Overview of 2011 Tax Rule changes

As 2010 comes to an end many people are concerned about their taxes, and planning for next year. With a new Congress convening in January, the hope is that we may see some changes in what will be the tax law to take effect for 2011. While this may be a good thing for many, it makes it hard to do any planning for next year, not knowing what the tax law will be.

Here are some of the major changes to the tax law if Congress does not act:

The tax cuts that took effect in 2001 would end. There would be an increase in taxes for individuals the 10 percent tax rate would increase from 15 to 39.6 percent. This increase also applies to estates and trusts.

The marriage penalty that was eased with tax breaks made in 2001 and 2004 would end. This could push some married couples into a higher tax bracket while reducing their standard deduction.


Earned Income Credit will be determined by the modified adjusted gross income instead of the adjusted gross income. There will also no longer be an increase for joint filers.

Child Tax Credit will be reduced from $1,000 to $500 per qualifying child. Child and Dependent Care Credit will be reduced to 30 percent. Adoption Credit and Adoption Assistance Credits revert back to $5,000 per child or $6,000 for a special needs child.

For Students

Coverdell education savings accounts contribution will be reduced from $2,000 to $500. Hope Credit will be limited to the first 2 years of college and capped at $1,800. 

Employer-provided education assistance will no longer be excluded from gross income if the scholarship has service requirements. Education loan interest will be deductible only if paid in the first 60 months.

Estate and Gift Taxes

The maximum estate, gift and GST tax rate will return at about 55 percent and federal estate tax will have a $1 million exemption. Gain on the sale of a decedent’s principal residence will no longer be excluded from gross income.

For Higher Income Taxpayers

There will be limits on the amount of itemized deductions allowed and personal exemptions will be phased out.

Business and Investments

Maximum capital gains rate for noncorporate taxpayers will return to 20 percent if the taxpayer is in the 15 percent tax bracket and 10 percent if their tax bracket is under 15 percent. Qualified dividends and dividend income passed through an investment company, such as a mutual fund, will be taxed at the normal tax rate with no cap.

Corporation’s accumulated earnings and personal holding company earnings will be taxed at 39.6 percent when the special 15 percent earning tax expires. Credit for employers who provide child care services will expire. The maximum amount of equipment placed in service by a business will be reduced to $25,000 from the current $250,000.

These are just some of the changes in store if Congress doesn’t act. There’s no way to know exactly what will happen until the new Congress convenes in 2011.