What is the "fiscal cliff?" This is a popular term used to explain how the economy wil be affected by the expiration of the Bush-era tax breaks we have enjoyed in previous years. If you look at my previous post, you see that there are many tax breaks that are set to expire December 31, 2012, including temporary payroll tax cuts (which means there will be a 2% increase in a worker's payroll taxes), the beginning of the new Obama Care healthcare law taxes, an increase in personal income taxes (to be exact 4.6% increase) for higher income brackets, and an increase in the capital gains rates (increased from 0% to now 10% for low income earners and increased from 15% to now 20% for higher income earners).
So what does this all mean for the economy? Well, it is speculation, in my opinion. The plus side is that the budget deficit (as a percentage of GDP) would be reduced by $560 billion. But at what cost, you might ask? Higher taxes and huge spending cuts, which could potentially weigh heavily on growth by cutting GDP by nearly 4 percentage points and drive the economy into a recession.
The term "cliff" is misleading, however. This is a term the media has created, which seems to create some panic and frenzy among investors and the general public alike. Failing to make the decisions by December 31st does not necessarily mean that the economy will move into a recession or that the markets will crash.
Any tax law changes or breaks made after the end of the year will most likely have a retroactive date, to relieve some of the pressure.
On a lighter note, I wish everyone a very MERRY CHRISTMAS and a Happy Holiday season. We wish you and your family the very best in the New Year!
Sunday, December 16, 2012
Friday, October 12, 2012
Tax Breaks Set to Expire in 2012
The holidays are quickly approaching with the year-end in sight! Here is some important information to be aware of for the upcoming tax year:
Effective Jan. 1, 2013 (barring any legislative action during the remainder of 2012), the "Bush tax cuts," among other tax provisions, are set to expire. What does this mean to you?
1. The highest income tax bracket for filers whose status is married filing jointly, will increase to 39.6 percent from the current 35 percent for taxable income in excess $379,650. Note that the 39.6 percent rate does not include the 3.8 percent Medicare tax discussed above.
2. The tax on long-term capital gains will increase to 20 percent from 15 percent.
3. The tax on qualified dividends will increase to ordinary income rates (top rate of 39.6 percent) from 15 percent.
4. The two marriage penalty patches will expire. The standard deduction for married couples will revert to 167 percent of the standard deduction for single filers. Also, the upper limit of the 15 percent bracket for married couples will revert to 167 percent of the upper limit for single filers.
5. The child tax credit will decrease to $500 from $1,000; phasing out when incomes exceed $110,000 (married, filing joint returns).
6. The child and dependent care credit decreases to $2,400 per dependent (maximum $4,800) from $3,000 (maximum $6,000) per dependent.
7. The personal exemption phase-out (PEP) and Pease (limitation on itemized deductions) provisions will be reinstated to their original levels, projected to be $174,750 for single taxpayers and $261,650 for married filing joint taxpayers. This means for taxpayers with AGI in excess of these amounts, they lose the benefit of their personal exemptions and their itemized deductions will once again be limited.
8. The current Internal Revenue Code (IRC) section 179 deduction of $500,000 will revert back to $25,000, with a cap on qualified expenses of $200,000.
9. Bonus depreciation will be eliminated.
10. Accumulated earnings tax imposed on certain corporations increases to 39.6 percent from 15 percent.
11. The 2 percent payroll tax cut will expire (reducing take-home pay for employees and increasing self-employment tax for qualifying individuals).
12. The Medicare rate for individuals with gross wages (or self-employment income) in excess of $200,000 will increase to 2.35 percent from 1.45 percent.
13. The small employer health care credit will disappear.
14. The estate tax rate will revert to 55 percent and the exemption amount will decrease to $1 million (from $5 million).
These changes will have a significant impact on taxpayers in 2013. For example, a taxpayer with taxable income of $1 million, 50 percent of which is qualified dividends, will see their tax liability increase to $415,000 from $250,000.
Here are some suggestions to mitigate the impact of these tax increases include:
If planning to sell your business, try to close the sale in 2012 (e.g., if the sale created a gain of $10 million, waiting until 2013 may cost an additional $500,000 in capital gains tax).
Remember, the gain from installment sale payments is taxed in the year received; payments received in 2013 on a 2012 sale would be subject to the higher capital gains rates.
Plan to make capital improvements in 2012 to take advantage of 50 percent bonus depreciation and $125,000 IRC section 179 deductions.
Distribute bonus payouts in 2012 to mitigate the employee payroll tax increase.
