Tax breaks for college costs. The American Opportunity tax credit can lower your tax bill by up to $2,500 if you spend at least $4,000 in tuition, required fees, books and course materials for the year. It applies to the first four years of postsecondary education. To qualify, your modified adjusted gross income must be less than $160,000 if you are married filing jointly, or $80,000 if you are single (the credit phases out completely at $180,000 for married couples, or $90,000 for single filers). The Lifetime Learning Credit applies to all years of postsecondary education (including graduate school) and can lower your tax bill by up to $2,000 per return. To qualify for the full credit, your modified adjusted gross income must be less than $100,000 if you are married filing jointly or $50,000 if you are single. The size of the credit phases out until your income reaches $120,000 if you are married filing jointly or $60,000 if single.
Extra credit for saving. If you contributed to a traditional or Roth IRA, a 401(k) or another retirement savings plan, you may qualify for the retirement savers’ tax credit, which can reduce your tax bill by up to $1,000 per person. To claim the savers’ credit for 2011, your adjusted gross income must be $28,250 or less if you’re single; $42,375 or less if you file your tax return as head of household; or $56,500 or less if you are married filing jointly.
Credit for child care. If you have kids under age 13 and pay for care while you work, you could qualify for the child-care tax credit. You can count up to $3,000 in child-care expenses for one child, or up to $6,000 for two or more children. The size of the credit gradually shrinks as your income increases. Families who earn less than $15,000 can claim a credit for 35% of qualifying expenses; families who earn more than $43,000 can get a credit for 20% of eligible costs. Expenses that count toward the credit include day care, preschool, before-school and after-school care, summer day camp, and a nanny or other babysitter. You may also be able to take a credit worth up to $200 if you’ve maxed out the money from your flexible-spending account to pay for child care and you have two or more children and spent more than $6,000 on their care. See IRS Publication 503 Child and Dependent Care Expenses.
Out-of-pocket charitable deductions. Most people remember to deduct checks they paid to charity if they itemize. But you can also deduct the expenses you incurred in helping out a charity, such as the cost of ingredients for a dish for a soup kitchen, stamps for a mailing, copying, and car mileage (14 cents a mile). And don’t forget to count any money you’ve had transferred automatically from your paychecks to charity.
Moving expenses. If you move because of a job, you may be able to deduct your moving expenses even if you don’t itemize. To qualify, you must be moving to a job at least 50 miles farther from your old home than your old job. You can write off the cost of hiring movers (or renting a moving truck) plus the cost of one-way travel to your new home for everyone in your household. Deductible expenses include airfare, train costs, or car mileage (for 2011, 19 cents a mile from January through June and 23.5 cents a mile from July through December). For more information see IRS Publication 521, Moving Expenses.
[Source: Kiplinger]
Divine Intervention?
Nobody Understands It
Wednesday, April 11, 2012
Wednesday, April 4, 2012
5 Excuses Not to File Taxes that the IRS Won't Buy
You might not like those IRS auditors, but take a moment to turn the tables. What if you were an auditor yourself and your day was filled with interesting, creative and downright ridiculous stories from people attempting to reduce their tax bill or get out of paying altogether? The IRS hears them all the time and because of that, they have put together a document that debunks what they call the frivolous claims that people make in their attempt to avoid paying taxes.
Taxes Are Voluntary
The first one in the document cites the idea that paying taxes is voluntary. Those who subscribe to this idea state that in the instructions for form 1040, the word "voluntary" is used in the language. In addition, court case, United States V. Flora uses language that states, "[o]ur system of taxation is based upon voluntary assessment and payment, not upon distraint."
The first one in the document cites the idea that paying taxes is voluntary. Those who subscribe to this idea state that in the instructions for form 1040, the word "voluntary" is used in the language. In addition, court case, United States V. Flora uses language that states, "[o]ur system of taxation is based upon voluntary assessment and payment, not upon distraint."
However, "voluntary" does not refer to the payment of taxes. The IRS allows each citizen to calculate their tax bill on their own. The IRS may later adjust the calculations but they do not compute a person's taxes for them. This allows the person to claim deductions and credits before the amount is determined.
The Zero Return
Those who believe that they aren't required to pay taxes sometimes file a return showing no income and no taxes. These "zero returns" are peoples' attempt to voluntarily declare that they owe no taxes citing the same reasoning above.
Those who believe that they aren't required to pay taxes sometimes file a return showing no income and no taxes. These "zero returns" are peoples' attempt to voluntarily declare that they owe no taxes citing the same reasoning above.
The IRS cites a series of laws and court cases, including Section 61 of the IRS code that states everycitizen has to pay taxes on their gross income and must make reasonable attempts to pay what is owed. There are a several penalties that are imposed on these zero returns, so trying the zero return trick may cost a lot of money.
My Dollars Aren't Worth AnythingMost people know that Federal Reserve Notes, better known as the cash we use every day, aren'tbacked by gold or any other physical asset. Instead, they are backed by the accepted belief that these bills and coins represent value, but not everybody believes this. Some people believe that they don't have to pay taxes on the money they receive because it has no real value.
The IRS wants those people to know that Congress is empowered "[t]o coin Money, regulate the value thereof, and of foreign coin, and fix the Standard of weights and measures," according to article I of the U.S. Constitution. In United States V. Rifen , the opinion of the court was simply, "federal reserve notes are taxable dollars."
I'm Not a U.S. Citizen
According to some, just because they were born in the U.S. doesn't mean they are citizens of the United States. These people believe that they are citizens of their state, making them exempt from Federal taxes.
According to some, just because they were born in the U.S. doesn't mean they are citizens of the United States. These people believe that they are citizens of their state, making them exempt from Federal taxes.
The IRS directs those people to the Fourteenth Amendment to the Constitution that defines a U.S. citizen as anybody born or naturalized within U.S. borders. This sets up dual citizenship in both the state and the country. Still not convinced? They list 16 other court cases debunking this claim.
My Religion Says I Can'tEver heard of people who believe that they don't have to pay taxes because of religious reasons? These people cite the first Amendment that says Congress will make no law that doesn't allow for exercise of religion, but that doesn't mean that claiming religion is equal to a tax-free life. In the 1982 case, United States V. Lee, the court found that claiming religion is not a basis for refusing to claim taxes because the tax system couldn't run efficiently if every denomination were to make separate claims. Additionally, the first amendment doesn't give a person the right to not act in accordance with state and federal law.
