals filing separately, up $100, and $8,500 for heads of household, also up $100. The additional standard deduction for blind people and senior citizens is $1,150 for married individuals, up $50, and $1,450 for singles and heads of household, also up $50. Nearly two out of three taxpayers take the standard deduction, rather than itemizing deductions, such as mortgage interest, charitable contributions and state and local taxes.
- Tax-bracket thresholds increase for each filing status. For a married couple filing a joint return, for example, the taxable-income threshold separating the 15-percent bracket from the 25-percent bracket is $69,000, up from $68,000 in 2010.
- The maximum earned income tax credit (EITC) for low- and moderate- income workers and working families rises to $5,751, up from $5,666 in 2010. The maximum income limit for the EITC rises to $49,078, up from $48,362 in 2010.The credit varies by family size, filing status and other factors, with the maximum credit going to joint filers with three or more qualifying children.
- The modified adjusted gross income threshold at which the lifetime learning credit begins to phase out is $102,000 for joint filers, up from $100,000, and $51,000 for singles and heads of household, up from $50,000.
Several tax benefits are unchanged in 2011. For example, the monthly limit on the value of qualified transportation benefits (parking, transit passes, etc.) provided by an employer to its employees, remains at $230.
IRS Announces 2011 Standard Mileage Rates
Beginning January 1, 2011, the standard mileage rates for the use of a car (also vans, pickups, or panel trucks) became:
- 51 cents per mile for business miles driven
- 19 cents per mile driven for medical or moving purposes
- 14 cents per mile driven in service of charitable organizations
The new rates for business, medical, and moving purposes are slightly higher than last year’s. The business mileage rate was 50 cents in 2010. The medical and moving rate was 16.5 cents.
The mileage rates for 2011 reflect generally higher transportation costs compared to a year ago.
Let us know if you have questions about which driving activities you should monitor as tax year 2011 begins.
Receive a Faster Refund with Direct Deposit
The New Year has arrived, which means . . . it’s tax time!
This year, do you want your refund faster? Have it deposited directly into your bank account. More taxpayers are choosing direct deposit as the way to receive their federal tax refunds. More than 61 million people had their tax refunds deposited directly into their bank accounts last year. It’s the secure and convenient way to get money in your wallet faster.
- Security. The payment is secure – there is no check to get lost. Each year thousands of refund checks are returned by the US Post Office to the IRS as undeliverable mail. Direct deposit eliminates undeliverable mail and is also the best way to guard against having a tax refund stolen.
- Convenience. There’s no special trip to the bank to deposit a check!
You can also electronically direct your refund to multiple accounts. With the new “split refund” option, taxpayers can divide their refunds among as many as three checking or savings accounts and three different U.S. financial institutions. The split refund option, using Form 8888, is also available for paper returns.
Caution: Some financial institutions do not allow a joint refund to be deposited into an individual account. Check with your bank or other financial institution to make sure your direct deposit will be accepted. Also, make sure you have the correct nine-digit routing number and your account number when selecting direct deposit.
To request direct deposit, just ask us.
Filing Requirements for Dependents
Whether a dependent has to file a return generally depends on the amount of the dependent’s earned and unearned income and whether the dependent is married, is age 65 or older, or is blind.
Note: A dependent may have to file a return even if his or her income is less than the amount that would normally require a return.
Even if you are not legally required to file, you should file a federal tax return to get money back if any of the following apply:
- You had income tax withheld from your pay.
- You qualify for the earned income credit.
- You qualify for the additional child tax credit.
Affordable Care Act Tax Provisions
Health coverage legislation enacted this year includes a small business health care tax credit to help them and small tax-exempt organizations afford the cost of covering their workers.
Information on adoption benefits, child’s investment income, the definition of a qualifying child, and additional child tax credit.
IR 2010-52 and Continuation Extension Act of 1020 (HR 4851) made changes to the COBRA premium assistance provisions.
Decrease in Personal Casualty and Theft Loss Limit
General rule for personal casualty or theft loss for 2010.
Deduction for New Motor Vehicle Taxes
You can deduct state or local sales or excise taxes (or certain other taxes or fees in a state without a sales tax) in 2010 for the purchase of any new motor vehicle(s) after February 16, 2009, and before January 1, 2010.
The earned income credit amounts have increased for 2010.
Information on economic recovery payments.
Information on education savings bond exclusion; Hope, American opportunity, and lifetime learning credits; and qualified tuition programs.
Health/Medical-Related Tax Changes
Information on Archer Medical Savings Accounts (MSAs), Health Savings Accounts(HSAs), and long-term care premiums.
Income Averaging for Farmers and Fisherman
Averaging farming and fishing income. Information on settlements from Exxon Valdez litigation.
