January Tidbits
TAX HIGHLIGHTS FOR 2011
The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, signed into law on December 17, 2010, extended the majority of the “Bush Tax Cuts” through 2012.
Significant highlights are as follows:
Section 179 Deduction
Businesses can elect to write off up to $500,000 of the cost of equipment in 2011. There has also been an extension of the 100% bonus depreciation on qualifying property through 2011. The bonus depreciation is scheduled to drop to 50% in 2012.
Social Security Tax Reduction
Tax legislation that reduced employee social security payroll tax by 2% to 4.2% in 2011 has been extended through February 29, 2012. The employer contribution of social security tax remains at 6.2%. The social security wage base in 2012 is $110,100.
Nonbusiness Energy Property Credit
The Nonbusiness Energy Property Credit continues in 2011 but at lower amounts. The credit is 10% of the cost of qualifying improvements up to $5,000. Qualifying improvements include energy efficient exterior windows and doors, energy efficient heating and air conditioning systems and insulation, and must be installed on your primary residence. The maximum lifetime credit is $500.
Education Benefits
The American Opportunity Credit has been extended through 2012. The credit is available for the first four years of college, based on qualified tuition and related expenses in the amount of 100% of the first $2,000 plus 25% of the next $2,000 for a maximum credit of $2,500. The credit is phased out for those whose modified adjusted gross income is higher than $80,000 for single taxpayers or $160,000 for married couples filing a joint return. To qualify for the maximum credit of $2,500, you must spend at least $4,000 per student and not exceed $80,000 for single taxpayers or $160,000 for married couples filing a joint return.
Mortgage Insurance Premiums
Taxpayers may deduct premiums paid for qualified mortgage insurance through 2011. The deduction begins phasing out for taxpayers with AGI over $100,000.
Alternative Minimum Tax
The act extended the “AMT patch”, adjusting exemption levels through 2011.
IRA Contributions
The maximum contribution to a traditional or Roth IRA is $5,000 ($6,000 if ago 50 or older at the end of 2011).
Charitable Contributions
The IRS has strict record keeping requirements for cash contributions. Taxpayers are required to have a record of all cash contributions in order to take a deduction. Substantiation can include cancelled checks, bank statements containing the name of the charity, or written communication from the charity which includes the date and amount of the contribution.
Standard Mileage Rates
The standard mileage rate was 51 cents January through June but increased to 55.5 cents on July 1, 2011 through the remainder of the year. The business mileage rate for 2012 is 55.5cents.