The Bottom Line
The 65-page IRS document may debunk some of the reasons outlined above, but that doesn't mean other people won't look for loopholes in the law in order to get out of paying taxes. When that happens, we can be sure that the IRS will update the list.
The 65-page IRS document may debunk some of the reasons outlined above, but that doesn't mean other people won't look for loopholes in the law in order to get out of paying taxes. When that happens, we can be sure that the IRS will update the list.
[Source: Investopedia]
Beware These 5 Terrible Tax Surprises
You've always followed the sage advice of the late singer-songwriter Jim Croce: You don't tug on Superman's cape, you don't spit into the wind, and you don't try to pull a fast one on the Internal Revenue Service.
OK, maybe that last one wasn't one of Jim's lyrics, but the sentiment -- know the consequences before you act -- still applies.
Unfortunately, that's not always easy to do when it comes to Uncle Sam's tax collectors.
The tax law is complex and difficult for even experts to negotiate. Just when you think you've followed all the rules and researched all the angles, a tax regulation blindsides you.
Here are five terrible tax surprises that you might encounter during tax season and how to deal with the consequences.
Unemployment benefits
Yes, it's true. Under tax law, unemployment is considered wage income, and the IRS wants a cut of it.
Now that you're over the shock and anger, what can you do? When you apply for unemployment benefits, consider having federal income taxes withheld. This process is similar to regular payroll withholding. In this case, the form you fill out is the federal W-4V, Voluntary Withholding Request, or a similar IRS-acceptable document that the paying agency has created. This way, taxes will be withheld at the rate of 10 percent of each unemployment payment.
If you feel like you just can't surrender a chunk of each unemployment check to withholding, you should look into paying estimated taxes. This will help you avoid owing a large lump-sum tax bill when you file.
Alimony received
You survived the divorce. Now you have the IRS to deal with if you're getting alimony.
Ending a marriage is never a happy event. But at least you got a good settlement, and those regular checks from your (insert your own description here) ex-spouse are completely warranted. They also are completely taxable.
Alimony, separate maintenance payments and similar recompense from your former spouse are taxable to you in the year you receive them. Child support money, however, is not taxable. If your divorce decree calls for alimony and child support and specifies amounts for each, you only owe the IRS for the alimony payments. To avoid a big bill in April, make your IRS payments on alimony and other untaxed income via estimated tax filings.
The one good tax surprise here is for the ex who's paying spousal support. Those check amounts are tax deductible.
Forgiven debt
"Forgive but collect" is the IRS motto when it comes to canceled debt.
Getting your credit card bill cut from $8,000 to $4,000 certainly helped your personal bottom line. But it also could be a boon to the U.S. Treasury. Why? The tax law generally considers the amount you get any creditor to write off as earned, and therefore taxable, income to you. Expect the accommodating debtholder to send you (and the IRS) a Form 1099-C or similar statement detailing your discharge of indebtedness as miscellaneous income.
Not every debt settlement, however, has to pad Uncle Sam's pocket. Under the Mortgage Debt Relief Act that became law in 2007, some homeowners who are granted forgiveness of mortgage debt won't have to pay taxes on that amount.
There are some restrictions. The forgiven debt amount is limited to up to $2 million, or $1 million for a married person filing a separate tax return. The tax relief only applies to mortgage debt discharged by a lender between 2007 and 2012. And the forgiven loan must have been taken out to buy or build a primary residence, not a second or vacation home.
Prize winnings
Think you're pretty lucky because you won $1,000 in a radio contest? Uncle Sam is even luckier. He's due part of your winnings.
Prize winnings are included in the long list of "other" income that tax law says is taxable. And it's not just limited to cash awards. You have to pay taxes on the fair market value of any property you win.
Be careful when reporting the amount of a noncash prize. In most cases, companies and groups that award prizes, cash and property, will send you a 1099 form declaring the value of what you won. If your tax return reports substantially less than what the giver claims, your underreporting could mean a long, hard look from an IRS auditor.
And don't forget about gambling proceeds. They're taxable, too, but at least you get the chance to reduce the tax bite here by subtracting any betting losses from your winnings.
Some Social Security benefits
You spent the last 40 years fattening the U.S. Treasury thanks to those dang Social Security taxes that came out of every paycheck. Now you're retiring, and it's time to get your tax money back, free and clear, right?
Well, maybe. Maybe not.
Generally, if Social Security benefits are your only income, your benefits are not taxable. But if you collect Social Security plus other income, as much as 85 percent of those government checks could be subject to tax. To figure out just how much in taxes your Social Security might cost you, you'll have to do some calculating using the work sheet found in your tax Form 1040 or 1040a.
If you discover that you will owe taxes on some of your Social Security benefits, there are two ways to deal with them. You can make estimated tax payments on the government check amounts. Or you can have federal income tax withheld from your benefits by completing Form W-4V, Voluntary Withholding Request, and filing it with the Social Security Administration.
[Source: BankRate.com]
OK, maybe that last one wasn't one of Jim's lyrics, but the sentiment -- know the consequences before you act -- still applies.
Unfortunately, that's not always easy to do when it comes to Uncle Sam's tax collectors.
The tax law is complex and difficult for even experts to negotiate. Just when you think you've followed all the rules and researched all the angles, a tax regulation blindsides you.
Here are five terrible tax surprises that you might encounter during tax season and how to deal with the consequences.
Unemployment benefits
Yes, it's true. Under tax law, unemployment is considered wage income, and the IRS wants a cut of it.
Now that you're over the shock and anger, what can you do? When you apply for unemployment benefits, consider having federal income taxes withheld. This process is similar to regular payroll withholding. In this case, the form you fill out is the federal W-4V, Voluntary Withholding Request, or a similar IRS-acceptable document that the paying agency has created. This way, taxes will be withheld at the rate of 10 percent of each unemployment payment.
If you feel like you just can't surrender a chunk of each unemployment check to withholding, you should look into paying estimated taxes. This will help you avoid owing a large lump-sum tax bill when you file.
Alimony received
You survived the divorce. Now you have the IRS to deal with if you're getting alimony.
Ending a marriage is never a happy event. But at least you got a good settlement, and those regular checks from your (insert your own description here) ex-spouse are completely warranted. They also are completely taxable.