With respect to estate and gift planning, consider exhausting the $5 million exclusion by making gifts in 2012.
Consider accelerating income to 2012 to take advantage of the lower rates in 2012. Likewise you may want to defer deductions until 2013 to take advantage of the higher rates in that year.
Qualified corporations should consider accelerating dividend payments to 2012 to take advantage of the last year for the lower tax rate.
Contemplate adjusting your income tax withholding and/or estimated tax payments in early 2013 to account for any loss of itemized deductions, child and child care credits, and personal exemptions.
Consider converting an IRA to a Roth IRA before income tax rates increase.
As always, if you have any questions, please call or email me. Have a great weekend!
Effective Jan. 1, 2013 (barring any legislative action during the remainder of 2012), the "Bush tax cuts," among other tax provisions, are set to expire. What does this mean to you?
1. The highest income tax bracket for filers whose status is married filing jointly, will increase to 39.6 percent from the current 35 percent for taxable income in excess $379,650. Note that the 39.6 percent rate does not include the 3.8 percent Medicare tax discussed above.
2. The tax on long-term capital gains will increase to 20 percent from 15 percent.
3. The tax on qualified dividends will increase to ordinary income rates (top rate of 39.6 percent) from 15 percent.
4. The two marriage penalty patches will expire. The standard deduction for married couples will revert to 167 percent of the standard deduction for single filers. Also, the upper limit of the 15 percent bracket for married couples will revert to 167 percent of the upper limit for single filers.
5. The child tax credit will decrease to $500 from $1,000; phasing out when incomes exceed $110,000 (married, filing joint returns).
6. The child and dependent care credit decreases to $2,400 per dependent (maximum $4,800) from $3,000 (maximum $6,000) per dependent.
7. The personal exemption phase-out (PEP) and Pease (limitation on itemized deductions) provisions will be reinstated to their original levels, projected to be $174,750 for single taxpayers and $261,650 for married filing joint taxpayers. This means for taxpayers with AGI in excess of these amounts, they lose the benefit of their personal exemptions and their itemized deductions will once again be limited.
8. The current Internal Revenue Code (IRC) section 179 deduction of $500,000 will revert back to $25,000, with a cap on qualified expenses of $200,000.
9. Bonus depreciation will be eliminated.
10. Accumulated earnings tax imposed on certain corporations increases to 39.6 percent from 15 percent.
11. The 2 percent payroll tax cut will expire (reducing take-home pay for employees and increasing self-employment tax for qualifying individuals).
12. The Medicare rate for individuals with gross wages (or self-employment income) in excess of $200,000 will increase to 2.35 percent from 1.45 percent.
13. The small employer health care credit will disappear.
14. The estate tax rate will revert to 55 percent and the exemption amount will decrease to $1 million (from $5 million).
These changes will have a significant impact on taxpayers in 2013. For example, a taxpayer with taxable income of $1 million, 50 percent of which is qualified dividends, will see their tax liability increase to $415,000 from $250,000.
Here are some suggestions to mitigate the impact of these tax increases include:
If planning to sell your business, try to close the sale in 2012 (e.g., if the sale created a gain of $10 million, waiting until 2013 may cost an additional $500,000 in capital gains tax).
Remember, the gain from installment sale payments is taxed in the year received; payments received in 2013 on a 2012 sale would be subject to the higher capital gains rates.
Plan to make capital improvements in 2012 to take advantage of 50 percent bonus depreciation and $125,000 IRC section 179 deductions.
Distribute bonus payouts in 2012 to mitigate the employee payroll tax increase.
With respect to estate and gift planning, consider exhausting the $5 million exclusion by making gifts in 2012.
Consider accelerating income to 2012 to take advantage of the lower rates in 2012. Likewise you may want to defer deductions until 2013 to take advantage of the higher rates in that year.
Qualified corporations should consider accelerating dividend payments to 2012 to take advantage of the last year for the lower tax rate.
Contemplate adjusting your income tax withholding and/or estimated tax payments in early 2013 to account for any loss of itemized deductions, child and child care credits, and personal exemptions.
Consider converting an IRA to a Roth IRA before income tax rates increase.
As always, if you have any questions, please call or email me. Have a great weekend!
Friday, August 17, 2012
Vacation Home Rentals
Hello everyone! I hope you have had a great summer season! I am back after being out of commission with Carpal Tunnel Release Surgery performed in June. It actually worked and my hand no longer goes numb!
