The IRS posted five tips on keeping good tax records, including: (1) the use of a three-year rule for keeping most records, (2) certain records that should be kept longer (e.g., settlement statements, stock transactions, IRA and business and rental property transactions), (3) general advice on keeping documents that impact the federal tax return, and (4) the kinds ofrecords that should be kept (e.g.,r receipts, invoices, mileage logs). IRS Pub. 552 (Recordkeeping for Individuals) contains additional information what kinds of records to keep. IRS Tax Tip 2011-71.
2011 Q2 | Income Tax Rates Hold Steady
Tax legislation passed at the end of 2010—the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of2010—maintains the person in effect since 2003. In 2011 and 2012, those rates range from 10% to 35%. In 2012, we might see yet another debate on future tax rates. Capital gains and dividends The 2011 and 2012 tax rates ranging from 10% to 35% are on ordinary income: earnings, interest on savings accounts, pensions, and so on. For long-term capital gains and qualified dividend income (which includes most dividends received by investors), the top tax rate remains at 15% for this year and the next. Therefore, investors are likely to continue to seek dividend-paying stocks and all types of investments that may
2011 Q2 | Easing the Burden of Estate Tax
The new tax law relieves many taxpayers from concerns about federal estate tax for the next two years. What’s more, the law clarifies the treatment of estates of the people who died last year. New rules For 2011 and 2012, the federal estate tax exemption is set at $5 million. That’s a significant increase over the $3.5 million exemption for deaths in 2009 and a huge jump from the $1 million exemption that would have taken effect if a new law had not been passed. Excess assets are now taxed at 35%, down from 45% in 2009. As before, bequests to charities and surviving spouses who are American citizens are not subject to estate tax, regardless of the amount. Perhaps
2011 Q2 | Income Shifting
The annual gift tax exclusion for 2011 is $13.000. A middle-aged man could give his retired parents up to $26,000 of appreciated securities with no gift tax consequences. If he is married, the man and his wife could give up to $52,000 of appreciated securities to his parents and another $52,000 to her parents this year. The parents in this scenario would retain the original investor’s basis (cost for tax purposes) of the appreciated securities, if they are sold for a gain, and the original investor’s holding period. The new owners would have along-term gain on a sale of appreciated assets held more than one year. As long as the retired couple’s taxable income remains under $69,000 this year, the
2011 Q2 | Deduct, Don’t Depreciate
The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of2010 focused mainly on personal income and estate tax. Nevertheless, some additional provisions may be helpful to businesses. In particular, the new law enhances the Section 168(k) bonus depreciation provisions by temporarily allowing 100% first~year bonus depreciation of new business equipment that qualifies for bonus depreciation. That is, a company that purchases qualifying depreciable assets may deduct the entire cost of the assets right away. First~year deductions will immediately boost a company’s cash flow, compared with taking depreciation deductions over several years. No limits exist on the amount of qualifying equipment purchased that is eligible for the 100% deduction. This 100% deduction provision is effective for qualifying equipment placed in
2011 Q2 | Taxes on Bonds Bought at a Premium or Discount
The taxation of bond interest is relatively straightforward. Assuming the bonds are held in a taxable account, the interest on corporate bonds is generally subject to all income taxes: federal, state (if applicable), and local (if applicable). Treasury issues pay interest that’s subject to federal income tax but not state or local tax. Most municipal bonds pay interest that’s exempt from federal income tax. If you buy a bond issued in your home state, you probably will avoid all tax on the interest income. Plus or minus You may have a more difficult time figuring capital gain or loss on a bond, however. Bonds are issued at so-called par value (for example, $1,000 per bond). Then prices fluctuate as interest