|
Social Security Changes
The Social Security wage base for 2011 is $106,800
Phased-in Individual Income Tax Rate Cuts
Marginal Tax Rate |
| |
|
|
|
|
|
|
|
|
| |
Tax Years |
|
|
|
|
|
|
|
| |
2001 |
Refund |
15% |
27.5%* |
30.5%* |
35.5%* |
39.1%* |
|
| |
2002 - 2003 |
10% |
15% |
27% |
30% |
35% |
38.6% |
|
| |
2004 - 2005 |
10% |
15% |
26% |
29% |
34% |
37.6% |
|
| |
2006 - 2010 |
10% |
15% |
25% |
28% |
33% |
35% |
|
| |
2011 |
10% |
15% |
25% |
28% |
33% |
35% |
|
| |
|
|
|
|
|
|
|
|
| |
*Effective Rate, 2001 |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
 |
|
|
| |
|
IR-2002-142, Dec.
23, 2002
WASHINGTON – The Internal
Revenue Service today issued guidance in the form of
both final and temporary regulations related to
excluding gain on the sale of a principal residence. A
1997 law substituted an exclusion of up to $250,000
($500,000 for a married couple filing jointly) for the
old “replacement residence” rules. Unlike a previous
once-in-a-lifetime exclusion for senior citizens, the
new exclusion may be claimed repeatedly, but usually
only once every two years.
The final regulations cover
such topics as:
 | how to determine if a home
is a principal residence;
 | when gain from the sale of
vacant land that was used as part of the residence
may be excluded;
 | when and how to allocate the
gain between residential and business use of the
property;
 | how the exclusion applies to
joint owners who are not married; and
 | how to fulfill the
requirement that the taxpayer own and use the home
as a principal residence for two of the five years
before the sale. |
| | | |
For taxpayers with multiple
homes, the regulations list several factors relevant to
determining which home is the principal residence. Among
these are amount of time used; place of employment;
where other family members live; the address used for
tax returns, driver’s license, car and voter
registration, bills and correspondence; and the location
of the taxpayer’s banks, religious organizations or
recreational clubs.
The home sale exclusion may
include gain from the sale of vacant land that has been
used as part of the residence, if the land sale occurs
within two years before or after the sale of the
residence.
Taxpayers need not allocate
gain between business and residential use if the
business use occurred within the same dwelling unit as
the residential use. They must pay tax on the gain equal
to the total depreciation they took after May 6, 1997,
but may exclude any additional gain on the residence, up
to the maximum amount. If the business use
property was separate from the dwelling unit, they would
allocate the gain and be able to exclude only the gain
on the residential unit.
For joint owners
who are not married, up to $250,000 of gain is tax-free
for each qualifying owner.
To exclude gain, a taxpayer
must both own and use the home as a principal residence
for two of the five years before the sale. The
ownership and use periods need not be concurrent. The
two years may consist of 24 full months or 730 days. Short
absences, such as for a summer vacation, count as
periods of use, but longer breaks, such as a one-year
sabbatical, do not. The taxpayer also must not have
excluded gain on another home sold during the two years
before the current sale.
The IRS made these final
regulations available for public comment in October
2000. Several changes resulted from the comments
received, including the treatment of gain on property
used for both business and residential purposes.
Today, the IRS invited comments
on new temporary regulations on the subject of excluding
gain, but with a reduced maximum amount, when the seller
does not satisfy one of the time rules. The tax law
provides an exception to the two-year rules for use,
ownership and claimed exclusion when the primary reason
for the sale is health, change in place of employment,
or, to the extent provided in IRS regulations,
“unforeseen circumstances.”
Taxpayers may establish by the
facts and circumstances of their situations that their
home sales were for one of these reasons. To make
things easier, the IRS has identified various “safe
harbors” that will automatically establish that the
sale is for one of these reasons.
The temporary regulations
provide that a home sale will be considered related to a
change in employment if a qualified person’s new place
of work is at least 50 miles farther from the old home
than the old workplace was from that home. This is the
same distance rule that applies for the moving expense
deduction. The employment change must occur during
the taxpayer’s ownership and use of the home as a
residence. A qualified person is the taxpayer, the
taxpayer’s spouse, a co-owner of the home, or a member
of the taxpayer’s household.
A sale will be considered
because of health if the primary reason is related to a
disease, illness, or injury of a qualified person. If
a physician recommends a change in residence for health
reasons, that will suffice. In addition to the
persons listed above, a qualified person for health
reasons includes certain close relatives, so that sales
related to caring for sick family members will qualify.
A sale will be considered as
occurring primarily because of “unforeseen
circumstances” if any of these events occur during the
taxpayer’s period of use and ownership of the
residence:
 | death,
 | divorce or legal separation,
 | becoming eligible for
unemployment compensation,
 | a change in employment that
leaves the taxpayer unable to pay the mortgage or
reasonable basic living expenses,
 | multiple births resulting
from the same pregnancy,
 | damage to the residence
resulting from a natural or man-made disaster, or an
act of war or terrorism, and
 | condemnation, seizure or
other involuntary conversion of the property. |
| | | | | |
Any of the first five
situations listed must involve the taxpayer, spouse,
co-owner, or a member of the taxpayer’s household to
qualify. The regulations also give the IRS
Commissioner the discretion to determine other
circumstances as unforeseen.
