2011 Tax Relief for Individuals

President Barack Obama signed new tax legislation for 2011. Below is some helpful information about the changes and/or extensions for 2011 that impacted individuals. The information below should be considered strictly for informative purposes and guidelines only.?? Please consult a tax professional about how each of the below can or will impact you.

The current income tax rates will be retained for two years (2011 and 2012), with a top rate of 35% on ordinary income and 15% on qualified dividends and long-term capital gains.  Employees and self-employed workers will receive a reduction of two percentage points in Social Security payroll tax in 2011, bringing the rate down from 6.2% to 4.2% for employees, and from 12.4% to 10.4% for the self-employed.


A two-year AMT patch for 2010 and 2011 will keep the AMT exemption near current levels and allow personal credits to offset AMT. Without the patch, an estimated 21 million additional taxpayers would have owed AMT for 2010.


Key tax credits for working families that were enacted or expanded in the American Recovery and Reinvestment Act of 2009 will be retained. Specifically, the new law extends the $1,000 child tax credit and maintains its expanded refundability for two years, extends rules expanding the earned income credit for larger families and married couples, and extends the higher education tax credit (the American Opportunity tax credit) and its partial refundability for two years.


Many of the traditional tax extenders are extended for two years, retroactively to 2010 and through the end of 2011. Among many others, the extended provisions include the election to take an itemized deduction for state and local general sales taxes in lieu of the itemized deduction for state and local income taxes; the $250 above-the-line deduction for certain expenses of elementary and secondary school teachers; and the research credit.


After a one-year hiatus, the estate tax will be reinstated for 2011 and 2012, with a top rate of 35%. The exemption amount will be $5 million per individual in 2011 and will be indexed to inflation in following years. Estates of people who died in 2010 can choose to follow either 2010's or 2011's rules. Additionally, as of January 1, 2011, there will be a $5 million gift tax exclusion. This increased exclusion is available for two years; unless it is extended, the gift tax exclusion will revert to $1 million in 2013. This two year window may be a wonderful opportunity to make additional gifts in your lifetime free from gift tax liability and is something we will be happy to discuss with you further.


The provision that permits tax-free distributions to charity from an Individual Retirement Account (IRA) of up to $100,000 per taxpayer, per tax year was also extended. Individuals also will be allowed to make charitable transfers during January of 2011 and treat them as if made during 2010.


The new law extends for an additional year (i.e., through 2011) the rule allowing premiums for mortgage insurance to be deductible as qualified residence interest.

Source: RPR Partners, LLP eNewsAlert Dated 12/22/2010


Required IRS Disclosure: Please note that this written advice is not intended, or written by the practitioner to be used, and cannot be used by the taxpayer, for the purpose of avoiding penalties that may be imposed on the taxpayer. In addition, there is no limitation on disclosure of the tax treatment, or tax structure, of the transaction that is the subject of this written advice.