Income tax planning for 2011 - 2012, tax rates and calculations

Indonesia stock info - Income tax planning for 2011 - 2012, tax rates and calculations ; At this time last year, income tax planning was particularly challenging. Several tax deductions had already expired, and significant changes, including new, higher income tax rates, were scheduled to take effect at the end of the year. Legislation passed in mid-December, however, hit the "reset" button, reinstituting already-expired deductions and extending major tax provision - including lower rates - for an additional one to two years.

A look at some tax rates and calculations:

Federal income tax rates:
The same six federal income tax rates that applied in 2010 will continue in 2011 and 2012. Depending on your taxable income, you'll fall into either the 10 percent, 15 percent, 25 percent, 28 percent, 33 percent or 35 percent rate bracket.

In Iowa, the state income tax rates for 2011 start at 0 percent and go up to 9 percent for the top income earners. Remember that all of our taxable income is not necessarily taxed at that rate - instead, the rate at which you pay tax generally rises as your income increases.

Rates for long-term capital gains and qualifying dividends:
As in 2010, long-term capital gains and qualifying dividends continue to be taxed at a maximum rate of 15 percent through 2012; if your income (including any long-term capital gains and qualifying dividends) puts you in the 10 or 15 percent income tax brackets in 2011 and 2012, a special 0 percent rate will generally continue to apply.

Alternative minimum tax:
While regular income tax rates and the maximum rates that apply to long-term capital gains and qualifying dividends were extended through 2012, the latest AMT "fix" (in the form of increased AMT exemption amounts) is effective only through 2011. So, if you think you may be subject to the AMT this year, the good news is that you know ahead of time what the relevant exemption amounts are ($74,450 for married individuals filing jointly, $48,450 for unmarried individuals, $37,225 for married individuals filing separately).

The bad news is that the AMT situation for 2012 remains up in the air. You can probably expect another AMT fix later this year, but as it stands now, AMT exemption amounts will drop significantly in 2012, dramatically increasing the number of taxpayers ensnared by this parallel tax system.

Temporary payroll tax reduction:
Available for 2009 and 2010, the Making Work Pay tax credit was a refundable tax credit equal to the lesser of 6.2 percent of earned income or $400 ($800 for married couples filing joint returns); the credit was phased out for those with higher incomes. The tax credit was not extended to 2011, but the December legislation created a new one-year 2 percent reduction in employee Social Security payroll taxes (the 2 percent reduction also applies to the self-employment tax paid by self-employed individuals).

So, if you're an employee, 4.2 percent of your 2011 wages (up to the 2011 taxable wage base of $106,800) is being withheld for your portion of the Social Security retirement component of FICA employment tax instead of the 6.2 percent that would normally be withheld. If you're self-employed, the 12.4 percent you would normally pay for the Social Security portion of your 2011 self-employment tax is reduced to 10.4 percent.

Other considerations:

IRA qualified charitable distributions:
Unless Congress passes additional legislation, 2011 will be the last opportunity for individuals age 70½ or older to make qualified charitable distributions of up to $100,000 from an IRA directly to a qualified charity. These charitable distributions can be excluded from your income and count toward satisfying any required minimum distributions that you would otherwise have to take from your IRA for 2011.

Depreciation and Section 179 expensing:
If you're a business owner or self-employed individual, you're allowed a first-year depreciation deduction of 100 percent of the cost of qualifying property acquired and placed in service during 2011. The "bonus" first-year depreciation deduction drops to 50 percent for property acquired and placed in service during 2012. Additionally, the maximum amount that can be expensed under Internal Revenue Code Section 179 for 2011 is $500,000; in 2012, the limit is currently scheduled to drop to $125,000.

Small business stock:
Generally, you can exclude 50 percent of any capital gain from the sale or exchange of qualified small business stock, provided you meet certain requirements, including a five-year holding period. For qualified small business stock issued and acquired in 2011, however, you'll be able to exclude 100 percent of any capital gain from income if the qualified stock is held for at least five years and all other requirements are met.

Energy efficiency improvements:
Though not as generous as it has been the last two years, a credit is still available to individuals who make energy-efficient improvements to their homes. You may be entitled to a 10 percent credit for the purchase of qualified energy-efficient improvements, including a qualifying roof, windows, skylights, exterior doors and insulation materials.

Specific credit amounts may also be available for the purchase of specified energy-efficient property: $50 for an advanced main air circulating fan; $150 for a qualified furnace or hot water boiler; and $300 for other items, including qualified electric heat pump water heaters and central air conditioning units. There's a lifetime credit cap of $500 ($200 for windows), however. So, if you've claimed the credit in the past - in one or more tax years after 2005 - you're only entitled to the difference between the current cap and the total amount that you've claimed in the past. That includes any credit that you claimed in 2009 and 2010, when the aggregate limit on the credit was $1,500.

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