Increase in Limit on Long-Term Care and Accelerated Death Benefits Exclusion
New limits on exclusion payments made under a long-term care insurance contract.
The increased standard deduction for certain filers.
Information on Home/Residence-Related Tax Changes
Information on home/residence-related tax changes
The limit on itemized deductions expired in 2010.
The amount you can deduct for each personal exemption for 2010 is the same as the amount you could deduct for 2009.
Qualified Transportation Fringe Benefits
Changes to the monthly exclusion for commuter highway vehicle transportation and transit passes and reimbursement for reasonable expenses of qualified bicycle commuting.
Information on residential energy credits.
Social Security and Medicare Taxes
The maximum amount of wages subject to the social security tax and Medicare tax remains unchanged from 2010.
Special Limitation Period for Retroactively Excluding Military Retirement Pay
If you retire from the armed services based on years of service and are later given a retroactive service-connected disability rating by the VA, your retirement pay for the retroactive period is excluded from income up to the amount of VA disability benefits you would have been entitled to receive.
The standard mileage rates for business use and medical- or move-related use of your vehicle nave decreased for 2010. The standard rate for charitable use remains the same.
Wage Threshold for Household Employees
The social security and Medicare wage threshold for household employees is…
5-Year Carryback of Applicable Net Operating Losses (NOLs) and Losses From Operations
Corporations can elect a 3, 4, or 5-year carryback period for an applicable NOL or loss from operations.
Affordable Care Act Tax Provisions
Health coverage legislation enacted this year includes a small business health care tax credit to help them and small tax-exempt organizations afford the cost of covering their workers.
Alcohol and Cellulosic Biofuel Fuels Credit
There are several changes to alcohol and cellulosic biofuel fuels credits.
Alternative Fuel Vehicle Refueling Property Credit
The credit has increased for certain property placed in service in 2009 and 2010.
Alternative Motor Vehicle Credit
The credit is allowed against the AMT, covers certain plug-in electric drive motor vehicle conversions, and has expired for certain heavy hybrids.
Biodiesel and Renewable Diesel Fuels Credit
There are several changes to the biodiesel and renewable diesel fuels credit.
Find out what a build America bond is and how to claim a credit.
Certain businesses can make an irrevocable election to delay recognition income from the cancellation of business debt arising from the reacquisition of certain types of business debt repurchased in 2009 or 2010.
Carbon Dioxide Sequestration Credit
There are several changes to the carbon dioxide sequestration credit.
COBRA Premium Assistance Credit
The American Recovery and Reinvestment Act of 2009 (ARRA) allows a credit against employment taxes for providing COBRA premium assistance to assistance eligible individuals.
Credit for Employer Differential Wage Payments
Eligible small business employers may be able to claim a credit for differential wage payments.
There is a change to the taxable income limitation on percentage depletion for 2009.
Depreciation and Section 179 Expense
The depreciation limit on certain business vehicles has been changed.
Domestic Production Activities Deduction
For tax years beginning after 2009, the percentage used to figure the domestic production activities deduction increases to 9%.
Election to Accelerate Certain Credits in Lieu of the Special Depreciation Allowance
Corporations and a certain automotive partnership can elect to accelerate certain credits.
Health Savings Accounts (HSAs)
Information on changes for Health Savings Accounts (HSAs).
There are several changes to the investment credit.
Maximum Automobile Value for Using the Cents-Per-Mile Valuation Rule
An employer providing a passenger automobile for personal use by an employee may use special rules for determining the value of the personal use.
Original Issue Discount (OID)Tables
Contains latest version of OID tables. Prior year tables are also available.
Partial Exclusion Increased for Gain From Certain Small Business Stock
Exclusion of gain from the sale of qualifying small business stock is increased.
Penalty for Late Filing of a Partnership Return
The late filing penalty has changed for certain late filed partnership returns.
Penalty for Late Filing of an S Corporation Return
The late filing penalty has increased for certain late filed S corporation returns.
Plug-in Electric Drive Motor Vehicle Credit
A credit is available for certain new plug-in electric vehicles with at least four wheels you place in service in tax years beginning after 2008.
Plug-in Electric Vehicle Credit
A credit is available for certain new two- or three-wheeled or low-speed plug-in vehicles acquired after February 17, 2009.
S Corporation Built-in Gains Tax
No tax is imposed on certain S corporation net recognized built-in gains.
The maximum amount of net earnings from self-employment that is subject to self-employment tax remains $106,800.
Social Security and Medicare Taxes
The maximum amount of wages subject to the social security tax and Medicare tax remains unchanged from 2010.
The standard mileage rates for business use and medical- or move-related use of your vehicle nave decreased for 2010. The standard rate for charitable use remains the same.
A targeted group employee now includes certain unemployed veterans and disconnected youth.
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