So, back to the BLOG now.... here are some tips for those of you who have a vacation home that you rent out, or are thinking of buying one:
Income that you receive for the rental of your vacation home must generally be reported on your federal income tax return. However, if you rent the property for only a short time each year, you may not be required to report the rental income.
The IRS offers these tips on reporting rental income from a vacation home such as a house, apartment, condominium, mobile home or boat:
Rental Income and Expenses Rental income, as well as certain rental expenses that can be deducted, are normally reported on Schedule E, Supplemental Income and Loss.
Limitation on Vacation Home Rentals: When you use a vacation home as your residence and also rent it to others, you must divide the expenses between rental use and personal use, and you may not deduct the rental portion of the expenses in excess of the rental income. You are considered to use the property as a residence if your personal use is more than 14 days, or more than 10% of the total days it is rented to others if that figure is greater. For example, if you live in your vacation home for 17 days and rent it 160 days during the year, the property is considered used as a residence and your deductible rental expenses would be limited to the amount of rental income.
Special Rule for Limited Rental Use: If you use a vacation home as a residence and rent it for fewer than 15 days per year, you do not have to report any of the rental income. Schedule A, Itemized Deductions, may be used to report regularly deductible personal expenses, such as qualified mortgage interest, property taxes, and casualty losses.
For additional questions, feel free to e-mail me or call me anytime!
So, back to the BLOG now.... here are some tips for those of you who have a vacation home that you rent out, or are thinking of buying one:
Income that you receive for the rental of your vacation home must generally be reported on your federal income tax return. However, if you rent the property for only a short time each year, you may not be required to report the rental income.
The IRS offers these tips on reporting rental income from a vacation home such as a house, apartment, condominium, mobile home or boat:
Rental Income and Expenses Rental income, as well as certain rental expenses that can be deducted, are normally reported on Schedule E, Supplemental Income and Loss.
Limitation on Vacation Home Rentals: When you use a vacation home as your residence and also rent it to others, you must divide the expenses between rental use and personal use, and you may not deduct the rental portion of the expenses in excess of the rental income. You are considered to use the property as a residence if your personal use is more than 14 days, or more than 10% of the total days it is rented to others if that figure is greater. For example, if you live in your vacation home for 17 days and rent it 160 days during the year, the property is considered used as a residence and your deductible rental expenses would be limited to the amount of rental income.
Special Rule for Limited Rental Use: If you use a vacation home as a residence and rent it for fewer than 15 days per year, you do not have to report any of the rental income. Schedule A, Itemized Deductions, may be used to report regularly deductible personal expenses, such as qualified mortgage interest, property taxes, and casualty losses.
For additional questions, feel free to e-mail me or call me anytime!
Sunday, April 22, 2012
Thank you!
Well, another succesful tax season has come and gone. This is my 18th year in this business, and it has been more successful than ever. I do have a few extended returns to file, but 98% of the returns are done!
I want to thank each and every client for your continued business throughout the years! Welcome to the new clients! And THANK YOU for the new referrals I received this year! For the new referrals, those clients who referred a new client will receive a 10% refund in the mail from me in the next month. Some of you already received your 10% off when I completed your tax return. THANK YOU!
I will keep blogging as new updates come in during the year. Call anytime with any questions that you may have.
Also, if you receive any IRS notices, please advise me so I may take a look at it.
And, if you received a Head of Household paper audit in the mail from the Franchise Tax Board, this is a usual and customary form they send to single households with children, just to verify that your children/ qualifying relative lived with you. So, don't be alarmed with this, and just fill it out, or I can fill it out for you.
Thanks!
Sunday, March 25, 2012
Tips for the Retirement Savings Tax Credit
DID YOU KNOW....
If you make eligible contributions to an employer-sponsored retirement plan or to an individual retirement arrangement, you may be eligible for a tax credit, depending on your age and income.
Here are six things the IRS wants you to know about the Savers Credit:
1. Income limits The Savers Credit, formally known as the Retirement Savings Contributions Credit, applies to individuals with a filing status and 2011 income of:
• Single, married filing separately, or qualifying widow(er), with income up to $28,250
• Head of Household with income up to $42,375
• Married Filing Jointly, with incomes up to $56,500
2. Eligibility requirements To be eligible for the credit you must be at least 18 years of age, you cannot have been a full-time student during the calendar year and cannot be claimed as a dependent on another person’s return.
