It's customary for this column to start the year with a roundup of what's new for taxpayers. Given last December's theatrics in Congress, some items on our list may seem familiar unless you were out mapping the tributaries of the Amazon.
But keeping tax details straight is tough—even for tax reporters. Our mailbox is full of queries from bewildered readers trying to sort out issues such as which Roth IRA conversion rules expired last year, how the new payroll tax cut works, or at what income level the zero rate on long-term capital gains ends.
The most important point to remember is that last year's 11th-hour tax changes, though favorable for most, are temporary. After 2012, many provisions are set to snap back to what they were before 2001, and a few even expire this year.
That raises the dreary possibility that in less than two years we will be in a replay of last year's tax debates, but in the middle of a presidential campaign. Once again tax rates on both pay and investment income will be set to spike, especially for those at the bottom, and the estate tax will revert to a $1 million-per-individual exemption and a 55% top rate.
Tax strategists like Robert Gordon of Twenty-First Securities in New York see this year as a lucky reprieve for those who didn't get around to planning for higher taxes earlier, especially on investments with long-term gains and stock options. "It's not a question of whether investment tax rates are going up, but when," he says. He already is meeting with clients who escaped a 2011 increase but are determined to get ready for 2013.
Meanwhile, here are important changes for this year:
Income Taxes
This year's rates carry over from last year, but the brackets are a bit higher than last year's due to inflation adjustments (see table). Expires: end of 2012.
'Stealth' Income Taxes
Affluent taxpayers won't have deductions clipped by the so-called Pease and PEP limitations. The Pease limit cut 3% of itemized deductions and PEP eroded the personal exemption, which is $3,700 for 2011. Expires: end of 2012.
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Thursday, January 20, 2011
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