The tax deductible mileage rates for 2010 are: 50 cents per mile for business travel; 16.5 cents per mile for medical travel and 14 cents per mile for charitable contribution travel. The tax deductible mileage rates for 2011 are: 51 cents per mile for business travel; 19 cents per mile for medical travel and remains at 14 cents per mile for charitable contribution travel.
Employees pay a 6.2% social security tax on the first $106,800 of 2010 wages and a 1.45% medicare tax on all 2010 wages. The employer matches these payroll taxes. These numbers and percentages stay the same for 2011 except for the employees social security tax which drops to 4.2%. Employers will still match this tax at 6.2%.
Self employed indivduals pay a 12.4% social security tax on the first $106,800 of 2010 net earnings and 2.9% medicare tax on all 2010 net earnings.
The standard deduction for 2010 is $11,400 for married couples filing jointly; $5,700 for single and married filing separately filers and $8,350 for head of household filers.
The amount of a personal or dependency deduction for 2010 is $3,650.
Section 179 of the IRS Tax Code allows a taxpayer or small business to deduct in the current year, the full purchase price of business personal property purchased and placed in service within that same year. Personal property that would qualify for this deduction would include equipment, furniture and fixtures, vehicles, computer equipment, telephones and copiers. The Small Business Jobs and Credit Act of 2010 increased the amount a taxpayer or small business can write off in this manner to $500,000 a year. This act also extended what is called bonus depreciation for the first year of a qualifying assets life. This bonus depreciation allows a 50% deduction in the year an asset is purchased. Utilizing the Section 179 deduction and bonus depreciation gives a taxpayer or small business flexibility and tax savings opportunities.
An individual may exclude from income up to $250,000 ($500,000 on a joint return) realized on the sale of a principal residence if the residence was the principal residence of the individual for at least two of the last five years.
A new estate (or inheritance) tax was recently passed into law. It reinstates the estate tax for 2011 and 2012 at a maximum rate of 35% with a $5 million exemption per person. The new law will expire after 2012. Beginning in 2013, there will be a $1 million per person exclusion with 55% maximum tax rate unless further legislation is enacted. New rules in this law allow any unused exemption to be passed on to a surviving spouse, so a married couple can exempt up to $10 million. There was no estate tax during 2010. The new law gives executors of estates for decedents who died in 2010 the choice of distributing assets to heirs estate tax free with a carryover basis (generally the original purchase price), or a step up in basis to the market value (generally at the date of death) and pay the 35% on anything above $5 million exemption. The new law reunifies the federal estate and gift tax exemption. This means that the new lifetime gift tax exemption is $5 million per person ($10 million per couple) beginning in 2011.
The recession has caused a situation in the estate tax area for some individuals that is quite unique. If someone inherited assets like stocks or real estate prior to the recession and sold the assets for less than the stepped up value on the date of the decedent’s death, they have an income tax loss that can be claimed. Say some heirs inherited a home from their parents in May of 2008 and the fair market value on the date of the decedent’s death was $300,000. By the time repairs could be done and the house could be listed the value dropped due to the recession and the heirs ended up selling the house for $220,000. This $80,000 loss could be claimed by the heirs on their income tax returns. Each heir could offset capital gains and use $3,000 of the loss each year until it was exhausted. A return needs to be filed in order to claim this loss. Call me about this opportunity or any tax questions you might have.
