AAII Journal > December 2011
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The Individual Investor’s Guide to Personal Tax Planning 2011

The Individual Investor’s Guide To Personal Tax Planning 2011 Splash image

This year’s tax guide brings both good news and bad news. The good news is that tax rates, deductions and exemptions are mostly unchanged from last year. The bad news is that some key items are uncertain for 2012.

As of press time, Congress has yet to pass legislation extending the payroll tax cut, the deduction for state sales taxes or higher alternative minimum tax exemptions into 2012. Social Security taxes for employees will revert back to 6.2% of salaries in 2012 from the reduced 4.2% rate charged this year. The deduction for state sales taxes is also slated to expire on December 31, 2011. Exemptions for the alternative minimum tax will revert back to pre-2011 levels next year without new legislation.

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Potentially complicating matters more is the Congressional Super Committee. The bipartisan committee had a November 23 deadline for reaching an agreement on how to reduce the U.S. federal deficit. At press time (November 22), the committee has failed to reach a compromise agreement. It is likely that taxes will become a campaign issue, resulting in eventual changes to rates, deductions and exemptions.

This would be the case particularly for 2013. The Bush-era tax cuts are scheduled to expire on December 31, 2012. Though we report in Table 1 what the 2013 tax rates are currently projected to be, these numbers seem likely to change. To put things bluntly, long-range tax planning remains difficult.

Regardless of what changes Congress makes (or does not make) to the tax laws, one thing will be constant—you will still have to pay taxes. Furthermore, even a simplified tax code is still likely to be too complex; hence the need for tax guides. As has been the case in years past, our tax guide provides an overview of the tax rates and deductions likely to impact the majority of AAII members. Since there are many details, loopholes and pitfalls within the tax code, it is impossible for this guide to provide enough details to cover specific tax situations. Thus, if you have questions, please consult a tax professional. It is your tax return, and the IRS will hold you responsible for any errors made on it.

To read more, please become an AAII Registered User or CLICK HERE.

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Discussion

Instructions for 2010 Form 6521, AMT-Individuals, show a phase out of the AMT exemption amount beginning at $150,000 Alternative Minimum Taxable Income. You don't mention this phase out, nor is it included in your section "Tax Benefit Phase Out Levels".

I understand this phase out is still in effect. Have I misunderstood?

Thanks

posted about 1 year ago by Ken from Illinois

Thanks for another year of informative information, including these EOY Tax Guides! :)

posted about 1 year ago by R from Texas

Informative as always. Two items not mentioned. While you correctly point out that collectables such as gold are taxed at a high rate, you should also mention that mutual funds that invest in certain types of gold holdings and other commodities can also qualify for high tax rates. The second item is to beware of partnership interests such as the popular ethanol and other energy items that can subject you to state tax filings. Tax preparers must charge for each state tax filing and some states require preparer registration even for a low level of activity the cost of which the preparer will pass on to you.

posted about 1 year ago by Fred from California

The following statement in the HSA section is incorrect:

"Tax-deductible contributions can be made to the health savings account for the full amount of the annual deductible each year, up to a maximum of $3,050 for self-coverage and $6,150 for families in 2011."

The contribution is NOT limited to the "full amount of the annual deductible". It's limited to $3,050 + $1,000 (if over 55) for self-coverage, regardless of the amount of the annual deductible.

posted about 1 year ago by Ed from California

Edward, thanks for pointing that out, we'll get the text updated. Here is what the IRS says: Figuring Your HSA Deduction
The maximum amount that can be contributed to your HSA depends on the type of HDHP coverage you have. If you have self-only coverage, your maximum contribution is $3,050. If you have family coverage, your maximum contribution is $6,150.

Note. If you are age 55 or older at the end of your tax year, you can make an additional contribution of $1,000. Your maximum contribution is reduced by any employer contributions to your HSA, any contributions made to your Archer MSA, and any qualified HSA funding distributions.

You can make deductible contributions to your HSA even if your employer made contributions. However, if you (or someone on your behalf) made contributions in addition to any employer contributions and qualified HSA funding distributions, you may have to pay an additional tax. See Excess Contributions You Make on page 5.

You cannot deduct any contributions for any month in which you were enrolled in Medicare. Also, you cannot deduct contributions if you can be claimed as a dependent on someone else’s 2011 tax return.

-Charles Rotblut, AAII

posted about 1 year ago by Charles from Illinois

Work sheet isn't very good for people with IRA RMDs and social security and ensions.
You need one for the retiree.

posted about 1 year ago by Eugene from Pennsylvania

Worksheet is not calculating on my Mac after I enter all the figures. Very
useless for me.

posted about 1 year ago by Meg from Washington

Several clarifications/corrections:

I believe the box "How Much of Your Social Security is Taxed" should read UP TO 50% for those between $25K/$34K (Single/HOH) and $32K/$44K (MFJ). Also I believe that the Income Level in this box includes only 1/2 of the Social Security.

To avoid tax underpayment penalties it is not sufficient to use withholding and quarterly estimated payments to meet the 90/100/110%safe harbors. The estimated payments must be "timely". Thus it is not sufficient to make a big estimated tax payment at the end of the year. The 2011 and 2012 Other Tax Items box also does not make that clear

I believe the table with tax rates for Collectibles should say 15% maximum for those in the 15% bracket (both 2011 and 2012).

The standard mileage deductions are now available for 2012 (55.5, 23 and 14 cents).

To make the Estate Tax exclusion "portable" it is necessary for Form 706 to be filed by the deceased spouse's estate.



posted about 1 year ago by Raymond from New Jersey

Thanks Raymond. You are correct, it is up to 50% of Social Security Benefits. According to J.K. Lasser, collectibles do not qualify for the reduced 15% capital gains rates, however. -Charles Rotblut

posted about 1 year ago by Charles from Illinois

Charles:
Correct, they do not qualify for the reduced 15% capital gains rates. But the 28% is a MAXIMUM rate. If you are in the 15% bracket nothing will be taxed more than 15%.
Ray

posted about 1 year ago by Raymond from New Jersey

I have a problem with my tax firm saying investment expenses like IBD, news letters, Razor Data feed, AAII etc. are not deductible against stock investment income as there isn't any place on their system to put the deductions. they use something called Dawson. Anyone know if deductible as expense for a individual, what form, what part of form etc? Thank You

posted about 1 year ago by William from Maryland

William, investment expenses can be deducted on a Schedule A in the section of the form that doesn't count items until they exceed 2% of your adjusted gross income.

posted about 1 year ago by Sharon from New Jersey

The section on deductible IRAs does not mention that the contribution is fully deductible if your employer does not offer any retirement plans.

posted about 1 year ago by Sharon from New Jersey

Correction to the calendar. The last day to take a required minimum withdrawal (RMD) from an IRA if you turned 70-1/2 in 2011 is March 30, 2012, not April 2. The April 1 deadline in the tax code is not changed when the date falls on a weekend. -Charles Rotblut, AAII

posted 11 months ago by Charles from Illinois

Why are you distributing online today, 09/25/2012, an article related to 2011 tax planning? And the online magazine itself says that it is the December, 2011 issue, which I and other subscribers have read before. So why is it being distributed again in September 2012? I am not asking you to post this but would appreciate a reply, and hope that this is not a common practice that I have not noticed before.

posted 5 months ago by D Peterson from California

Hi D,

The reason is that this article contains useful information about 2012 tax rates and deadlines. It also gives a preliminary view of what 2013 tax rates will be if Congress does not act.

I believe reminding AAII members that this information is available is helpful as we enter the fourth quarter.

-Charles

posted 5 months ago by Charles Rotblut from Illinois

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