Family Law

Introduction of New Tax Law in 2011

By J. Benjamin Stevens

The following Guest Post is from Marc Brown:

Taxpayers are expected to be overwhelmed with the introduction of the list of new tax laws. Both low and high income families will be affected with the new changes in the tax law of 2011. Although there are very limited cost effective changes on the list, the revision will have greater impact on various stratum of the society.

Here are some crucial points on the New Tax Law for this New Year:

Child Tax Credit Amount in New Year

• For people who are eligible for claiming child tax credit, the amount has been lowered from $1000 to $500 on each child. The impact on low income group families will be grave and especially for those who have more than one issue.
• If your income exceeds $12,550 then the child credit is legitimately not refundable. And for filers who file joint return the credit amount will be eliminated to $110,000 but for single filer it will be phased out at $75,000.

Limitation on Itemized Deductions with 2011 New Tax Rule

• The new tax limit on itemized deduction for 2011 will not be satisfactory for taxpayers who have long state tax bills, residing in an area where the cost of living is high or contribute hefty amount to charities.
• The new law has strict limitations on the amount of deduction when it comes to availing the itemized deduction. If your income exceeds $169,750 then you will be benefited from the deduction 

Hike in the Tax Rates

• The percentage rate has increased on each individual tax bracket. This will have an adverse effect on both low and high income taxpayers. There will be a rise of 39.6% on tax rates for the high income group.
• The only aim of raising the tax bracket is to boost the government tax budget that has depleted over the passage of time. According to Tax Policy Center, only raising the taxes will not have a great impact unless it is raised up to 40%. As a matter of fact, this amount will be escalated from 10% to 14% for the lower income bracket. But this will not be an effective solution in this situation.

1099 is required in 2011

• You need to submit or accept a 1099 form if your income exceeds $600 for your side business or if you pay a stipulated amount to the vendor who sells it. This might be a reason for the rise of prices on inventory that will affect both small and large business houses.
• This will require ID exchanges along with the supplementary paperwork as this compounds the problem of larger businesses transacting over $600. Usually a 1099 is utilized for the purpose of freelancing jobs but in 2011 the scenario is different.

Estate Tax Returns

• In 2010, taxpayers had the liberty to know about the estate tax that is not applicable any more. If you inherited any money then it was not considered under taxable income. But the entire picture has changed with the introduction of the estate tax rules of 2011.
• According to the new estate tax of 2011, 55% rate is levied on your assets with an exemption of $1000. This is unfair on the part of the individuals who want to transfer the wealth they have hoarded over passage of time.

Tax Rates on Capital Gain

• The capital gain tax rates are hiked by 5% for numerous tax payers. The tax has risen from 0% to 10% for individuals who are in the 15% federal income tax bracket.
• The income that you gain from dividends comes under taxable income and up to 39.6% is levied on it as tax rate. But the Bush Tax Cuts have limited the tax rate on dividend to 15%.

The New Tax Laws of 2011 does not seem to be pleasing for the taxpayers in both the lower as well as the higher income groups. This will definitely leave its imprint on the economy until 2020. 

About the Author: This guest post was from Marc Brown, a financial writer. He has been writing on financial topics over the years with special focus on US economy. Marc also takes interest in debt related issues and contributes articles on debt settlement to acclaimed personal finance blogs.

Full post as published by SC Family Law Blog on March 18, 2011 (boomark / email).