3. Credit amount if you make eligible contributions to a qualified IRA, 401(k) and certain other retirement plans: you may be able to take a credit of up to $1,000 ($2,000 if filing jointly). The credit is a percentage of the qualifying contribution amount, with the highest rate for taxpayers with the least income.
4. Distributions when figuring this credit: you generally must subtract distributions you received from your retirement plans from the contributions you made. This rule applies to distributions received in the two years before the year the credit is claimed, the year the credit is claimed, and the period after the end of the credit year but before the due date - including extensions - for filing the return for the credit year.
5. Other tax benefits The Retirement Savings Contributions Credit is in addition to other tax benefits you may receive for retirement contributions. For example, most workers at these income levels may deduct all or part of their contributions to a traditional IRA. Contributions to a regular 401(k) plan are not subject to income tax until withdrawn from the plan.
6. Forms to use To claim the credit use Form 8880, Credit for Qualified Retirement Savings Contributions.
For more information or any questions you may have, please call me at (209) 329-1255 anytime!
If you make eligible contributions to an employer-sponsored retirement plan or to an individual retirement arrangement, you may be eligible for a tax credit, depending on your age and income.
Here are six things the IRS wants you to know about the Savers Credit:
1. Income limits The Savers Credit, formally known as the Retirement Savings Contributions Credit, applies to individuals with a filing status and 2011 income of:
• Single, married filing separately, or qualifying widow(er), with income up to $28,250
• Head of Household with income up to $42,375
• Married Filing Jointly, with incomes up to $56,500
2. Eligibility requirements To be eligible for the credit you must be at least 18 years of age, you cannot have been a full-time student during the calendar year and cannot be claimed as a dependent on another person’s return.
3. Credit amount if you make eligible contributions to a qualified IRA, 401(k) and certain other retirement plans: you may be able to take a credit of up to $1,000 ($2,000 if filing jointly). The credit is a percentage of the qualifying contribution amount, with the highest rate for taxpayers with the least income.
4. Distributions when figuring this credit: you generally must subtract distributions you received from your retirement plans from the contributions you made. This rule applies to distributions received in the two years before the year the credit is claimed, the year the credit is claimed, and the period after the end of the credit year but before the due date - including extensions - for filing the return for the credit year.
5. Other tax benefits The Retirement Savings Contributions Credit is in addition to other tax benefits you may receive for retirement contributions. For example, most workers at these income levels may deduct all or part of their contributions to a traditional IRA. Contributions to a regular 401(k) plan are not subject to income tax until withdrawn from the plan.
6. Forms to use To claim the credit use Form 8880, Credit for Qualified Retirement Savings Contributions.
For more information or any questions you may have, please call me at (209) 329-1255 anytime!
Wednesday, February 29, 2012
Education Credits 101: Paying for College Can Reduce Your Taxes
Two federal tax credits may help you offset the costs of higher education for yourself or your dependents. These are the American Opportunity Credit and the Lifetime Learning Credit.
To qualify for either credit, you must pay postsecondary tuition and fees for yourself, your spouse or your dependent. The credit may be claimed by either the parent or the student, but not both. If the student was claimed as a dependent, the student cannot file for the credit.
For each student, you may claim only one of the credits in a single tax year. You cannot claim the American Opportunity Credit to pay for part of your daughter's tuition charges and then claim the Lifetime Learning Credit for $2,000 more of her school costs.
However, if you pay college expenses for two or more students in the same year, you can choose to take credits on a per-student, per-year basis. You can claim the American Opportunity Credit for your sophomore daughter and the Lifetime Learning Credit for your spouse's graduate school tuition.
Here are some key facts the IRS wants you to know about these valuable education credits:
The American Opportunity Credit
- The credit can be up to $2,500 per eligible student.
- It is available for the first four years of postsecondary education.
- Forty percent of the credit is refundable, which means that you may be able to receive up to $1,000, even if you owe no taxes.
- The student must be pursuing an undergraduate degree or other recognized educational credential.
- The student must be enrolled at least half time for at least one academic period.
- Qualified expenses include tuition and fees, coursed related books supplies and equipment.
- The full credit is generally available to eligible taxpayers whose modified adjusted gross income is less than $80,000 or $160,000 for married couples filing a joint return.
Lifetime Learning Credit
-The credit can be up to $2,000 per eligible student.
- It is available for all years of postsecondary education and for courses to acquire or improve job skills.
- The maximum credited is limited to the amount of tax you must pay on your return.
- The student does not need to be pursuing a degree or other recognized education credential.
- Qualified expenses include tuition and fees, course related books, supplies and equipment.
