5 Changes to the Tax Code You Should Know About
The US tax code is not what one might describe as a lean and efficient body of legislation. Indeed, it weighs in around 2500 pages and 5.6 million words. There's no way to stay on top of all the changes, extensions, and revisions to any code that extensive, but as we start our long approach to April 15, here are 5 important updates you should be aware of, courtesy of Wisebread:
1. Business investment incentive. Good news: The government is hopping to spur short-term capital investments. As a result, you can now fully depreciate more capital investments in the year of purchase, instead of spreading it out over multiple years. To that end, the limit on Section 179 write-offs has been increased to allowing a business to deduct up to $500,000 of qualified capital expenditures subject to a dollar-for-dollar phase-out once expenditures surpass $2 million.
2. New estate tax criteria. The so-called death tax moratorium was due to expire in 2010, but it has been extended once again. That means that individuals will see their first $5 million exempt ($10 million for couples) and you'll be taxed at 35 percent after that.
3. Payroll tax cut. For the 2011 tax year only, Social Security payroll taxes are being cut by 2 percent, from 6.4 percent down to 4.2 percent. IT's intended as an economy stimulus -- taxpayers will find more disposable income in their paychecks each week. Analysts expect this to be a one-time benefit.
4. Energy efficient tax credits less awesome. If you follow such things, you might know that you could deduct 30 percent of the first $5000 you spent on various energy efficient upgrades in 2010. If you need some help with the math, that was $1500. In 2011, this benefit is capped at just $500. And there are more restrictions, as well -- there are specific limits on what you can claim for upgrades like window replacements and heating systems.
5. Flex Savings Accounts restricted. This might seem like a small change, and for the most part it is, but it can significantly affect the way you plan and pay into an FSA in the future. Starting in 2011, you can no longer use your FSA to buy over-the-counter medication without a prescription. Which is exactly the way a lot of people spent out their plan at the end of the year.
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