2011 Tax Changes At-a-Glance

 
 04 Sep 2010 @ 7:02 AM 
2011 Tax Changes At-a-Glance A host of tax pro­vi­sions enacted in 2001 and 2003 – com­monly referred to col­lec­tively as the “Bush tax cuts” – expire at the end of the year. While it’s pos­si­ble that new leg­is­la­tion could extend some or all of these expir­ing tax pro­vi­sions, election-year pol­i­tics make it dif­fi­cult to pre­dict what action, if any, Con­gress will take. With that in mind, here’s what you need to know about the major changes that are sched­uled for 2011.

Fed­eral income tax brack­ets Right now, there are six income tax brack­ets: 10%, 15%, 25%, 28%, 33%, and 35%. For 2010, these brack­ets apply to mar­ried cou­ples fil­ing joint fed­eral income tax returns in the fol­low­ing manner.
2010 Income Tax Brack­ets – Mar­ried Fil­ing Jointly
Tax­able Income Mar­ginal Tax Rate
Not over $16,750 10%
Over $16,750 to $68,000 15%
Over $68,000 to $137,300 25%
Over $137,300 to $209,250 28%
Over $209,250 to $373,650 33%
Over $373,650 35%
As it stands now, there will be no 10% bracket for 2011, and the remain­ing bracket rates will return to their orig­i­nal 2001 lev­els: 15%, 28%, 31%, 36%, and 39.6%. Long-term cap­i­tal gains tax ratesFor 2010, if you sell shares of stock that you’ve held for more than a year, any gain is a long-term cap­i­tal gain, gen­er­ally taxed at a max­i­mum rate of 15%. If you’re in the 10% or 15% mar­ginal income tax bracket, how­ever, you’ll pay no fed­eral tax on the long-term gain (a 0% tax rate applies). That means if you’re a mar­ried cou­ple fil­ing a joint fed­eral income tax return, and your tax­able income is $68,000 or less, you pay no fed­eral tax on the gain. How­ever, these rates expire at the end of 2010. Begin­ning in 2011, a 20% rate will gen­er­ally apply to long-term cap­i­tal gains. Indi­vid­u­als in the 15% tax bracket (remem­ber, there won’t be a 10% bracket in 2011) will pay the tax at a rate of 10%. Spe­cial rules (and slightly lower rates) will apply for qual­i­fy­ing prop­erty held for five years or more. Finally, while qual­i­fy­ing div­i­dends are taxed in 2010 using the same cap­i­tal gains tax rates described above (i.e., 15% and 0%), in 2011 they’ll be taxed as ordi­nary income sub­ject to the increased 2011 tax brack­ets. The estate tax There is cur­rently no estate tax for 2010, and spe­cial rules are in place that gov­ern the way basis is cal­cu­lated for prop­erty pass­ing upon death. The estate tax reap­pears in 2011, how­ever, with a $1 mil­lion exclu­sion amount (mean­ing that up to $1 mil­lion of assets will be exempt from estate tax) and a top tax rate of 55%. To put that in con­text, for 2009, the top estate tax rate was 45%, and estates received an exclu­sion of $3.5 million.
Year 2009 2010 2011
Estate tax exclusion $3.5 mil­lion N/A $1 mil­lion
Top estate tax rate 45% No tax 55%
Other impor­tant changes Other changes for 2011 include:
  • Phase­out of item­ized deduc­tions and exemp­tion amounts–Item­ized deduc­tions and per­sonal exemp­tion amounts will once again be phased out for higher-income individuals
  • The “mar­riage penalty” returns-–Changes made to cor­rect the fed­eral income tax “mar­riage penalty” expire at the end of 2010, result­ing in a reduced stan­dard deduc­tion amount and lower tax bracket thresh­olds (i.e., higher rates will apply at lower income lev­els) for mar­ried cou­ples fil­ing jointly in 2011
  • Tax cred­its get cut–The child tax credit will be reduced and both the Hope edu­ca­tion tax credit and the earned income tax credit become less gen­er­ous (the Mak­ing Work Pay tax credit also disappears)
  • Sec­tion 179 small busi­ness expens­ing–The increased IRC Sec­tion 179 expense limit ends (Sec­tion 179 allows small busi­nesses to elect to expense the cost of qual­i­fy­ing prop­erty rather than recover the cost through depre­ci­a­tion deduc­tions); the amount that a small busi­ness may expense will drop from $250,000 in 2010 to $25,000 in 2011
Fore­field Inc. does not pro­vide legal, tax, or invest­ment advice. All con­tent pro­vided by Fore­field is pro­tected by copy­right. Fore­field is not respon­si­ble for any mod­i­fi­ca­tions made to its mate­ri­als, or for the accu­racy of infor­ma­tion pro­vided by other sources.
Pre­pared by Fore­field Inc. Copy­right 2010. — —  —  —  —  —  —  —  —  —  —  —  —  —  —  —  —  —  —  —  —  —  —  —  —  —  —  —  —  —  —  —  —  — – My inex­pe­ri­enced thoughts: This is not to be con­strued as legal, finan­cial, or any other type of advice for any rea­son. It is just my une­d­u­cated opin­ion. If you take your money out of your tax deferred plan before the end of 2010 there are pos­si­ble advan­tages. 1. you will pay less tax than in the future. 2. you will pay a 10% penalty but your taxes may be 10% more after 2010 any­way. 3. Your money will be liq­uid and in your con­trol. 4. Your lost oppor­tu­nity will no longer be lost because you can set up an IRC7702 and earn tax advan­taged growth for the rest of your years. 5. You will cre­ate an awe­some tax free death ben­e­fit for your heirs. 6. You will cre­ate a tax free pri­vate bank­ing sys­tem that you can use as a financ­ing source which will recap­ture and recy­cle your money. 7. You will be a wealth cre­ator. The gains far out-way the 10% penalty, would you agree?
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Posted By: Jennifer
Last Edit: 15 Sep 2010 @ 06:59 PM

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Responses to this post » (4 Total)

 
  1. Edie Stuart says:
    December 14, 2010 at 1:31 am

    It’s a shame that the politi­cians can tell peo­ple what they have to do with the money they have earned. If they’d ever get their heads together and come up with a flat tax that EVERYONE pays it would be more fair. Unfor­tu­nately all you have to do in Amer­ica any­more is sit on your back­side and take what oth­ers have worked for.Whatever hap­pened to the idea that “Your clos­est help­ing hand is on the end of your arm”?

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    September 17, 2010 at 11:38 pm

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