Alimony, separate maintenance payments and similar recompense from your former spouse are taxable to you in the year you receive them. Child support money, however, is not taxable. If your divorce decree calls for alimony and child support and specifies amounts for each, you only owe the IRS for the alimony payments. To avoid a big bill in April, make your IRS payments on alimony and other untaxed income via estimated tax filings.
The one good tax surprise here is for the ex who's paying spousal support. Those check amounts are tax deductible.
Forgiven debt
"Forgive but collect" is the IRS motto when it comes to canceled debt.
Getting your credit card bill cut from $8,000 to $4,000 certainly helped your personal bottom line. But it also could be a boon to the U.S. Treasury. Why? The tax law generally considers the amount you get any creditor to write off as earned, and therefore taxable, income to you. Expect the accommodating debtholder to send you (and the IRS) a Form 1099-C or similar statement detailing your discharge of indebtedness as miscellaneous income.
Not every debt settlement, however, has to pad Uncle Sam's pocket. Under the Mortgage Debt Relief Act that became law in 2007, some homeowners who are granted forgiveness of mortgage debt won't have to pay taxes on that amount.
There are some restrictions. The forgiven debt amount is limited to up to $2 million, or $1 million for a married person filing a separate tax return. The tax relief only applies to mortgage debt discharged by a lender between 2007 and 2012. And the forgiven loan must have been taken out to buy or build a primary residence, not a second or vacation home.
Prize winnings
Think you're pretty lucky because you won $1,000 in a radio contest? Uncle Sam is even luckier. He's due part of your winnings.
Prize winnings are included in the long list of "other" income that tax law says is taxable. And it's not just limited to cash awards. You have to pay taxes on the fair market value of any property you win.
Be careful when reporting the amount of a noncash prize. In most cases, companies and groups that award prizes, cash and property, will send you a 1099 form declaring the value of what you won. If your tax return reports substantially less than what the giver claims, your underreporting could mean a long, hard look from an IRS auditor.
And don't forget about gambling proceeds. They're taxable, too, but at least you get the chance to reduce the tax bite here by subtracting any betting losses from your winnings.
Some Social Security benefits
You spent the last 40 years fattening the U.S. Treasury thanks to those dang Social Security taxes that came out of every paycheck. Now you're retiring, and it's time to get your tax money back, free and clear, right?
Well, maybe. Maybe not.
Generally, if Social Security benefits are your only income, your benefits are not taxable. But if you collect Social Security plus other income, as much as 85 percent of those government checks could be subject to tax. To figure out just how much in taxes your Social Security might cost you, you'll have to do some calculating using the work sheet found in your tax Form 1040 or 1040a.
If you discover that you will owe taxes on some of your Social Security benefits, there are two ways to deal with them. You can make estimated tax payments on the government check amounts. Or you can have federal income tax withheld from your benefits by completing Form W-4V, Voluntary Withholding Request, and filing it with the Social Security Administration.
[Source: BankRate.com]
Sunday, March 4, 2012
Five Big Tax Challenges
With the Bush tax cuts slated to expire at the end of this election
year, consider this filing season the calm before the tax storm: You'll
face few new rules, tax rates are the same as last year, and popular
deductions are still in place.
But preparing your income taxes remains as tricky as ever.
Here's how to make sure you don't get tripped up by five common filing challenges -- and how to set yourself up for tax savings on next year's return and beyond.
Your broker will do it for you, based on the accounting method you chose -- your broker should have sent you a notice -- or the firm's default, what's called first-in, first-out, or FIFO, which assumes you sold your oldest shares.
Check 1099s against your records and have your broker fix any errors. "We'll see a lot of revisions on the 1099s," says Roman Ciosek, a partner at HighTower's Strata Wealth Management, who's advising clients not to rush to file. You can't, however, change your cost-basis method once you've sold -- no matter whether it was your choice or your broker's.
How to plan: Going forward, you can switch methods any time, and options include last-in, first-out and specific-share identification. What's best depends on many factors.
If you've invested in a stock over time and have your biggest gains on the first batch you got, for instance, you might want to identify specific shares to sell rather than use FIFO. But if you have ample capital losses to offset gains, this might be a good year to reap big profits. Frequent traders (or anyone who has bought a lot of a stock over time) can run the numbers using NetBasis software (netbasis.com; $20 and up).
The rules extend to mutual funds, most exchange-traded funds, and dividend-reinvestment plans in 2012, then bonds in 2013. Chances are your fund companies have already written to ask what method you want to use (the typical default is average cost). Don't ignore this paperwork.
Since 2010, everyone has been able to convert a traditional IRA to a Roth, regardless of income. That's great news -- unless it means an unexpectedly high tax bill. This year you owe taxes on 2011 conversions.
How to plan: You can open an IRA for 2012 now too, as well as move an old IRA into a Roth. Converting is especially advantageous if you'll face a higher tax rate in retirement than you do now, which is hard to predict. But for anyone considering it, this is a good year to pull the trigger. You know you'll pay no more than 35% on the rollover, while the expiration of the Bush tax cuts could usher in higher rates.
Filing challenge:
When you hit the jackpot with your home, you owe capital gains taxes on
any profits above $500,000 for marrieds ($250,000 for singles).
What if, like many homeowners today, you sell at a loss? You're out of luck. You can't take a deduction for the hit you took on your primary residence.
You may be entitled, though, to a tax break if your mortgage was reduced through a restructuring, the bank agreed to a short sale, or you lost your home to foreclosure. Typically this kind of relief is considered income since you no longer have to repay the debt. Under a tax break put in place during the real estate crisis, you can exclude up to $2 million in forgiven debt from your income.
How to plan: This exclusion expires at the end of the year. If you need a break, don't wait to act.
In general, a credit is more valuable than a deduction since it directly cuts your taxes, while a deduction merely trims how much income is taxed. In the 28% tax bracket, a $2,000 credit trumps a $4,000 deduction, which lowers your federal tax bill by just $1,120.
How to plan: Your choice may be simpler next year: The tuition deduction expired at the end of 2011. The American opportunity credit is due to run out this year.
Filing challenge:
The bar for deducting health care costs is high -- you can write off
only those expenses that exceed 7.5% of your AGI. But rising health care
costs may bring it within reach. "If your medical expenses went up
significantly or your income was reduced dramatically, pull out the
shoebox of receipts," says Allison Shipley, a principal at
PricewaterhouseCoopers' personal financial services practice.
