The following is an excerpt from J.K. Lasser's Your Income Tax 2012: For Preparing Your 2011 Tax Return. It is reprinted with permission of John Wiley & Sons, Inc.
Here's a summary of what's new in the 2011 tax year (and the section of the book where the information is listed in detail):
- Mid-year mileage allowance increase -- The IRS standard mileage rate is higher for the last six months of 2011 than for the first six months. The business mileage rate is 55.5 cents a mile for miles driven from July 1, 2011 through December 31, 2011 and 51 cents a mile for the first six months of the year (43.1). The rate for medical expense (17.9) and moving expense (12.3) deductions is 19 cents a mile for the first six months of the year and 23.5 cents a mile for the last six months. For charitable volunteers (14.4), the mileage rate of 14 cents a mile does not change; it is fixed by statute.
- Lower Social Security rate and self-employment tax. Deduction for self-employment tax. -- The 2011 tax rate for the employee share of Social Security is 4.2%, 2% less than for 2010, making the maximum 2011 employee Social Security liability $4,485.60, 4.2% of the first $106,800 of wages (26.9). For 2011, the self-employment tax of 13.3% consists of the following two rates: 10.4% for Social Security (4.2% employee share and 6.2% employer share) and 2.9% for Medicare. After multiplying the net earnings by .9235, the combined 13.3% rate applies to a taxable earnings base of $106,800 or less; the 2.9% rate applies to all taxable earnings exceeding $106,800 (45.3–45.4). In prior years, 50% of the self-employment tax was the amount of the above-the-line deduction that could be claimed on Form 1040 (Line 27), but for 2011, because of the 2% reduction in the self-employment tax rate, a special computation applies (45.3–45.4).
- Higher standard deductions. -- The standard deduction (13.1) is $11,600 for married persons filing jointly or qualifying widow(er)s, $8,500 for heads of households, or $5,800 for single taxpayers or married filing separately. The additional standard deduction (13.3) for being 65 or older or blind is $1,450 if single or head of household ($2,900 if 65 and blind). If married filing jointly, the additional standard deduction is $1,150 if one spouse is 65 or older or blind, $2,300 if both spouses are at least 65 (or one is 65 and blind).
- Tax rate brackets and preferential rates for capital gains/qualified dividends. -- Tax rates on ordinary income are extended to 2011 and 2012: 10%, 15%, 25%, 28%, 33% and 35% (1.2). The 0% and 15% rates on long-term capital gains and qualified dividends also are extended through 2012 (5.3).
- New Form 8949 for reporting sales of capital assets and revised Schedule D. Broker reporting of basis on Form 1099-B. -- Form 8949 is a new form for reporting 2011 sales (and other dispositions) of capital assets that is attached to Schedule D. After entering short-term transactions in Part I of Form 8949 and long-term transactions in Part II, the total sales price and basis amounts are transferred to Schedule D. where net gain or loss is figured (5.8). If you acquired stock in 2011 and sold it before the end of the year, the broker must report your cost basis for the securities in Box 3 of Form 1099-B. In Parts I and II of Form 8949, you must enter a code to indicate whether your basis for sold securities was reported to you by your broker in Box 3 of Form 1099-B (5.8).
- Bonus depreciation and first-year expensing for qualified business investments. -- Bonus first-year depreciation at a 100% rate is allowed for qualified property purchased new and placed in service in 2011 (42.21). If bonus depreciation is not available, first-year expensing (42.3) is allowed for qualifying property up to a limit of $500,000, of which up to $250,000 may be applied to the combined cost of qualified leasehold improvement (42.15) property, qualified restaurant property, and qualified retail improvement property. If the total cost of qualifying property placed in service during 2011 is over $2 million, the $500,000 expensing limit is reduced dollar for dollar by the cost of qualifying property exceeding $2 million.
- Vehicle depreciation limit. -- If a new car is placed in service in 2011 and used over 50% for business, bonus depreciation allows an $11,060 first-year depreciation limit. The limit is $3,060 if bonus depreciation is not allowed (43.4). For a light truck or van, the limit is $11,260 if bonus depreciation applies and $3,260 without the bonus (43.5). The limits are reduced for personal use.
- Alternative minimum tax (AMT) exemption for 2011 -- The AMT exemption for 2011 is $74,450 for married persons filing jointly and qualifying widow(er)s, $48,450 for single persons and heads of households, and $37,225 for married persons filing separately (23.1).
- Estate tax reinstated with stepped-up basis. Special rule for estates of 2010 decedents. -- Under the reinstated estate tax for estates of those dying in 2011 and 2012, up to $5 million of assets (this may be increased for 2012 by an inflation adjustment) are exempted from tax (39.10), and the heirs of individuals dying after 2010 receive a stepped-up basis for inherited property (generally equal to fair market value at death (5.18)). Executors of estates of individuals dying in 2010 had an option: (1) applying the 2011–2012 estate tax rules including the full step up in basis for heirs, or (2) avoiding estate tax entirely, regardless of the size of the estate, but applying modified basis rules for the heirs under which a step-up in basis would be limited. The election to opt out of estate tax and apply the modified carryover basis rules had to be made on Form 8939 by January 17, 2012 (39.10).
- Revised home energy credit -- For 2011, the credit for energy efficient home energy improvements such as storm windows, insulation, furnaces, and water heaters is reduced to 10%, with an overall limit of $500 that is reduced by prior-year credits, plus specific property limits such as $200 for exterior windows and $150 for a furnace (25.21).
Great summary. Very helpful. So the lower social security for employees for 2011 assumes we congress can get it together again by end of Feb to continue the tax holiday. I'm already wishing this election year was over!
Posted by: Kathryn C | January 04, 2012 at 10:24 AM