ENERGY CREDITS ON PRINCIPAL RESIDENCE
The personal energy property tax credits have been extended through 12/31/2011. However, for items purchased after 12/31/2010, the credit has been reduced. Each item must meet specific criteria described on Energystar.gov’s website. The website has separate tabs for 2010 and 2011 purchases and describe both energy rating criteria as well as whether installation costs can be utilized toward the credit. Please visit:
http://www.energystar.gov/index.cfm?c=tax_credits.tx_index
Taxpayers are required to keep a copy of the Manufacturers’ Certification Statement verifying the item qualifies for the tax credit. The taxpayer must retain the statement for their records, but does not need to submit a copy with their tax return.
Manufacturers should provide these Certifications on their website. Call the manufacturer, or search their website. EnergyStar does not have copies of the Manufacturer's Certification Statement.
For 2011 purchases, the credit reverts back to those in effect in 2006 and 2007: 10% of the cost of the improvement, up to $500, with a $200 max for windows, and several other set maximums.
A summary of the 2011 credit:
- 10% up to maximum of $500 for insulation, roofs, and doors.
- Windows capped at $200, but now must meet ENERGYSTAR.GOV criteria
- Furnace and boilers capped at $150, and each must meet 95 AFUE rating
- $50 for advanced main air circulating fan
- $300 for air conditioners, air source heat pumps, water heaters, and biomass stoves
- Most importantly, there is a $500 lifetime limit. If you have already received
- energy credits totaling $500 from 2006-2010 cumulatively, you are not eligible for
- anything more.
- There is no upper or lower limit on income for the energy efficient tax credits.
- None of the credits are limited by AMT in 2010 or 2011
CAR MILEAGE
The mileage rate for vehicle reimbursement for business use effective January 1, 2011 - June 30, 2011 is $0.51/mile and July 1, 2011 - December 31, 2011 is $.55.5/mile. Medical travel and moving mileage January 1, 2011 - June 30, 2011 is $.19/mile and July 1, 2011 - December 31, 2011 is $.23.5/mile. Charitable mileage remains at $.14/mile for 2011.
EXTENSION OF BUSH TAX CUTS
The December 17, 2010 Passage of the “Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act” (also dubbed the “Extender Bill”) renews existing individual tax rates and brackets into 2011 and 2012 ( tax rates will remain at 10%, 15%, 25%, 28%, 33% and 35%). The current capital gains tax rates and qualified dividend tax rates also continue through 12/31/2012. Furthermore, if your Adjusted Gross Income (AGI) is below $86,700 married ($43,350 single), you can still qualify for a capital gains rate of 0%. Planning opportunities still exist to target income and expenses to take advantage of the 0% capital gains rate. Also, if your AGI exceeds these levels, the option still exists of gifting long-term capital assets to family members who qualify. Please contact us for further planning assistance if you feel this might be an option for you.
ALTERNATIVE MINIMUM TAX
AMT exemptions are increasing slightly, limiting the impact of AMT. The exemption amount for 2011 is $74,450 for married returns, $37,225 for married separate returns, and $48,450 for unmarried individuals. The nonrefundable personal credits also continue to offset AMT for 2011.
HSA & FSAs
Health Savings Accounts can be established if a taxpayer has a high deductible health insurance plan. Funds in the account can be used to pay all eligible medical related expenses not covered by your Health Insurance Plan. Money deposited in the account is deducted from page one of your federal 1040; hence you need not to be able to itemize to achieve the tax savings. To be eligible, you may not be covered by under any other non-high deductible health plan, not enrolled in Medicare and can’t be claimed as a dependent on another person’s return. Contributions can be made as late as April 15, for the prior tax year (same as IRA’s). Further information can be found using the below link:
http://healthsavingsaccountrules.com/
Maximum permitted contributions for 2011 are $3,050 for single, $6,150 for family and 55 and older can add a $1,000 catch up contribution. Looking ahead for 2012 the amounts are $3,100 for single, $6,250 for family and $1,000 catch up contribution for 55 and older.
