Current Tax News Items

Payroll Tax Cut Extended

The payroll tax cut that was in place for the year 2011 has been extended by Congress for two months through February 29, 2012.  An additional extension for the balance of 2012 is currently being discussed by Congress.  Watch this site for additional information on this subject. The legislation currently in effect reduces the rate for the Social Security portion of the payroll taxes to 10.4% by reducing the employee rate from 6.2% to 4.2%. The employer's portion remains at 6.2%.

2012 Mileage Rates for Autos

Beginning January 1, 2012, the standard mileage rates for the use of a car will be 55 1/2 cents per mile for business miles driven, 23 cents per mile for medical or moving purposes and 14 cents per mile driven in service of charitable organizations

Property Tax Deductions (implementation postponed until 2012)

The State of California is changing the itemized deductions schedule A for 2011 to address the issue of what property tax is deductible.  Only taxes paid based on the property value are deductible and add-on's such as Mello-Roos taxes are not deductible (and never have been), so taxpayers will have to review their property tax bills for the correct deductible amount.  It is advisable to bring your last two years property tax bills with you for your accountant to review to claim the proper deduction.  The Franchise Tax Board has delayed implementation of this new proposal until 2012 but will provide education and information in the 2011 instructions and through the California Franchise Tax Board web site.

2012 Inflation adjustments to tax brackets and benefits Estate and Gift TaxThe Hiring Incentives to Restore Employment Act (HIRE) includes new opportunities for tax incentives for 2010 and 2011.  The first incentive exempts employers from paying the employer's 6.2% share of the Social Security payroll tax on a "qualified" employee for wages paid from March 19, 2010 through December 31, 2010.  The second incentive is a tax credit up to $1,000 for retaining a "qualified" employee on the empolyer's payroll for at least one year.

The personal exemption will change for 2012 to $3,800, an increase of $100.

The standard deduction for married couples filing a joint return will change for 2012, to $11,900. The standard deduction for single taxpayers will be $5,950 for 2012, and the standard deduction for taxpayers filing as head of household will increase to $8,700 for 2112.

The tax brackets increase in 2012 for each filing status. For married couples filing jointly the taxable-income threshold separating the 15% bracket from the 25% bracket is $70,700, up from $68,000 in 2011. The threshold for singles separating the 15% bracket from the 25% bracket is $35,300 for 2012.

Social Security benefits will increase in January 2012 by 3.6% as announced by the Social Security Administration. This is the firstincrease in the social security benefit since 2009. The Social Security maximum wage base increases to $110,100 for 2012 an increase from $106,800 in 2011. The monthly medicare premium for 2012 will be $99.90 per month, with higher income individuals paying higher premiums.

The annual gift tax exclusion is currently $13,000 per person and remains the same in 2012. The estate tax has now been reinstated beginning January 1, 2011 with an exemption of $5,000,000 and a tax rate of 35%. The big change in 2010 with the temporary repeal of the estate tax is that the basis of assets inherited by the estate beneficiaries is now cost basis, the same as the basis for gifts, and will not be revalued to fair market value on the date of death. There is an exception for up to $1.3 million of estate assets to continue to be valued at fair market value as of the date of death and for $3.0 million of estate assets to be valued at fair market value at date of death if the beneficiary is the surviving spouse. The exemption increases to $5,120,000 in 2012.

The life-time gift tax exclusion increases to $1,040,000 in 2012. The annual exclusion remains at $13,000.

Small Business Health Care Credit

The new Healthcare bill provides a Small Employer Tax Credit.  To qualify the employer must have 25 or fewer employees (calculated as full time equivalent(FTE)) during the tax year, pay average FTE annual wages of $50,000 or less and have a qualified health plan under wihch the employer pays at least 50% of the premiums for enrolled employees (based on the premium for a single employee).  The tax credit is for the years 2010 through 2013 and is equal to 35% of the employer paid premuims for the year.  The full amount of the credit is only available for employers with 10 or less FTE's wih average annual wages less than $25,000 for the year. The credit phases out for employers with more than 10 employees and is fully phased out at 25 employees.   Partners, sole proprietors, two percent shareholders in S Corporation and five percent owners of the employer and their dependents are excluded.  The calculation is based on FTE's so employers with part time employees may qualify.

New depreciation rules for 2011 (see the information under depreciation)

Forclosure debt forgiveness (see the information under Housing)

Vehicle Donations

The American Jobs Creation Act of 2004 changed the rules for charitable donations of vehicles.  The low now only allows a charitable deduction for the amount of the proceeds received by the charity from the sale of the vehicle.  The charity must send written notification to the taxpayer of the amount received at the sales.  If you claim a value of the car of more than $500, you must have a written acknowledgement of your donation from the organization and must attach it to your return.

Capital Gains tax rates and Dividends

Capital gains are taxed at 0% and 15%.  The 0% rate applies to taxpayers otherwise in the tax bracket of 15% or less for regular tax purposes.  This rate applies to the years 2008 through 2012.  Taxpayers in the regular tax brackets of 25% or greater have a 15% capital gains tax rate.  These lower capital gains tax rates expire after 2012 and revert back to the previous rates of 10% and 20%.

Dividends received by an individual shareholder from domestic and qualified foreign corporations generally are taxed at the same rates that apply to capital gains. This effectively taxes dividends received at the current 0% and 15% rates through the end of 2012. 

Kiddie Tax

The kiddie tax previously applied to a child under the age of 18.  With the passage of the 2007 Small Business & Work Opportunities Tax Act the kiddie tax is expanded to apply to children who are 18 years old or who are full-time students over age 18, but under age 24.  The expanded provison applies only to children whose earned income does not exceed one-half of the amount of their support. 

Tax Update for 2010 and 2011

The 2010 tax law has provisions extending the tax brackets currently in existence through 2012 including the capital gains tax rate of 15% (zero for taxpayers in the 10% and 15% tax brackets), reinstateing the estate tax with an exemption of $5,000,000 and a rate of 35% for years beginning January 1, 2011, extends certain tax credits and patches the alternative minimum tax exemption (AMT) for 2011. The repeal of the itemized deduction phaseout and the personal exemption phaseout would be extended for two years.The AMT exemption for 2011 will be $48,450 for singles and $74,450 for married individuals.  No adjustment to the AMT exemption has been implemented for 2012.

The law extends the 100% bonus depreciation (section 179) for business property acquired after Sept. 8, 2010 and before January 1, 2012.  The section 179 limits will revert to $125,000 with a phaseout at $500,000 for the year 2012 and then to $25,000 with a phaseout at $200,000 for 2013 and beyond.

The bill extends the increased standard deduction for married taxpayers filing jointly for two years, extends the child tax credit of $1,000 for two years, extends the maximum child and dependent care credit for two years and the American opportunity tax credit for two years.

Various other credits and deductions will be extended for two additional years, including energy credits, state and local sales tax deductions and many more.