2011 Tax Year: notable items

By Frank Minuti, CPA

Qualified Tuition Programs - Revisited

Last week I wrote about qualified tuition programs (QTP). Deanna G emailed to ask if a grandparent could make contributions to a QTP for a grandchild. Yes Deanna, grandparents can contribute to QTP plans for their grandchildren. In fact, any person can contribute to a QTP plan for anyone (related or not) including their self.

Charitable Donations from IRA Accounts

The new tax act signed by President Obama last month extended through 2012 the ability for taxpayers over age 70½ to contribute up to $100,000 annually from their individual retirement to charitable organizations. The taxpayers will not be taxed on these distributions nor will they receive a deduction on their income tax return as long as the dollars are distributed directly from the IRA to the charity(s).

If the taxpayer took a distribution from their IRA and then distributed the dollars to the charity(s) the taxpayer would be taxed on the dollars received as income and then receive an itemized deduction for the donation which is limited to 50% of the taxpayer’s adjusted gross income. If the amount donated exceeds 50% of the adjusted gross income the balance can be carried over and used over the next 5 tax years.

Reduction in the Social Security Tax Withheld

Under the new tax act, employees should notice a 2% increase in their take home pay in 2011 as the new tax act reduces (for 2011 only) the amount of Social Security tax withheld from employees from 6.2% to 4.2% on the first $106,800 of wages. It also reduces Social Security tax that the self-employed pay from 12.4% to 10.4% on the first $106,800 of taxable earnings.

Benefits to Higher Earners

The tax act also provides several other income tax benefits in 2011 and 2012 for taxpayers with higher incomes. Itemized deductions will not be limited or reduced and personal exemptions will not be phased out as in past years.