2011 Small Business and Individual Tax Changes

The maximum credit goes to smaller employers - those with 10 or fewer full-time equivalent (FTE) employees - paying annual average wages of $25,000 or less. The credit is completely phased out for employers that have 25 or more FTEs or that pay average wages of $50,000 or more per year. 

Higher Expensing/Depreciation Limits - For tax years beginning in 2010 and 2011, small businesses can expense up to $500,000 of the first $2 million of certain business property placed in service during the year.

In general, businesses can choose to treat the cost of certain property as an expense and deduct it in the year the property is placed in service instead of depreciating it over several years.  This property is frequently referred to as section 179 property, after the relevant section in the Internal Revenue Code.

 Depreciation Limits on Vehicles - The total depreciation deduction (including the section 179 expense deduction and the 50 or 100 percent bonus depreciation) you can take for a passenger automobile (that is not a truck or a van) you use in your business and first placed in service in 2010 is increased to $11,060. The maximum deduction you can take for a truck or van you use in your business and first placed in service in 2010 is increased to $11,160. 

50% or 100% Bonus Depreciation- Businesses that acquire and place qualified property into service after Sept. 8, 2010 can now claim a depreciation allowance of 100 percent of the cost of the property. The property must be placed in service before Jan. 1, 2012 (Jan. 14, 2013 in the case of certain longer-lived and transportation property).   Businesses that acquire qualified property during 2010 on or before Sept. 8, 2010 can claim a depreciation allowance of 50 percent of the cost of the property. Bonus depreciation is in addition to Section 179 deductions noted above.   

The following are some of the important tax changes for individuals that are in effect for 2011:    

• The 10%, 15%, 25%, 28%, 33% and 35% individual and trust tax rates have been extended for 2 years through December 31, 2012.
• The estate tax top rate is 35% with an exemption amount of $5 million.
• The gift tax exemption and generation-skipping transfer tax exemption amount are both $5 million.
• The capital gains tax is 0% for the 15% income tax bracket or below and 15% for the 25% income tax bracket or above.
• The waiver for required minimum distributions has been reversed.  Required minimum distributions must begin in the year a participant turns 70 1/2.
• The IRA contribution limit remains at $5,000 or $6,000 if the participant is 50 or older.
• The social security taxable wage limit remains at $106,800.  Also unchanged, retirees under full retirement age can earn up to $14,160 without losing benefits.
• The employee OASDI (Social Security) tax rate was reduced to 4.2% from 6.2%.  Similarly, the OASDI tax rate under SECA (self-employment tax) has been reduced to 10.4% from 12.4%.
• Mileage rates for business and medical were increased to $0.51 and $0.19 respectively.  The mileage rate for charity remains the same at $0.14. 

Downey & Company has prepared our annual Tax Facts At-A-Glance as a reference for our clients and friends of the firm.  Click here for a copy of this reference guide to help you through 2011.

For more information, please contact Jamie Downey at jmdowney@downeycocpa.com.