How to plan: The threshold jumps to 10% of your AGI in 2013, so consider moving up some medical expenses this year if you think you'll be close to qualifying in 2012.
But preparing your income taxes remains as tricky as ever.
Here's how to make sure you don't get tripped up by five common filing challenges -- and how to set yourself up for tax savings on next year's return and beyond.
New capital gains rules
Filing challenge:
When it comes to paying taxes on investment gains, what's new this year
is a key reporting rule: For any stocks you bought on or after Jan. 1,
2011, you no longer get to set your cost basis (that's the cost of your
investment for tax purposes). Your broker will do it for you, based on the accounting method you chose -- your broker should have sent you a notice -- or the firm's default, what's called first-in, first-out, or FIFO, which assumes you sold your oldest shares.
Check 1099s against your records and have your broker fix any errors. "We'll see a lot of revisions on the 1099s," says Roman Ciosek, a partner at HighTower's Strata Wealth Management, who's advising clients not to rush to file. You can't, however, change your cost-basis method once you've sold -- no matter whether it was your choice or your broker's.
Otherwise, the rules are the same. You can offset your capital gains with capital losses (new and lingering). First match long-term gains (on assets held more than one year and taxed at 15%) with long-term losses, and short-term gains (held one year or less and taxed as ordinary income) with short-term losses. Then match long-term against short-term. If you have extra losses, you can deduct up to $3,000 from your income, and roll over the rest to trim your taxes next year.
How to plan: Going forward, you can switch methods any time, and options include last-in, first-out and specific-share identification. What's best depends on many factors.
If you've invested in a stock over time and have your biggest gains on the first batch you got, for instance, you might want to identify specific shares to sell rather than use FIFO. But if you have ample capital losses to offset gains, this might be a good year to reap big profits. Frequent traders (or anyone who has bought a lot of a stock over time) can run the numbers using NetBasis software (netbasis.com; $20 and up).
The rules extend to mutual funds, most exchange-traded funds, and dividend-reinvestment plans in 2012, then bonds in 2013. Chances are your fund companies have already written to ask what method you want to use (the typical default is average cost). Don't ignore this paperwork.
Retirement plans
Filing challenge: You have until tax day to fund a traditional or Roth IRA
for 2011 (April 17, this year), assuming you can. With a traditional
deductible IRA, your contributions are in pretax dollars, and your
withdrawals are taxable. With a Roth, you pay the taxes upfront, but
neither you nor your heirs will owe income taxes on withdrawals. For
most, the Roth has the edge over the long term. Since 2010, everyone has been able to convert a traditional IRA to a Roth, regardless of income. That's great news -- unless it means an unexpectedly high tax bill. This year you owe taxes on 2011 conversions.
Plus, if you converted in 2010 and spread your tax payments over two years -- a special break for 2010 only -- you owe half those taxes now. In a real pinch? You have until filing day to undo a 2011 conversion.
How to plan: You can open an IRA for 2012 now too, as well as move an old IRA into a Roth. Converting is especially advantageous if you'll face a higher tax rate in retirement than you do now, which is hard to predict. But for anyone considering it, this is a good year to pull the trigger. You know you'll pay no more than 35% on the rollover, while the expiration of the Bush tax cuts could usher in higher rates.
Selling your home -- at a loss
What if, like many homeowners today, you sell at a loss? You're out of luck. You can't take a deduction for the hit you took on your primary residence.
You may be entitled, though, to a tax break if your mortgage was reduced through a restructuring, the bank agreed to a short sale, or you lost your home to foreclosure. Typically this kind of relief is considered income since you no longer have to repay the debt. Under a tax break put in place during the real estate crisis, you can exclude up to $2 million in forgiven debt from your income.
How to plan: This exclusion expires at the end of the year. If you need a break, don't wait to act.
Education write-offs
Filing challenge:
Sorting through education tax perks isn't easy. Valuable options
include the tuition and fees deduction ($4,000 max), the lifetime
learning credit ($2,000 per return), and the American opportunity credit
($2,500 per student, for undergraduate work only), but you can take
only one per student in a single tax year. In general, a credit is more valuable than a deduction since it directly cuts your taxes, while a deduction merely trims how much income is taxed. In the 28% tax bracket, a $2,000 credit trumps a $4,000 deduction, which lowers your federal tax bill by just $1,120.
"If you qualify for the American opportunity credit, that's the biggest bang for your buck," says Justin Ransome, a partner in Grant Thornton's national tax office. Income limits apply to all, but the AOC's is the highest (adjusted gross income of $180,000 for married couples, $90,000 for singles).
How to plan: Your choice may be simpler next year: The tuition deduction expired at the end of 2011. The American opportunity credit is due to run out this year.
Health care spending
The definition of allowable expenses is broad: doctors' and dentists' bills, prescriptions, glasses, hearing aids, wheelchairs, transportation to doctors' appointments, nursing-home fees, and certain insurance costs (Medicare B and D, but not Part A, for example).
How to plan: The threshold jumps to 10% of your AGI in 2013, so consider moving up some medical expenses this year if you think you'll be close to qualifying in 2012.
Friday, December 9, 2011
Most Overlooked Tax Deductions
Every year, the IRS dutifully reports the most common blunders that
taxpayers make on their returns. And every year, at or near the top of
the “oops” list is forgetting to enter their Social Security number at
the top of the tax form -- or making a mistake when entering those nine
digits.
But think about it for a minute: Do you think that’s the most common mistake... or simply the easiest to notice?
One thing we know for sure is that the opportunity to make mistakes is almost unlimited, and missed deductions can be the most costly. About 45 million of us itemize on our 1040s -- claiming more than $1 trillion worth of deductions. That’s right: $1,000,000,000,000, a number rarely spoken out loud until Congress started tying itself up in knots trying to deal with the budget deficit and national debt.
Another 92 million taxpayers claim about $700 billion worth using standard deductions -- and some of you who take the easy way out probably shortchange yourselves. (If you turned 65 in 2011, remember that you now deserve a bigger standard deduction than the younger folks.)
Yes, friends, tax time is a dangerous time. It’s all too easy to miss a trick and pay too much. Years ago, the fellow who ran the IRS at the time told Kiplinger's Personal Finance magazine that he figured millions of taxpayers overpay their taxes every year by overlooking just one of the money-savers listed below.
