Newsletter
Tax Changes for 2011
Each year there are a number of changes introduced that may affect
your particular tax situation. Here are a few you should watch for.
We will first start with the Income Tax Rates for 2011. The rates
are the same from last year, but inflation has caused the brackets
to increase.
Those who use a Flexible Spending Account (FSAs) to help pay for
their medical expenses may no longer use the pre-taxed funds to purchase
over-the-counter (OTC) medicines anymore, without a prescription from
a doctor. Note though that insulin may still be purchased with FSA
funds over-the-counter. No more using left over FSA funds to stock
up on aspirin or cold medicine. Crutches, contact-lens, glasses, and
pregnancy tests are just some of the items that are still included.
Refer to IRS Publication 502 to see what is and isn't allowed to be
covered by law.
2010 included a temporary two-percentage-point cut in the employee's
share of Social Security taxes, saving a maximum of $2,136 per worker.
There is no phase-out, and each partner of a married couple can get
the rebate. This is set to expire at the end of 2011.
For most workers, this cut will come as an automatic adjustment to
withholding. For the self-employed (whose tax rate falls to 10.4%
from 12.4%), it will be built into a quarterly withholding worksheet.
Even though the energy tax credit was recently extended, it has been
minimized and may not affect you if you have previously taken the
credit. The amount of the credit is now $500 per taxpayer per lifetime.
So, if you have previously taken the credit (a maximum of $1,500)
than you will be ineligible to claim it again. This is set to expire
at the end of 2011, though there may be a proposal backed by home
builders and remodelers to expand the credit or drop it.
The estate and gift tax received a makeover, as the top rate is now
35% and there is a one-time exemption of $5 million per individual
for estate, gift, and generation-skipping taxes. This may make it
easier to move larger amounts of wealth. This provision is set to
expire at the end of 2012.
The annual exclusion for tax-free gifts remains $13,000 per donor.
A giver may make an unlimited number of $13,000 gifts, as long as
they are to different individuals. Gifts of tuition and payments for
medical care also are exempt.
The $400 ($800 if married filing jointly) Making Work Pay Credit will
expire.
The American Opportunity Tax Credit of up to $2,500 for education
expenses was renewed for 2011 and 2012. This will allow those eligible
to qualify for the maximum annual credit of $2,500 per student. The
full credit is available to individuals whose modified adjusted gross
income is $80,000 or less, or $160,000 or less for married couples
filing a joint return. The credit is phased out for taxpayers with
incomes above these levels.
The Teacher Classroom Expenses deduction was recently renewed for
2011. If you are an eligible educator, you can deduct up to $250 ($500
if married filing joint and both spouses are educators, but not more
than $250 each) of any unreimbursed expenses [otherwise deductible
as a trade or business expense] you paid or incurred for books, supplies,
computer equipment (including related software and services), other
equipment, and supplementary materials that you use in the classroom.
This deduction is for expenses paid or incurred during the tax year.
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