November 6, 2011 by Mark DeVine

Key 2011 Tax Changes for Year End Tax Planning

The last few tax years have been filled with uncertainty with late changing tax laws impacting the majority of taxpayers. Thankfully, the passage of the Tax Relief/Job Creation Act in December, 2010 eliminated much of this uncertainty for 2011. In addition to the programmed changes already built into the tax code, outlined here are some of the major tax provisions that could impact you and your family.
	Tax Rates. Income tax, ordinary dividend tax, and capital gains tax rates were all scheduled to move up in 2011. These rates are now to remain unchanged through 2011.
	Deduction and Exemption Phase-out. Itemized deductions and personal exemptions will not be subject to the phase-out rules in place in 2009 and prior years. So for 2011, your deductions and exemptions will not be reduced due to your income level.
	Direct charitable contributions from retirement plans. The ability for qualified seniors to contribute directly from a retirement account to an eligible charitable organization is also extended through 2011.
	Earned Income Credit. Changes in the Earned Income Credit expanded the amount of the Credit and the income qualifications to receive the Credit. These expanded provisions to qualify for the increased credit are extended through 2012.
	American Opportunity Tax Credit (AOTC). The AOTC (formerly named Hope Education Credit) is also extended through 2012. This provision allows for up to $2,500 in qualified secondary educational expense (tuition, fees, and materials) to be deducted for qualified students.
	Alternative Minimum Tax (AMT) “Patch”. For the first time in three years Congress has increased the AMT exemption amount prior to the start of the year. Because of this, the Alternative Minimum Tax (AMT) will not impact up to 21 million additional taxpayers until after 2011.
	Estate Taxes. In 2011, the maximum estate tax is 35%. Up to $5 million in assets are sheltered from this tax. In addition, the old “stepped-up” basis rules are re-established allowing beneficiaries to increase the value of inherited assets to the fair market value as of the date of death. These rules stay in place through 2012.
	Gift Taxes. The gift tax rates are now reunified with estate taxes. This means the gift tax exclusion amount for 2011 is $5 million with a top gift tax rate of 35%. The annual gift exclusion amount remains $13,000 ($26,000 per couple).
	Other Extended Benefits.A number of other expiring tax benefits extend through 2011. Among them are: $250 “above-the-line” deduction for unreimbursed classroom expenses for qualified elementary and secondary school teachers General sales tax itemized deduction in lieu of taking a state income tax deduction Tuition and Educational expense deduction $1,000 Child Tax Credit that does not fall back to $500 as scheduled Coverdell Savings Accounts may still be used to cover elementary and secondary school expenses. The annual contribution amount also remains at $2,000 and does NOT roll back to the old $500 level

So as the 2011 tax year comes to a close, now might be a good time to take a last look at potential changes to reduce your tax obligation. Give us a call to schedule a year end tax planning session.

About Mark DeVine

I have been in the tax and accounting profession since 1989. Before founding my own firm, I worked with the international accounting firm of KPMG, the Fleet Private Clients Group, and Bank of New England. I am also a member of the American Institute of Certified Public Accountants and the RI Society of CPAs.To discover how we can help you with taxes, payroll, bookkeeping and more, give me a call at 401.254.0151, or click the link to schedule your free 30 minute consultation today.