As economic reports show the
economy improving, Congress voted in some tax laws that will benefit
taxpayers. Now there is a simple fact
that we can all appreciate. But tax laws
change so often and so many laws change that figuring out how to play the tax
game is anything but simple. Have you
ever played a game of Monopoly, where you were winning and then at the very end
of the game, the rules changed and you found yourself loosing? While games use consistent rules, tax law
changes during the game. And Congress
has until December 31, 2011, to finalize 2011 tax laws. But for now, here is a rundown of the
changes. And it is sure to make you
"Extender" Tax Measures
The state and local sales tax deduction, the higher education tuition and fees deduction, the $250 classroom expense deduction for
educators, and charitable contribution
of IRA proceeds were all extended again for 2010 and 2011.
And, lower tax rates
continue through 2011 with the extension of the 2010 Tax Relief Act. The extension continues the benefit through
2012. Without this measure, tax rates
would have returned to the higher level used prior to 2001.
Also extended is the Credit
for Energy Saving Home Improvements.
This credit provides up to 30% on the cost of qualified
improvements. The credit reverts to 2007
law; which provides a maximum lifetime benefit of $500. This credit is set to expire December 31,
Also extended through 2011 is the deduction for Mortgage Insurance Premium.
Likewise, the lower capital
gains and dividend tax rates are
preserved through the end of 2012.
Earned Income Tax Credit
The new law continued the
temporary increase in the Earned Income Tax Credit (EITC) for 2009 through
2012. Prior to 2009, the credit percentage for the EITC for a taxpayer with two
or more qualifying children was 40 percent of the first $12,570 of earned
income. The percentage increased to 45 percent
of the first $12,570 of earned income for taxpayers with three or more
qualifying children. The EITC phase-out range has also been adjusted upward by
$1,880 for joint filers to eliminate any marriage penalty.
Child Tax Credit
Without action, the Child Tax Credit
(CTC) would have decreased from $1,000 per qualifying child to $500 per
qualifying child in 2011. The Tax Relief Act also continued to allow the CTC to
be used against AMT. and continued the refundable portion of CTC (additional
CTC) threshold to be 15% of the earned income above $3,000. Without action the
threshold would have returned to $10,000.
The inheritance tax returns for tax
year 2011. The first $5 million of an estate can pass tax-free to heirs,
anything over will be taxed at 35%.
Conversions to Roth retirement plan. Beginning in 2010, the modified AGI and
filing status requirements for converting a traditional IRA to a Roth IRA were
eliminated. For any 2010 rollover from an IRA other than a Roth IRA to a Roth
IRA, any amounts that would have been included as income will be included in
income in equal amounts in 2011 and 2012. A taxpayer can choose to include the
entire amount in income when filing a 2010 tax return.
Section 179 Expense
Both pieces, the $500,000 expense limit on equipment placed in service and
the annual investment limit of $2,000,000 remain through 2011.
The Patient Protection and Affordable Care Act brought on some
immediate health care changes for individuals for filing a 2010 tax return. Lifetime
limits on benefits and restrictive annual limits are now prohibited. The
adoption tax credit and assistance exclusion has increased by $1,000 to $13,170. The bill makes the credit refundable and
extends it through 2011. There's a 10%
tax on tanning services that started July 1, 2010.
The First Time Home Buyer
Credit is among some expiring tax measures.
But also as a reminder, if a
taxpayer claimed the first-time homebuyer credit for a home purchased in 2008,
they generally must begin repaying it in 2010.
Some other tax measures that have just expired are the $2,400 exclusion
from income of unemployment payments, the government retiree credit, and the
extra $3,000 IRA deduction for employees of bankrupt companies.
Contact your local income tax preparation office with questions
regarding how these tax changes may have an impact on your return.
Every effort has been taken to provide the most accurate
and honest analysis of the tax information provided in this blog. Please use
your discretion before making any decisions based on the information provided.
This blog is not intended to be a substitute for seeking professional tax
advice based on your individual needs.