Licensed Tax Practitioners
Tax Preparation and IRS Representation
Practice limited to Taxation - Not a CPA firm
2011 TAX LAW CHANGES
This page only deals with tax law changes affecting 2011 tax returns (which are due April 16, 2012 since the 15th is a Sunday). For tax law changes that became effective on January 1, 2010 (affecting returns due April 18, 2011) please see our 2010 TAX LAW CHANGES page.
Readers may also want to check out our OTHER TAX NEWS page as well.
BUSH TAX CUTS EXTENDED!!!
December 17, 2010
Congress has extended the Bush tax cuts which were scheduled to expire on December 31, 2010. As a result the lowest tax bracket remains at 10% and the highest at 35% through 2012.
If these cuts were allowed to expire, income tax rates would have reverted to pre-2001 levels. The bottom 10% bracket would have been eliminated (making the lowest tax rate 15%) and the top marginal rate would have risen to 39.6%.
Payroll Tax Cut or "Holiday" for 2011
December 17, 2010
This new tax cut is intended to replace the expired "Making Work Pay Credit".
This measure cuts the employee portion of Social Security taxes from 6.2% to 4.2% of wages for 2011 only. Employers will continue to pay the full 6.2% on wages that they pay to employees. This tax is paid on the first $106,800 wages paid in 2011 per employee. Both the employee and employer will continue to pay the 1.45% Medicare tax on all wages without any maximum.
The tax cut should increase employee paychecks starting with their first paycheck of 2011. Self-employed persons will see this cut reflected on their 2011 Schedule SE self-employment tax calculation and will have to wait until they file their 2011 returns to see the benefit unless they go to the effort of calculating a reduced amount for any quarterly estimated payments that they file.
Obama's "Making Work Pay" Credit expired
December 31, 2010
Obama's hallmark tax credit expired at the end of 2010. This credit of $800 for joint filers and $400 for all others was part of his administration's stimulus efforts. Unlike Bush's rebate which was paid by check, this was mostly paid via a small reduction in tax withholding from taxpayer's paychecks.
This expired credit has in effect been replaced by the broader "Payroll Tax Holiday" discussed in the above item.
Capital Gains & Qualified Dividends tax rates extended thru 2012
December 17, 2010
Bush-era tax break for capital gains and qualified dividends have been extended. If they had been allowed to expire, capital gains rates would have increased, and qualified dividends would have been taxed as ordinary income.
$1,000 Child Tax Credit extended through 2012
December 17, 2010
The $1,000 per child tax credit has been extended through 2012. The credit had been scheduled to revert to $500 when the Bush tax cuts expired on 12/31/10 but Congress extended Bush's tax cuts just 14 days before they were to expire. The credit is per child under age 17 and can be claimed by taxpayers with Adjusted Gross incomes of under $110, 000 for joint filers or $75,000 for all others.
Maximum Child Care Credit amount renewed
December 17, 2010
The increased Child & Dependent Care Credit amounts have been extended through 2012. Had they not been renewed they would have reverted to their previous limits. The maximum credit would have decreased from $3,000 for each eligible child to $2,400, costing a middle income taxpayer with two kids up to $1,200 on their 2011 income taxes. The maximum credit rate of 35% would have decreased to 30% though this would not an issue for most middle-class taxpayers due to the credit maximum limit.
Itemized Deduction limitation eliminated
December 17, 2010
The limitaton of otherwise allowable itemized deductions (based solely on income), was completely eliminated in 2010 by the Bush tax cuts. This has been extended through 2012.
Personal & Dependent Exemptions not subjected to income limits
December 17, 2010
The Bush tax cuts which had eliminated income-based limitations on taxpayers "claiming" their exemptions have been extended through 2012.
Standard Deduction portion of "Marriage Penalty" relief renewed, tax rate discrimination continues
December 17, 2010
The relief from the so-called "marriage penalty" has been extended through 2012 along with the rest of the Bush tax cuts. As a result the standard deduction amount for joint filers is double that of Singles.
Standard Deduction "Marriage penalty" refered to the standard deduction for joint filers being less than that of two single taxpayers.
It should be noted that the "Marriage Penalty" embeded in income tax rates for joint filers who each earn more than $83,600 of taxable income continues as their marginal tax rate is higher than that of two single taxpayers.
NOTE: Married taxpayers who live together cannot claim to be single regardless of how they conduct themselves while out on the town.
Liberalized student loan interest deduction rules extended thru 2012
December 17, 2010
2010 rules related to student loan interest have been extended through 2012. Had they been allowed to expire, you would only be able to deduct student loan interest paid during the first 60 months (5 years) of the loan payment period. Also, the income level at which this deduction phases out would have reverted to a much lower threshold.
Death Tax Revived
December 17, 2010
The portion of the Bush tax cuts which had eliminated the Estate or "Death" tax was not renewed. The new law taxes estates over $5 million in value.
Mortgage Insurance Premium deduction extended thru 2011
December 17, 2010
The deduction for mortgage insurance premiums (also known as private mortgage insurance or PMI) has been renewed for one more year, through 2011.
CONGRESSIONAL INACTION STYMIES TAX PLANNING
The inabiliy or unwillingness of our Congress Critters in the House and Senate to pass tax legislation in a timely manner makes tax planning rather difficult if not impossible at times.
Until December 17, 2010 no one was certain what the income tax rates for 2011 would be. Many popular tax breaks were set to expire on December 31, 2010 and as it turns out, some were extended and others were allowed to expire.
This legislation not only affected the upcoming tax year as reflected by the changes on this page, but many of the changes were retroactive to the beginning of 2010! See our 2010 TAX LAW CHANGES page for a summary of these changes.
Copyright 2011 by Cooke & Company, Professional Tax Preparers.
Serving Spring, Conroe, The Woodlands, and Houston, TX
This website last updated February 4, 2011.
