The 2011 tax changes are here and there are 7 major changes listed below. These changes can potentially save (or cost) you hundreds, if not thousands, of dollars. We look at the income tax changes including tax credits for 2011 that may affect your personal finances in a major way.
Marginal Tax Rates Remain Same:
In 2011 top earners will see the same 33 and 35 percent marginal tax rates that they saw in 2010 with the top rate kicking in on taxable income of $379,150. Remember this is based on your taxable income not your "gross income". For a all the tax rates consult this 2011 Income Tax Rate Table.
2011 Child Tax Credit:
In 2011, the child tax credit was supposed to return to $500 from the $1,000. Instead the credit is still $1,000. Taxpayers must earn more than $3,000 in order for the credit to be refundable.
In most cases, the 2011 credit is limited to the amount of tax liability on your income return. In other words, if your credit is bigger than your liability, your liability is just reduced to zero, and the rest is lost.
In some instances you can get a child tax credit refund. This means that you would get a refund of the difference between your tax credit and what you owe in taxes.
Federal Estate (Death) Tax:
If you were rich and died in 2010, your heirs got a huge bonus - zero estate taxes. Not so for 2011, the "death tax" has been overhauled to give a one time per person $5 million exemption and a top rate of 35%. For married couples the exemption is $10 million. Far less draconian than the old top rate of 55% for 2011 taxes.
Long Term Capital Gains Rate 15%:
Capital gains were supposed to revert to 20% but the extension of the Bush Tax Cuts keeps them at a maximum of 15%. The holding period is the same 1 year. Any gain less than that would get taxed at your marginal rate for ordinary income.
Earned Income Credit:
Filers with three or more children who are in the highest income levels will see temporary increases repealed.
Alternative Minimum Tax (AMT):
It is anticipated that in 2011, an automatic annual inflation adjustment will be applied to this exemption. Currently hitting the middle class more than the intended higher class, this change will account for inflation. Your 2011 tax changes for AMT will be minimal but watch out in 2012 as the exemption will change.
2% Reduction in Payroll Taxes:
The biggest change: Social security taxes for 2011 were lowered by 2 percentage points for both the employee and employer. This gives employees up to $2,100 of additional breaks. Currently this benefit is set to expire at the end of 2011 but an extension and increase for small businesses is on the table as part of the President's Jobs Act and there is fairly widespread support for continuing this reduction in some form.
These are just a few of the IRS changes for 2011 taxes. Knowing in advance what type of changes are on the horizon makes it possible for the individuals who will be most affected by these changes to prepare in advance.
This guest post was provided by BackTaxesHelp.com, a website that offers self-help tax resolution guidance and services to taxpayers to aid in resolving tax problems.
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