Giving Thanx$

With Thanksgiving on the mind it seemed appropriate to consider tax breaks we can be thankful for in 2011, while acknowledging they may not be available in 2012. So here are my top-5 thank yous to Uncle Sam.  At the top of the list is the payroll tax cut.  While it’s not big, it’s persistent and easy to deal with.  No paying an accountant to see if you’re eligible, no forms to file (beyond the usual payroll taxes) and no risk you’ll be audited to see if you qualified. 

Next in line is the fact that tax rates are at historic lows:

 A family of four in the exact middle of the income spectrum will pay only 4.7 percent of its income in federal income taxes this year, according to a new analysis by the Urban Institute-Brookings Institution Tax Policy Center. This is the third-lowest percentage in the past 50 years, after 2008 and 2009.

There is still some juice left in the energy tax credits.  It’s not what it’s been in past years, but it’s a tax credit, which is much better than just a tax deduction.  For 2011 the Nonbusiness Energy Property Credit is 10% of the cost of energy efficiency improvements you make to your home.  There’s a lifetime limit of $500, so if you used this earlier, you’re probably done.  If it’s new windows that are your energy saver, the credit is maxed out at $200.  Better get moving if you haven’t done anything yet.  The credit expires if the work is done after 1/1/12.  There’s a more serious credit called the Residential Energy Efficient Property Credit.  You get 30% of what you spend to invest in alternative energy equipment for your home.  Examples of qualifying installations include solar, geothermal, wind and fuel cell operated energy systems.

For thank yous 4 & 5 the focus is small business.  Investors in new issues of Qualified Small Business Stock that hang onto the stock for 5 years can exclude anywhere from 75% to 100% of the gain. (It all depends on when you bought the stock.)  If you make this investment after 12/31/11, you’re back to a 50% exclusion.

The Section 179 deduction for capital equipment purchases may seem like a constant tax benefit, but it’s actually not always as generous as it is in 2011.  You can deduct up to $200,000 on up to $5,000,000 worth of equipment purchased in 2011.  For brand new equipment you can also look to 100% bonus depreciation to reduce taxable income.  As it stands now the amount you will be able to deduct in 2012 is likely to be lower, and the list of what purchases qualify will get much shorter.

Now go grab some leftover turkey while you still can!