Tax Reductions for All

The world series version of the tax code ended yesterday with President Obama's signature on a tax package that provides tax reductions for all!





Most of the Bush Tax cuts were extended for TWO years AND additional tax incentives were also bundled in this package of joy including:

• For 2011 only all employees will be paying in 2% less on their social security taxes without their social security income being affected in later years.  The new rate for employees social security will be 4.2% on the first $106,800 of wages.  For employers it will remain at 6.2%.


• Teachers will get to write off the $250 of out of pocket expenses


• We still have the option of writing off sales tax instead of state income taxes, if we itemize.


• The credits on energy efficient appliances have been extended.


• The tax rates as they were last year are extended through 2012.


• AMT patch was issued for 2011 & 2012!  Each year taxpayers are required to compute their tax using the regular tax rules and rates as well as an alternative method known as the AMT (Alternative Minimum Tax), which is close to a flat tax as it eliminates most itemized deductions.  The original idea of this parallel system was to insure that high income taxpayers pay a minimum amount of tax.  The problem is that each year as our income increases and more middle class families are hit with this tax unless Congress passes a patch.  The patch is an exemption for lower income filiers.  Without the patch single filers would be exempt if they make LESS than $33,750 and married filers would be exempt if they made LESS than $45,000.  Thankfully this patch was included and the exemption rates have been increased to $47,450 for single filers and $72,450 for married filing joint filers.


• 100% bonus depreciation on assets purchased Sept. 9, 2010 through 2011.

What's different:

• You have to itemize your deductions in order to deduct your property taxes.


• Retroactive to January 1, 2010 estates above $5 million will be taxed at 35%, but there is an election if you wish to keep the 0% rate with minimal basis adjustments.  There's also a portability clause, which makes things complicated enough that you should talk to your attorney about revising your estate plan.  


• For 2013 estates above $1 million will be taxed at 55%.

Tax law can change daily, please talk to your tax adviser before making decisions that will affect your taxes.