State sales taxes
Although all taxpayers have a shot at this write-off, it makes sense primarily for those who live in states that do not impose an income tax. You must choose between deducting state and local income taxes or state and local sales taxes. For most citizens of income-tax states, the income tax is a bigger burden than the sales tax, so the income-tax deduction is a better deal.
The IRS has tables that show how much residents of various states can deduct, based on their income and state and local sales tax rates. But the tables aren’t the last word. If you purchased a vehicle, boat or airplane, you get to add the sales tax you paid to the amount shown in the IRS table for your state.
The same goes for any homebuilding materials you purchased. These add-on items are easy to overlook, but big-ticket items could make the sales-tax deduction a better deal even if you live in a state with an income tax. The IRS has a calculator on its Web site to help you figure the deduction.
Reinvested dividends
This isn't really a tax deduction, but it is an important subtraction that can save you a bundle. And this is the break that former IRS commissioner Fred Goldberg told Kiplinger's that a lot of taxpayers miss.
If, like most investors, your mutual fund dividends are automatically used to buy extra shares, remember that each reinvestment increases your tax basis in the fund. That, in turn, reduces the taxable capital gain (or increases the tax-saving loss) when you redeem shares. Forgetting to include the reinvested dividends in your basis results in double taxation of the dividends -- once when they are paid out and immediately reinvested in more shares and later when they’re included in the proceeds of the sale. Don’t make that costly mistake. If you’re not sure what your basis is, ask the fund for help.
Out-of-pocket charitable contributions
It’s hard to overlook the big charitable gifts you made during the year, by check or payroll deduction (check your December pay stub).
But the little things add up, too, and you can write off out-of-pocket costs incurred while doing work for a charity. For example, ingredients for casseroles you prepare for a nonprofit organization’s soup kitchen and stamps you buy for your school’s fundraising mailing count as a charitable contribution. Keep your receipts and if your contribution totals more than $250, you’ll need an acknowledgement from the charity documenting the services you provided. If you drove your car for charity in 2011, remember to deduct 14 cents per mile plus parking and tolls paid in your philanthropic journeys.
Student-loan interest paid by Mom and Dad
Generally, you can only deduct mortgage or student-loan interest if you are legally required to repay the debt. But if parents pay back a child’s student loans, the IRS treats the money as if it was given to the child, who then paid the debt. So, a child who’s not claimed as a dependent can qualify to deduct up to $2,500 of student-loan interest paid by Mom and Dad. And he or she doesn’t have to itemize to use this money-saver. Mom and Dad can’t claim the interest deduction even though they actually foot the bill since they are not liable for the debt.
Job-hunting costs
If you’re among the millions of unemployed Americans who were looking for a job in 2011, we hope you kept track of your job-search expenses... or can reconstruct them. If you’re looking for a position in the same line of work, you can deduct job-hunting costs as miscellaneous expenses if you itemize. Such expenses can be written off only to the extent that your total miscellaneous expenses exceed 2% of your adjusted gross income. Job-hunting expenses incurred while looking for your first job don’t qualify. Deductible job-search costs include, but aren’t limited to:
• Food, lodging and transportation if your search takes you away from home overnight
• Cab fares
• Employment agency fees
• Costs of printing resumes, business cards, postage, and advertising
The cost of moving for your first job
Although job-hunting expenses are not deductible when looking for your first job, moving expenses to get to that job are. And you get this write-off even if you don't itemize.
To qualify for the deduction, your first job must be at least 50 miles away from your old home. If you qualify, you can deduct the cost of getting yourself and your household goods to the new area. If you drove your own car, your mileage write-off depends on when during 2011 you moved. For moves from January 1 through the end of June, the standard mileage rate is 19 cents a mile; for moves during the second half of the year, a 23.5 cents a mile rate applies. In either case, boost your deduction by any amount you paid for parking and tolls.
Military reservists’ travel expenses
Members of the National Guard or military reserve may tap a deduction for travel expenses to drills or meetings. To qualify, you must travel more than 100 miles from home and be away from home overnight. If you qualify, you can deduct the cost of lodging and half the cost of your meals, plus an allowance for driving your own car to get to and from drills. For qualifying trips during January through June, 2011, the standard mileage rate is 51 cents a mile; for driving during the second half of the year, the rate is 55.5 cents a mile. In any event, add parking fees and tolls. And, you don’t have to itemize to get this deduction.
Deduction of Medicare premiums for the self-employed
Folks who continue to run their own businesses after qualifying for Medicare can deduct the premiums they pay for Medicare Part B and Medicare Part D and the cost of supplemental Medicare (medigap) policies. This deduction is available whether or not you itemize and is not subject the 7.5% of AGI test that applies to itemized medical expenses. One caveat: You can’t claim this deduction if you are eligible to be covered under an employer-subsidized health plan offered by your employer (if you have a job as well as your business) or your spouse’s employer.
Child-care credit
A credit is so much better than a deduction; it reduces your tax bill dollar for dollar. So missing one is even more painful than missing a deduction that simply reduces the amount of income that’s subject to tax.
You can qualify for a tax credit worth between 20% and 35% of what you pay for child care while you work. But if your boss offers a child care reimbursement account – which allows you to pay for the child care with pre-tax dollars – that might be a better deal. If you qualify for a 20% credit but are in the 25% tax bracket, for example, the reimbursement plan is the way to go. (In any case, only expenses for the care of children under age 13 count.)
You can’t double dip. Expenses paid through a plan can’t also be used to generate the tax credit. But get this: Although only $5,000 in expenses can be paid through a tax-favored reimbursement account, up to $6,000 for the care of two or more children can qualify for the credit. So, if you run the maximum through a plan at work but spend even more for work-related child care, you can claim the credit on as much as $1,000 of additional expenses. That would cut your tax bill by at least $200.
Estate tax on income in respect of a decedent
This sounds complicated, but it can save you a lot of money if you inherited an IRA from someone whose estate was big enough to be subject to the federal estate tax.
Basically, you get an income-tax deduction for the amount of estate tax paid on the IRA assets you received. Let’s say you inherited a $100,000 IRA, and the fact that the money was included in your benefactor's estate added $45,000 to the estate-tax bill. You get to deduct that $45,000 on your tax returns as you withdraw the money from the IRA. If you withdraw $50,000 in one year, for example, you get to claim a $22,500 itemized deduction on Schedule A. That would save you $6,300 in the 28% bracket.
