2011 Tax Planning Letter

Dear Client:

It should be of little surprise that 2011 has been another year of Congress changing the tax landscape.  It looks like this trend may continue into 2012 as well, depending on what Congress chooses to act on in an election year.

That said below are actions that could be taken to help you save tax dollars.  Not all actions will apply in your individual situation.

Year End Moves for Individuals

Year End Moves for Business Owners

Put new business equipment and machinery in service before year-end to qualify for 50% bonus first-year
Little-known change affects 2011 income tax deduction for SE tax

Most practitioners and clients know that, for 2011, the Old Age, Survivors, and Disability Insurance (OASDI) portion of the self-employment (SE) tax is reduced by 2%, from 12.4% to 10.4%. What they may not know is that, as explained below, the SE tax deduction also was revised for 2011 to reflect an employer's equivalent portion of tax.

The Federal Insurance Contributions Act (FICA) imposes two taxes on employers and employees—one for Old Age, Survivors and Disability Insurance (OASDI; commonly known as the Social Security tax), and the other for Hospital Insurance (HI; commonly known as the Medicare tax). Likewise, the Self-Employment Contributions Act (SECA) imposes two taxes on self-employed individuals: an OASDI tax and an HI tax.

For 2010, the FICA tax rate for employees and employers was 7.65% each—6.2% for OASDI and 1.45% for HI. For self-employed persons, for 2010, the OASDI tax rate was 12.4% and the HI tax rate was 2.9%.
The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (the 2010 Tax Relief Act, P.L. 111-312) reduced the employee OASDI tax rate under the FICA tax by two percentage points to 4.2% for remuneration received in 2011. Similarly, for self-employment income for tax years beginning in 2011, it reduced the OASDI tax rate under the SECA tax by two percentage points to 10.4% percent. (2010 Tax Relief Act Sec. 601) As a result, for 2011, employees pay only 4.2% Social Security tax on wages up to $106,800, and self-employed individuals pay only 10.4% Social Security self-employment taxes on self-employment income up to $106,800. The 2010 Tax Relief Act did not reduce the HI tax rate (for the employer and employee, 1.45% of total wages, for the self-employed, 2.9% of all self-employment income).

These are just a few of the actions you can take.  Additionally there are several more changes to 2011 including:

“An heir of a 2010 estate using the 2010 estate tax repeal option who sold the asset before receiving the Form 8939 may be surprised at the amount of capital gain owed from the sale,” Luscombe noted.

As always navigating taxes can be complex.  Please contact us and we can tailor a plan that best meets your situation.

Very Truly Yours,

Thomas & Associates CPA’s Inc