Tax changes based on Congress' December 2010 revisions: 

Standard Mileage Rates for 2011

• 51 cents per mile for business miles driven
• 19 cents per mile driven for medical or moving purposes
• 14 cents per mile driven in service of charitable organizations

Tax Rates

This year's rates carry over from last year, but the brackets are higher than last year's due to inflation adjustments.  These rates will sunset at the end of 2012.

Payroll Taxes

Last year's unexpected tax cut came in the form of a temporary two-percentage-point cut in the employee's share of Social Security taxes, saving a maximum of $2,136 per worker. There is no phase-out, and each partner of a married couple can get the rebate.  This will sunset at the end of 2011.

Alternative Minimum Tax (AMT)

The "patch" enacted by Congress sets the AMT exemption at $47,450 for single filers and $74,450 for married couples, slightly higher than for 2010. This will sunset at the end of 2011.

Roth IRA Conversion

The income limit for conversions has been permanently removed.  All taxpayers may continue to convert ordinary IRAs into Roth IRAs. But taxpayers who convert to Roth IRAs in 2011 no longer have the option of deferring conversion income into later years, as was true for 2010 conversions.  Permanent revision.

Investment Taxes

For taxpayers in the 15% income tax bracket and below, the rate is zero. For those in the 25% bracket and above, the rate is 15%. This will sunset at the end of 2012

Estate and Gift Taxes

The system has been overhauled, with a top rate of 35% and one exemption of $5 million per individual for estate, gift and generation-skipping taxes alike. This will sunset at the end of 2012.

The annual exclusion for tax-free gifts remains $13,000 per donor. A giver may make an unlimited number of $13,000 gifts, as long as they are to different individuals. Gifts of tuition and payments for medical care also are exempt.

Medical Expenses

Flexible Spending Accounts (FSAs) may no longer use pretax funds to pay for many over-the-counter medicines—aside from insulin—without a prescription. But FSA funds may still be used for other, nonprescription medical items such as crutches, contact-lens solution or a wig after chemotherapy. 

Cost-Basis Reporting by Brokers

Beginning in 2011, brokers must track clients' purchases of stock, real-estate investment trusts and foreign securities, and then report the original cost to the IRS when the asset is sold.  The rules for investments in mutual funds, bonds, options and many exchange-traded funds won't change until after 2011.

Energy Tax Credits for Homeowners

The credit for energy-efficient improvements was extended through 2011.  The amount of the credit has been reduced to a maximum of $500 per taxpayer per lifetime, so those who took last year's $1,500 credit under this provision don't qualify. The current version expires at the end of 2011.

Miscellaneous Changes

The $250 deduction for teacher classroom expenses; a deduction for state sales taxes in lieu of the state income tax deduction; and the tax-free donation of IRA proceeds to charity. These expire at the end of 2011. The American Opportunity Tax Credit of up to $2,500 for education expenses was renewed for 2011 and 2012.

The following federal income tax changes are on the horizon for 2012 and 2013 if Congress fails to act on Bush era tax cuts that are set to expire.  The major items are listed. 

Individual Income Tax Benefits sunsetting 12/31/2011:

• Higher alternative minimum tax exemptions revert back to extraordinarily-low thresholds and will impact many more taxpayers

• $250 school teacher expense deduction ends

• Mortgage insurance premium deduction expires

• State and local sales tax deductions expire

• Tuition and related fees deduction ends

• IRA to charity tax-free transfers stop

• 2% Social Security tax reduction ends

• Personal tax credits applied against income tax no longer apply

Individual Income Tax Benefits sunsetting 12/31/2012:

• Marriage penalty equalization ends

• Dividends taxed at capital gains rates removed, taxed at regular rates now

• Capital gains low tax rates expires

• Removal of itemized deduction phase out for higher income Americans

• Removal of personal exemption phase out for higher income Americans

• Child care deduction limit of $3,000 reverts to $2,400

• Child credit reduces from $1,000 per child to $500 per child

• Low 10% tax bracket for low income Americans is eliminated

• Lower income tax rates and smaller brackets expires

• Refundable adoption credit and reduced deduction

• American Opportunity college education credit expires

• Major reduction in earned income credits and refunds

• Income tax exemption for debt forgiven on home foreclosures and repossessions

• Deduction for student loan interest ends

• Education IRA limit drops from $2,000 to $500