[Source: Kiplinger]
But think about it for a minute: Do you think that’s the most common mistake... or simply the easiest to notice?
One thing we know for sure is that the opportunity to make mistakes is almost unlimited, and missed deductions can be the most costly. About 45 million of us itemize on our 1040s -- claiming more than $1 trillion worth of deductions. That’s right: $1,000,000,000,000, a number rarely spoken out loud until Congress started tying itself up in knots trying to deal with the budget deficit and national debt.
Another 92 million taxpayers claim about $700 billion worth using standard deductions -- and some of you who take the easy way out probably shortchange yourselves. (If you turned 65 in 2011, remember that you now deserve a bigger standard deduction than the younger folks.)
Yes, friends, tax time is a dangerous time. It’s all too easy to miss a trick and pay too much. Years ago, the fellow who ran the IRS at the time told Kiplinger's Personal Finance magazine that he figured millions of taxpayers overpay their taxes every year by overlooking just one of the money-savers listed below.
State sales taxes
Although all taxpayers have a shot at this write-off, it makes sense primarily for those who live in states that do not impose an income tax. You must choose between deducting state and local income taxes or state and local sales taxes. For most citizens of income-tax states, the income tax is a bigger burden than the sales tax, so the income-tax deduction is a better deal.
The IRS has tables that show how much residents of various states can deduct, based on their income and state and local sales tax rates. But the tables aren’t the last word. If you purchased a vehicle, boat or airplane, you get to add the sales tax you paid to the amount shown in the IRS table for your state.
The same goes for any homebuilding materials you purchased. These add-on items are easy to overlook, but big-ticket items could make the sales-tax deduction a better deal even if you live in a state with an income tax. The IRS has a calculator on its Web site to help you figure the deduction.
Reinvested dividends
This isn't really a tax deduction, but it is an important subtraction that can save you a bundle. And this is the break that former IRS commissioner Fred Goldberg told Kiplinger's that a lot of taxpayers miss.
If, like most investors, your mutual fund dividends are automatically used to buy extra shares, remember that each reinvestment increases your tax basis in the fund. That, in turn, reduces the taxable capital gain (or increases the tax-saving loss) when you redeem shares. Forgetting to include the reinvested dividends in your basis results in double taxation of the dividends -- once when they are paid out and immediately reinvested in more shares and later when they’re included in the proceeds of the sale. Don’t make that costly mistake. If you’re not sure what your basis is, ask the fund for help.
Out-of-pocket charitable contributions
It’s hard to overlook the big charitable gifts you made during the year, by check or payroll deduction (check your December pay stub).
But the little things add up, too, and you can write off out-of-pocket costs incurred while doing work for a charity. For example, ingredients for casseroles you prepare for a nonprofit organization’s soup kitchen and stamps you buy for your school’s fundraising mailing count as a charitable contribution. Keep your receipts and if your contribution totals more than $250, you’ll need an acknowledgement from the charity documenting the services you provided. If you drove your car for charity in 2011, remember to deduct 14 cents per mile plus parking and tolls paid in your philanthropic journeys.
Student-loan interest paid by Mom and Dad
Generally, you can only deduct mortgage or student-loan interest if you are legally required to repay the debt. But if parents pay back a child’s student loans, the IRS treats the money as if it was given to the child, who then paid the debt. So, a child who’s not claimed as a dependent can qualify to deduct up to $2,500 of student-loan interest paid by Mom and Dad. And he or she doesn’t have to itemize to use this money-saver. Mom and Dad can’t claim the interest deduction even though they actually foot the bill since they are not liable for the debt.
Job-hunting costs
If you’re among the millions of unemployed Americans who were looking for a job in 2011, we hope you kept track of your job-search expenses... or can reconstruct them. If you’re looking for a position in the same line of work, you can deduct job-hunting costs as miscellaneous expenses if you itemize. Such expenses can be written off only to the extent that your total miscellaneous expenses exceed 2% of your adjusted gross income. Job-hunting expenses incurred while looking for your first job don’t qualify. Deductible job-search costs include, but aren’t limited to:
• Food, lodging and transportation if your search takes you away from home overnight
• Cab fares
• Employment agency fees
• Costs of printing resumes, business cards, postage, and advertising
The cost of moving for your first job
Although job-hunting expenses are not deductible when looking for your first job, moving expenses to get to that job are. And you get this write-off even if you don't itemize.
To qualify for the deduction, your first job must be at least 50 miles away from your old home. If you qualify, you can deduct the cost of getting yourself and your household goods to the new area. If you drove your own car, your mileage write-off depends on when during 2011 you moved. For moves from January 1 through the end of June, the standard mileage rate is 19 cents a mile; for moves during the second half of the year, a 23.5 cents a mile rate applies. In either case, boost your deduction by any amount you paid for parking and tolls.
Military reservists’ travel expenses
Members of the National Guard or military reserve may tap a deduction for travel expenses to drills or meetings. To qualify, you must travel more than 100 miles from home and be away from home overnight. If you qualify, you can deduct the cost of lodging and half the cost of your meals, plus an allowance for driving your own car to get to and from drills. For qualifying trips during January through June, 2011, the standard mileage rate is 51 cents a mile; for driving during the second half of the year, the rate is 55.5 cents a mile. In any event, add parking fees and tolls. And, you don’t have to itemize to get this deduction.
Deduction of Medicare premiums for the self-employed
Folks who continue to run their own businesses after qualifying for Medicare can deduct the premiums they pay for Medicare Part B and Medicare Part D and the cost of supplemental Medicare (medigap) policies. This deduction is available whether or not you itemize and is not subject the 7.5% of AGI test that applies to itemized medical expenses. One caveat: You can’t claim this deduction if you are eligible to be covered under an employer-subsidized health plan offered by your employer (if you have a job as well as your business) or your spouse’s employer.
Child-care credit
A credit is so much better than a deduction; it reduces your tax bill dollar for dollar. So missing one is even more painful than missing a deduction that simply reduces the amount of income that’s subject to tax.
