The new tax law temporarily extends the 2001 and 2003 income tax rate cuts and extends unemployment insurance for another 13 months. There are a few other items including new payroll tax breaks and the reinstatement of estate tax. So how does this all affect you? With the new payroll tax relief, the employer's share of the social security tax has gone down by 2 percentage points. So if you make $60,000 a year in 2011, you will see an additional $1,200 in your paycheck this year. Use this 2% increase in your pay and increase your 401k payroll deduction by this amount.
There will be no change in the income tax rates for the next two years although the alternative minimum tax (AMT)patch extends only through 2011 and is not indexed for inflation.
The top capital gains rate will remain at 15% for the next two years as well as for qualified dividends (stocks held longer than 60 days).
The estate tax has been reinstated in 2011 and 2012 at a maximum rate of 3% with a $5 million exemption per person. Beginning in 2013, the per person exemption is reduced to $1 million with a 55% estate and gift tax rate.
The beginning of the year is a great time to sit down with your tax advisor to have a plan for the new year.
