On December 17 the new Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 became a law. The new law includes many new benefits for taxpayers and was a symbol of both parties working together. Here are the practical highlights and how they will impact you during this upcoming tax season:
The new law will extend the current 10%, 15%, 25%, 28%, 33%, and 35% tax-rate brackets through 2012. That’s a lot of brackets, please make sure you work with a Liberty Tax Professional to make sure you don’t pay Uncle Sam more than he deserves.
New for 2011, the Social Security tax withholding rate will be cut from 6.2% to 4.2% for the first $106,800 of wages next year. As soon as your employer adjusts its payroll for 2011, you should see more money added to your paychecks.
Charitable Donations from IRA’s are extended through 2011. For 2006-2009, IRA owners were allowed to make annual charitable donations up to $100,000 out of the IRAs. These donations were not reported on the income tax bill, but did count as IRA required minimum distributions (RMDs). So, if you’re a senior who doesn’t need all of the money in your IRA, feel free to donate it to qualified charities to reduce you tax liability.
The tax bill extends the $1,000 child tax credit through 2012. Prior to the new bill the maximum credit was scheduled to drop from $1,000 to only $500. If you were thinking of having a new baby, there is a little tax incentive to get you moving.
The tuition tax credit is extended through 2012. For 2011, the American Opportunity credit, which can be worth up to $2,500 and can be claimed for up to four years of an undergraduate education, was scheduled to be replaced by the Hope Scholarship credit. The new law extends the American Opportunity credit through 2012.
As we round out 2010, please schedule some time with your Liberty Income Tax preparation office to make sure you are prepared for this year and next.