You can qualify for a tax credit worth between 20% and 35% of what you pay for child care while you work. But if your boss offers a child care reimbursement account – which allows you to pay for the child care with pre-tax dollars – that might be a better deal. If you qualify for a 20% credit but are in the 25% tax bracket, for example, the reimbursement plan is the way to go. (In any case, only expenses for the care of children under age 13 count.)
You can’t double dip. Expenses paid through a plan can’t also be used to generate the tax credit. But get this: Although only $5,000 in expenses can be paid through a tax-favored reimbursement account, up to $6,000 for the care of two or more children can qualify for the credit. So, if you run the maximum through a plan at work but spend even more for work-related child care, you can claim the credit on as much as $1,000 of additional expenses. That would cut your tax bill by at least $200.
Estate tax on income in respect of a decedent
This sounds complicated, but it can save you a lot of money if you inherited an IRA from someone whose estate was big enough to be subject to the federal estate tax.
Basically, you get an income-tax deduction for the amount of estate tax paid on the IRA assets you received. Let’s say you inherited a $100,000 IRA, and the fact that the money was included in your benefactor's estate added $45,000 to the estate-tax bill. You get to deduct that $45,000 on your tax returns as you withdraw the money from the IRA. If you withdraw $50,000 in one year, for example, you get to claim a $22,500 itemized deduction on Schedule A. That would save you $6,300 in the 28% bracket.
[Source: Kiplinger]
Wednesday, November 30, 2011
Year-End Tax Planning Made Easy...
Compared to this time last year, discussion about immediate changes for individual income taxes is pretty quiet. No uproar this year over the Bush tax cuts ending makes end-of-year tax planning a little easier. Your tax adviser can inform taxpayers how to lower their tax liability as the year comes to an end.
"Managing financial health is like so many other things; it's not where you start, but where you finish," said Kathy Pickering, executive director of The Tax Institute at H&R Block. "The end of the year is right around the corner, but there are ways for taxpayers to take actions now that will help reduce their taxable income and tax liability."
As taxpayers are left to wonder if the 2-percent payroll tax holiday will expire Dec. 31 or whether Congress will make any tax law changes as part of a plan to reduce the federal deficit, taxpayers can make the following money-saving moves now to potentially decrease their 2011 tax bill.
Make charitable donations
Charitable functions and gift giving take center stage this time of year. It's important for taxpayers to remember for charitable donations to be tax-deductible, they must be made to qualified, tax-exempt organizations (IRS-approved nonprofit religious, educational or charitable groups), and claimed as itemized deductions on tax returns. The Salvation Army donation guide can be used to estimate the value of non-cash items.
Offset capital gains with capital losses
After the Dow Jones Industrial Average hit a 30-month high Jan. 1, it was a roller coaster ride with investments losing and gaining again and again throughout the rest of the year. Even with those market fluctuations, there is some good news:
1.Those with a large net capital gain in 2011 could reduce their tax liability by selling stock before Dec. 31 if it would generate a loss.
2. Capital losses don't just offset capital gains. If capital losses exceed capital gains, up to $3,000 of capital losses can be used to offset ordinary income, such as wages.
Look to the future and maximize retirement plan contributions
Taxpayers who have not contributed the maximum to their 401(k) may consider increasing contributions for the remainder of the year; contributions are made pre-tax, which reduces taxable income and potentially the overall tax bill.
Also, taxpayers eligible to deduct IRA contributions can make traditional IRA contributions to decrease 2011 income until April 17, 2012, and thus reduce tax liability on 2011 tax returns.
Pay it forward
Those who haven't taken full advantage of the American Opportunity Credit should consider paying spring college tuition before Dec. 31 to benefit from the tax break on their 2011 returns. Also, taxpayers could pre-pay their December mortgage payment due in early January or make an additional student loan payment to claim the highest possible interest deduction (up to $2,500) on the 2011 tax return.
Go green at home and on the road
Home energy-efficiency improvements are eligible for a tax credit of 10 percent of the cost, with a $500 lifetime maximum. This includes windows and doors, insulation, roofing, HVAC and non-solar water heaters meeting specific energy guidelines. The maximum lifetime credit for external windows is $200.
Taxpayers can claim a credit for the purchase of a neighborhood vehicle (e.g., low-speed four-wheel vehicle), a conversion kit, or a plug-in electric drive vehicle, such as the Chevy Volt and the Nissan Leaf.
Claim casualty losses from disaster
Taxpayers in a federal disaster area who sustained disaster-related casualty losses (e.g., damaged or lost property) can claim their losses on a tax return for the year the disaster occurred or on the prior year's return. Your tax adviser can help you determine which year would result in the greatest tax savings.
"Managing financial health is like so many other things; it's not where you start, but where you finish," said Kathy Pickering, executive director of The Tax Institute at H&R Block. "The end of the year is right around the corner, but there are ways for taxpayers to take actions now that will help reduce their taxable income and tax liability."
As taxpayers are left to wonder if the 2-percent payroll tax holiday will expire Dec. 31 or whether Congress will make any tax law changes as part of a plan to reduce the federal deficit, taxpayers can make the following money-saving moves now to potentially decrease their 2011 tax bill.
Make charitable donations
Charitable functions and gift giving take center stage this time of year. It's important for taxpayers to remember for charitable donations to be tax-deductible, they must be made to qualified, tax-exempt organizations (IRS-approved nonprofit religious, educational or charitable groups), and claimed as itemized deductions on tax returns. The Salvation Army donation guide can be used to estimate the value of non-cash items.
Offset capital gains with capital losses
After the Dow Jones Industrial Average hit a 30-month high Jan. 1, it was a roller coaster ride with investments losing and gaining again and again throughout the rest of the year. Even with those market fluctuations, there is some good news:
1.Those with a large net capital gain in 2011 could reduce their tax liability by selling stock before Dec. 31 if it would generate a loss.
2. Capital losses don't just offset capital gains. If capital losses exceed capital gains, up to $3,000 of capital losses can be used to offset ordinary income, such as wages.
Look to the future and maximize retirement plan contributions
Taxpayers who have not contributed the maximum to their 401(k) may consider increasing contributions for the remainder of the year; contributions are made pre-tax, which reduces taxable income and potentially the overall tax bill.
Also, taxpayers eligible to deduct IRA contributions can make traditional IRA contributions to decrease 2011 income until April 17, 2012, and thus reduce tax liability on 2011 tax returns.
