Every year brings new changes to the tax code, and 2011 is no different.  As taxpayers begin gathering information in preparation to file 2010 tax returns, it is a good time to review important changes to the 2011 tax code and consider the impact of the tax reforms enacted by Congress last December.   


Income Tax Rates.  Although income tax rates for 2011 remain the same as 2010, the brackets are slightly higher due to inflation adjustments.

Capital Gains Taxes.  Tax rates on both qualified dividends and long-term capital gains will remain the same through year-end 2012.  For taxpayers in the 15% income tax bracket or below, the rate is zero.  For taxpayers in the 25% tax bracket or above, the rate is 15%.

Payroll Taxes.  For 2011, there is a temporary two-percentage-point reduction in the employee’s share of Social Security taxes, which may result in a maximum savings of $2,136 per worker.  

Estate and gift taxes. For 2011 and 2012, the top estate tax rate has been reduced to 35% and the exemption for estate, gift, and generation-skipping taxes has been increased to $5 million. The annual exclusion for tax-free gifts remains $13,000.  Gifts of tuition and medical expenses remain exempt from tax.  

Cost-Basis Reporting. Starting in 2011, brokers are required to report cost basis to the IRS when assets are sold. For 2011, these requirements apply to equity and REIT sales.  After 2011, the reporting requirements will also apply to bonds, options, ETFs, and mutual funds.

IRA Conversion. The income limit for Roth IRA conversions has been removed permanently. Starting in 2011, any taxpayer may convert a traditional IRA to a Roth IRA, but may no longer defer paying tax on the conversion to future tax years.  

Alternative Minimum Tax. For 2011, the AMT exemption is $47,450 for single filers and $74,450 for married couples. These exemption amounts expire at the end of 2011.  

Considerations. The majority of the tax reform enacted at the end of last year is temporary.  At the end of 2012, taxpayers may face the same uncertainty regarding income, capital gains, estate, and gift taxes that they faced at the end of 2010. It is important to consult with your accountant, investment advisor, and estate planner before making any changes that will impact your tax situation, your investment portfolio, or your estate plan.