Potpourri of Tax Changes

This article is a potpourri of tax changes that are affecting many of our clients. We’ve divided the changes into two main categories: 1) those affecting retired clients; and 2) those affecting our young accumulators.

Some of these changes occur automatically (such as the Social Security tax reduction), but others would require effort on your part to take advantage of the opportunities. Please contact us if you need assistance or have followup questions.



Retirees will notice a mixed bag—some benefits and some new costs. There is a definite Congressional trend to encourage charitable giving, while assessing more responsibility for paying for medical coverage.


Incentives for charitable giving. Congress has extended tax-advantaged charitable giving from Individual Retirement Accounts (IRAs). Taxpayers who are age 701/2 and older can elect to transfer money from their IRA directly to a charity in lieu of taking their required minimum distribution (RMD). The annual limit is $100,000. For retirees who would not be using their RMD for necessary expenses, this law opens a way to make a generous legacy gift without incurring taxes on the RMD.

Also, there’s a “hidden” benefit. The charitable gift doesn’t count towards your total income, so it makes tax deductions that are limited by a percentage of your income more attainable. For example, medical deductions, which must exceed 7.5% of your income, will be calculated off a lower base income than if you took your RMD.

Medicare B premiums. Retired clients fortunate enough to have high incomes will notice that their Medicare B premiums are going up. For example, a married couple with combined income exceeding $170,000 will see a Medicare B premium increase of $46.10 per month (an increase of 40%). You can get more information about Medicare B premiums by googling “Medicare B Premiums 2011.”


Young Accumulators

For young accumulators, several changes could reduce your taxes.


Elimination of a phaseout. At family incomes of $166,800 and above, the government has eliminated the phaseouts of itemized deductions and personal exemptions for tax years 2010 through 2012. The tax savings per family could be $1,000 to $3,000 per year (combined federal and state).

Social Security tax reduction. During 2011, Social Security taxes paid on salary income have been reduced by 2 percentage points. The rate has been 6.2%, but for 2011 it has been reduced to 4.2%. For a worker who earns $100,000 per year, that’s a savings of $2,000.

Education tax credit. For those of you who are familiar with the HOPE Scholarship tax credit, there’s now something better. The American Opportunity Credit is a wonderful way to reduce federal taxes when you pay college expenses for your dependents. The credit is available for four years of schooling, and the maximum credit each year is $2,500. The credit is subject to phaseouts, which begin at $80,000 for singles and $160,000 for families. Note that you can take this credit for your own educational expenses, too, if you are returning to school.