Pay it forward
Those who haven't taken full advantage of the American Opportunity Credit should consider paying spring college tuition before Dec. 31 to benefit from the tax break on their 2011 returns. Also, taxpayers could pre-pay their December mortgage payment due in early January or make an additional student loan payment to claim the highest possible interest deduction (up to $2,500) on the 2011 tax return.
Go green at home and on the road
Home energy-efficiency improvements are eligible for a tax credit of 10 percent of the cost, with a $500 lifetime maximum. This includes windows and doors, insulation, roofing, HVAC and non-solar water heaters meeting specific energy guidelines. The maximum lifetime credit for external windows is $200.
Taxpayers can claim a credit for the purchase of a neighborhood vehicle (e.g., low-speed four-wheel vehicle), a conversion kit, or a plug-in electric drive vehicle, such as the Chevy Volt and the Nissan Leaf.
Claim casualty losses from disaster
Taxpayers in a federal disaster area who sustained disaster-related casualty losses (e.g., damaged or lost property) can claim their losses on a tax return for the year the disaster occurred or on the prior year's return. Your tax adviser can help you determine which year would result in the greatest tax savings.
Thursday, November 10, 2011
Your Taxes May Be Going Up...
According to Bob Jennings [provided by FOXBUSINESS]:
In a recent tax planning meeting with one of our clients, we shocked them with what their income tax future looked like for 2013 if -- on the off-chance -- Congress continues to do nothing to provide a long-term permanent set of tax laws.
They had no idea what tax breaks were expiring this year and next year, and how much it would cost them personally in extra income tax. But they aren't alone, many Americans and even tax professionals aren't aware that their tax bill could rise dramatically next year.
These clients are your average American family and their situation is a good example of the law changes that will affect all of us. Here's their tax situation with a table summarizing the expiring tax laws that are scheduled to occur in 2011 and 2012.
Meet the Smiths: 26-year-olds Bill and Joan have been married for five years and have two young children. Bill earns about $65,000 a year in sales and Joan has gone back to work and earns about $35,000 annually. Bill owes quite a bit on his college student loans and will pay about $3,000 in interest on them in 2013. With Joan working again, they are paying $3,000 for year-round child care. Joan inherited some AT&T stock from her grandmother, which pays her $1,000 in dividends every year. Finally, counting home mortgage interest, they have about $20,000 in itemized deductions.
The first big change affecting the Smiths will be a combined increase in income tax rates, and a tightening of tax brackets as a result of the expiration of the Bush tax cuts. We estimate this will cost them $960 in 2013.
Bill will lose the complete deduction of his student loan interest in 2013, costing about $840. The pair's allowable deduction for child care will drop to $2,400 from $3,000, and they will also see their credit for children drop in half, costing another $1,000.
The marriage tax penalty will come roaring back to hit the Smiths in 2013, costing an estimated $500. The tax on their dividend income will go increase to $280 from $150, adding another $130. Finally, although we did not calculate the effect, without Congressional action to once again "fix" the alternative minimum tax, the Smiths could owe this ugly tax as well!
Luckily for the Smiths — but not for many Americans — other major changes for 2013, which do not personally affect them, include a phase out of itemized deductions and personal exemptions if their income starts to climb.
In summary, because of tax laws expiring this year and next, we estimate that the Smiths will owe $3,598 more in income tax in 2013 than in 2011 with no change in their income.
Major Individual Income Tax Benefits Expiring 12/31/2011:
• Personal tax credits applied against income tax no longer apply
• Higher alternative minimum tax exemptions revert back to extraordinarily-low thresholds
• $250 school teacher expense deduction ends
• Mortgage insurance premium deduction expires
• State and local sales tax deductions expire
• Tuition and related fees deduction end
• IRA to charity tax-free transfers stop
• 2% Social Security tax reduction ends
Major Individual Income Tax Benefits Expiring 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
Bob Jennings is a CPA, EA and CFP and author of "Understanding Social Security & Medicare."
In a recent tax planning meeting with one of our clients, we shocked them with what their income tax future looked like for 2013 if -- on the off-chance -- Congress continues to do nothing to provide a long-term permanent set of tax laws.
They had no idea what tax breaks were expiring this year and next year, and how much it would cost them personally in extra income tax. But they aren't alone, many Americans and even tax professionals aren't aware that their tax bill could rise dramatically next year.
Meet the Smiths: 26-year-olds Bill and Joan have been married for five years and have two young children. Bill earns about $65,000 a year in sales and Joan has gone back to work and earns about $35,000 annually. Bill owes quite a bit on his college student loans and will pay about $3,000 in interest on them in 2013. With Joan working again, they are paying $3,000 for year-round child care. Joan inherited some AT&T stock from her grandmother, which pays her $1,000 in dividends every year. Finally, counting home mortgage interest, they have about $20,000 in itemized deductions.
The first big change affecting the Smiths will be a combined increase in income tax rates, and a tightening of tax brackets as a result of the expiration of the Bush tax cuts. We estimate this will cost them $960 in 2013.
Bill will lose the complete deduction of his student loan interest in 2013, costing about $840. The pair's allowable deduction for child care will drop to $2,400 from $3,000, and they will also see their credit for children drop in half, costing another $1,000.
The marriage tax penalty will come roaring back to hit the Smiths in 2013, costing an estimated $500. The tax on their dividend income will go increase to $280 from $150, adding another $130. Finally, although we did not calculate the effect, without Congressional action to once again "fix" the alternative minimum tax, the Smiths could owe this ugly tax as well!
Luckily for the Smiths — but not for many Americans — other major changes for 2013, which do not personally affect them, include a phase out of itemized deductions and personal exemptions if their income starts to climb.
In summary, because of tax laws expiring this year and next, we estimate that the Smiths will owe $3,598 more in income tax in 2013 than in 2011 with no change in their income.
Major Individual Income Tax Benefits Expiring 12/31/2011:
• Personal tax credits applied against income tax no longer apply
• Higher alternative minimum tax exemptions revert back to extraordinarily-low thresholds
• $250 school teacher expense deduction ends
• Mortgage insurance premium deduction expires
• State and local sales tax deductions expire
• Tuition and related fees deduction end
• IRA to charity tax-free transfers stop
• 2% Social Security tax reduction ends
Major Individual Income Tax Benefits Expiring 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
Bob Jennings is a CPA, EA and CFP and author of "Understanding Social Security & Medicare."
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