For qualifying sellers, the
maximum exclusion amount of $250,000 ($500,000 for a
married couple filing jointly) is limited to the
percentage of the two years that the person fulfilled
the requirements. Thus, a qualifying seller who
owns and occupies a home for one year (half of two
years) – and who has not excluded gain on another home
in that time – may exclude half the regular maximum
amount, or up to $125,000 of gain ($250,000 for most
joint returns). The proportion may be figured in
days or months.
A taxpayer who now qualifies
for a reduced maximum exclusion and has already reported
a gain from the sale of a residence on a prior year’s
tax return may use Form 1040X to file an amended return
claiming the exclusion. Taxpayers may generally
amend returns until three years from the original due
date. The law did not require taxpayers to meet one
of the exceptions before using the reduced maximum
exclusion for homes owned on August 5, 1997, and sold
within two years after that date. Thus, nearly all
taxpayers qualifying under these regulations should be
able to use them by amending a recent year’s return.
|
|
|
|
|
| |
|
IR-2003-15, Feb. 12, 2003
WASHINGTON – The Internal Revenue
Service has again updated its Web site document addressing false
arguments about the legality of not paying taxes or filing
returns. The revisions add citations from several cases decided by
the courts during 2002 and respond to one additional argument,
making a total of 21 frivolous contentions that are addressed.
“During the filing season, taxpayers
will sometimes hear absurd suggestions that they don’t have to
pay taxes or file returns,” said IRS Acting Commissioner Bob
Wenzel. “We want people to know the truth about these schemes
– they don’t work.”
This past year, the courts have not only
rebuked such arguments dozens of times, but also imposed thousands
of dollars in fines on taxpayers or their attorneys for pursuing
frivolous cases.
IRS Chief Counsel B. John Williams said,
"The courts have repeatedly and consistently rejected these
arguments and are imposing substantial penalties on taxpayers and
promoters for taking frivolous positions. These schemes carry a
heavy price, for both the promoters and the participants."
The IRS Chief Counsel’s Office prepared The
Truth About Frivolous Tax Arguments in 2001 and revised
it last April. The document not only lays out the assertions, it
also provides a summary of the law and relevant legal decisions
involving these false claims.
There are also links to the document from
“The Newsroom” section’s “What’s Hot” page, the “Tax
Pro News” and the “Topics for Individuals” pages of this site.
The IRS continues to investigate
promoters of frivolous arguments and to refer cases to the
Department of Justice for criminal prosecution. Taxpayers who file
frivolous income tax returns face a $500 penalty, and may be
subject to civil penalties of 20 or 75 percent of the underpaid
tax. Those who pursue frivolous tax cases in the courts may face a
penalty of up to $25,000, in addition to the taxes, interest and
civil penalties that they may owe.
|
|
Tax Benefits Relating to Children
The new law covers four broad areas relating to children. Here are the highlights.
Child Tax Credit
is $1,000 for 2011 per dependent child until age 17 at December 31.
Adoption Expenses
.
The legislation permanently extends the adoption credit and increases the maximum amount
to $13,360 applies against expenses incurred.
Dependent Care Credit
The maximum credit for many taxpayers is $3000 for one qualifying individual or $6,000 for two or
more
Education Provisions
The law contains several education-related benefits. Here's a brief summary:
* American Opportunity Tax Credit - $2,500 maximum per student
* Lifetime Learning Credit - $2,000 maximum per taxpayer
* Coverdell Education Savings Accounts - up to $2,000 per year
Student Loan Interest Deduction
.
Maximum
amount $2,500
* Phase-out singles between $60,000 - $75,000, Marrieds between $120,000 - $150,000
Retirement Savings Provisions
Rollovers Get Easier
In an attempt to do away with barriers that complicate retirement savings, the new law will also make it possible to consolidate different types of retirement accounts into one. Balances from IRAs, 401(k)s, 403(b)s and 457 plans can be rolled into one another, making it easier to manage retirement planning and income after retirement.
|
Phase-in Retirement Savings
Provisions |
|
2011 |
|
|
| Traditional IRA, Roth IRA, Spousal Guardian |
$ 5,000 |
| Traditional, Roth, Spousal IRA Catch-up Contribution |
$ 1,000 |
Elective Deferrals
(402g,401k SARSEP, 457 and 403b |
$16,500 |
| SIMPLE Plan Deferrals |
$11,500 |
| SIMPLE IRA Catch-up Limit |
$ 2,500 |
Defined Contribution 415 Limit
(the lesser of 100% of comp or) |
$49,000 |
Salary Deferral Catch-up Limit
(does not count against 415 Limits in a 401K plan) |
$ 5,500 |
Death Tax Repeal
- The repeal applies to the Federal estate and generation-skipping taxes. It does not
repeal the Federal gift
tax. Also, the legislation does not eliminate any State
"death taxes";
- Death tax repeal may eliminate the income tax savings achieved through a "step up" in the basis of property received from a decedent. As a result, families may not be able to take advantage of the potential benefits of death tax repeal without careful planning.
Year |
Top Estate
Tax Rate
|
Exemption
Amount
|
|
|
|
2002 |
50% |
$1 million |
2003 |
49% |
$1 million |
2004 |
48% |
$1.5 million |
2005 |
47% |
$1.5 million |
2006 |
46% |
$2 million |
2007 |
45% |
$2 million |
2008 |
45% |
$2 million |
2009 |
45% |
$3.5 million |
2010 |
repealed |
all* |
2011 |
35% |
$5 million |
| |
|
|
|