In 2011, over the counter medicines must have a prescription from a doctor to qualify for coverage. (Vitamins and supplements do NOT qualify.) Other examples of items covered are: Acupuncture & Chiropractic care, eye exams, glasses and laser surgery, hearing tests and hearing aids, dental exams, dental work and dentures, alcohol and drug abuse treatments, insulin and diabetic testing supplies, long term care related expenses, wheel chairs, hand rails or other disability related home improvements.
The penalty for non qualified distributions is 20% for HSA's in 2011.
The complete list of allowed expenses can be found on IRS Publication 502, pages 5-14. The link is below.
http://www.irs.gov/pub/irs-pdf/p502.pdf
IL STATE INCOME TAX INCREASE
State Legislation retroactively enacted an increase in both the individual and corporate income tax rates. Effective 1/1/2011, the state personal income tax rate increased from 3% to 5%. The state corporate income tax rate increased from 7.3% to 9.5%.
BUSINESSES CAN CLAIM HIGHER DEPRECIATION ON NEW ASSETS
BONUS DEPRECIATION: Business of any size can claim 100% bonus depreciation on new (not used) assets purchased between September 9, 2010 and December 31, 2011. Only assets with useful lives of 20 years or less qualify. After 12/31/2011, bonus depreciation will decrease to 50%.
SECTION 179 DEPRECIATION: Maximum Section 179 deductions (election to write off NEW or USED assets up to the full purchase price in the year of purchase) are as follows.
Year placed in service:
2010 & 2011: $500,000
2012: $125,000
SOCIAL SECURITY TAX ONE-YEAR DECREASE
The 6.2% employee social security withholding from employee’s wages is decreased effective 1/1/2011 – 12/31/2011 to 4.2%. The employer matching rate is unchanged at 6.2%. The employee and employer portions of Medicare tax rate are unchanged at 1.45%. The social security portion of the self-employment tax is also reduced to 10.4% for 2011 earnings. If an employer inadvertently over withheld social security tax, the employer may adjust the error against future payroll withholding, but the adjustment must be made by March 31, 2011.
ESTATE TAXES
Effective for 2011 & 2012, the exemption amount is $5 million, with a top tax rate of 35%, and a step up in basis to heirs. Estates of taxpayers who died during 2010 can choose (by September 17, 2011) to use either the existing law (no estate tax and a limited step-up in basis) or the new law of a $5 million exemption, top rate of 35% and fair market value for all eligible inherited assets.
Estates of taxpayers dying in 2011 & 2012 can transfer any unused exemption to the surviving spouse.
EXTENDED TAX PROVISIONS!
Extensions of items that expired at end of 2009 – The following items are retroactively reinstated through 2011, which include:
- Tuition deduction
- Educator expense (limited to $250)
- Sales tax deduction in lieu of income tax deduction for itemizers
- Allowing tax-free distributions of IRA monies directly to charities for taxpayers age 70 ½
or older
- Home builder credit
- Research credit
- Employer wage credit for activated reservists
- Expense of environmental remediation costs
- Empowerment zone tax incentives
Extensions of items that expire at end of 2010 – The following items are also extended,
which include:
- American Opportunity Tax Credit through 2012.
- Student loan interest expense through 2012.
- Employer provided education assistance through 2012.
- Child Tax Credit of $1,000 per child under age 17 and the lower earned income test for the
refundable portion of $3,000 through 2012.
- Earned Income Tax Credit changes including higher amount allowed for taxpayer with
three children through 2012.
- Dependent Care Tax Credit through 2012.
- Coverdell Education Savings Accounts (Section 529 plans) continue as current through
2012.
- Transit passes and vanpooling benefits equal to employer-provided parking benefits
(currently at $230/month) through 2011.
- Deduction for mortgage insurance premiums through 2011.
- Child Care Tax Credit for employers through 2012.
- Exclusion of 100% of the gain from the sale of qualified small business investment
company stock for purchases through 2011.
- Energy credits for energy-efficient home improvements
Also the Work Opportunity Credit has been extended through December 31, 2011.
The Adoption Credit and Assistance Exclusion are both extended through 2012 although the
extra $1,000 and the refundability of the Adoption Credit only runs through 2011.
NON-CASH CHARITABLE DONATIONS:
Goodwill Receipt Builder web link:
