The new year rings in new rules... but retains some key tax breaks from 2010. Lawmakers acted to keep individual tax from returning to 39.6% and keep the maximum tax rate on long term gains and dividends from rising to 20%. They also extended a set of tax breaks that had lapsed after 2009, including the write-offs for state sales tax, college tuition, and classroom expenses for teachers.
Employees and self employed workers will receive a reduction of 2% in social security payroll tax in 2011, bringing down the rate from 6.2% to 4.2% for employees and 12.4% to 10.4% for the self employed.
Businesses can write-off 100% of their equipment and machinery purchases, effective for property placed in service after September 8, 2010 and through December 31, 2011. For property placed in service in 2012, the new law provides 50% additional 1st year depreciation (phaseout of $2 million applies).
After a one year hiatus, the estate tax will be reinstated for 2011 and 2012, with a top rate of 35%. The exemption amount will be $5 million per individual in 2011.