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An Overview of the 2011 Tax Changes

Palm Desert taxpayers will be affected by the new tax laws enacted after much debate and Congressional theatrics at the end of 2010. Many of the sunset provisions of 2010 have been temporarily extended while new laws for gifts and estate taxes have been imposed.

An important note to highlight is that many of the following provisions are temporary. They are currently set to expire at the end of 2012 at which time they will revert back to 2001 levels. This potentially means we may have to endure another Congressional battle similar to last year’s debacle but this time it will be in the middle of an election year. Due to the changing nature of these laws, it is imperative that you ensure that your estate plan conforms to current laws.

Estate and Gift Taxes
The gift and estate tax exemption is $5 million per individual with a top tax rate of 35%. The annual gift tax exclusion remains at $13,000. Gifts in the form of tuition and medical care payments are exempt.

Income Taxes
Rates for 2011-2012 remain the same from 2010 levels but the brackets are slightly higher due to inflation.

Capital Gains
Rates remain relatively low. For individuals in the 15% income tax bracket and below the current rate is 0. For individuals in the 25% and above the current rate is 15%.

Roth Individual Retirement Arrangement (IRA) Conversion
All taxpayers may convert traditional IRAs to roth IRAs. However, those who convert in 2011 do not have the option of deferring conversion income which was true for 2010. Those who converted in 2010 have until October 2011 to decide to defer or not.

Alternative Minimum Tax (AMT)
The “patch” now in effect sets the exemption amount at $47,450 for singles and $74,450 for married persons.

Payroll Taxes
Employees now receive a 2% cut in their share of Social Security taxes with a maximum savings of $2,136 per employee.

Basis Reporting by Brokers
In 2011, brokers must report basis of stocks, real-estate investment trusts and foreign securities to the IRS when the asset is sold.