- The full credit is generally available to eligible taxpayers whose modified adjusted gross income is less than $60,000 or $120,000 for married couples filing a joint return.
If you don't qualify for these education credits, you may qualify for the tuition and fees deduction, which can reduce the amount of your income subject to tax by up to $4,000. However, you cannot claim the tuition and fees tax deduction in the same year that you claim the American Opportunity Tax Credit or the Lifetime Learning Credit. You must choose to either take the credit or the deduction and should consider which is more beneficial for you.
If you have any questions, please call me anytime at (209) 329-1255.
Have a great week!
To qualify for either credit, you must pay postsecondary tuition and fees for yourself, your spouse or your dependent. The credit may be claimed by either the parent or the student, but not both. If the student was claimed as a dependent, the student cannot file for the credit.
For each student, you may claim only one of the credits in a single tax year. You cannot claim the American Opportunity Credit to pay for part of your daughter's tuition charges and then claim the Lifetime Learning Credit for $2,000 more of her school costs.
However, if you pay college expenses for two or more students in the same year, you can choose to take credits on a per-student, per-year basis. You can claim the American Opportunity Credit for your sophomore daughter and the Lifetime Learning Credit for your spouse's graduate school tuition.
Here are some key facts the IRS wants you to know about these valuable education credits:
The American Opportunity Credit
- The credit can be up to $2,500 per eligible student.
- It is available for the first four years of postsecondary education.
- Forty percent of the credit is refundable, which means that you may be able to receive up to $1,000, even if you owe no taxes.
- The student must be pursuing an undergraduate degree or other recognized educational credential.
- The student must be enrolled at least half time for at least one academic period.
- Qualified expenses include tuition and fees, coursed related books supplies and equipment.
- The full credit is generally available to eligible taxpayers whose modified adjusted gross income is less than $80,000 or $160,000 for married couples filing a joint return.
Lifetime Learning Credit
-The credit can be up to $2,000 per eligible student.
- It is available for all years of postsecondary education and for courses to acquire or improve job skills.
- The maximum credited is limited to the amount of tax you must pay on your return.
- The student does not need to be pursuing a degree or other recognized education credential.
- Qualified expenses include tuition and fees, course related books, supplies and equipment.
- The full credit is generally available to eligible taxpayers whose modified adjusted gross income is less than $60,000 or $120,000 for married couples filing a joint return.
If you don't qualify for these education credits, you may qualify for the tuition and fees deduction, which can reduce the amount of your income subject to tax by up to $4,000. However, you cannot claim the tuition and fees tax deduction in the same year that you claim the American Opportunity Tax Credit or the Lifetime Learning Credit. You must choose to either take the credit or the deduction and should consider which is more beneficial for you.
If you have any questions, please call me anytime at (209) 329-1255.
Have a great week!
Thursday, February 16, 2012
Obama's Responsible Homeowner's Plan 2012
On February 1, 2012, President Obama rolled out a comprehensive proposal titled, "Plan to Help Responsible Homeowners and Heal the Housing Market." The President summarized the basics of the plan, the heart of which would make it easier for an estimated 1 million "underwater" homeowners with good repayment records to refinance their mortgage at today's low interest rates.
Key components of the President’s plan include:
Providing Conventional Loan Borrowers Access to Simple, Low-Cost Refinancing: President Obama is calling on Congress to pass legislation to establish a streamlined refinancing program. The refinancing program will be open to all conventinal loan borrowers with standard (non-jumbo) loans who have been keeping up with their mortgage payments. The program will be operated through the FHA.
Simple and straightforward eligibility criteria: Any borrower with a loan that is not currently guaranteed by the GSEs can qualify if they meet the following criteria:
• They are current on their mortgage: Borrowers will need to have been current on their loan for the past 6 months and have missed no more than one payment in the 6 months prior.
• They meet a minimum credit score. Borrowers must have a current FICO score of 580 to be eligible. Approximately 9 in 10 borrowers have a credit score adequate to meet that requirement.
• They have a loan that is no larger than the current FHA conforming loan limits in their area: Currently, FHA limits vary geographically with the median area home price – set at $271,050 in lowest cost areas and as high as $729,750 in the highest cost areas
• The loan they are refinancing is for a single family, owner-occupied principal residence. This will ensure that the program is focused on responsible homeowners trying to stay in their homes.
• Streamlined application process: Borrowers will apply through a streamlined process designed to make it simpler and less expensive for borrowers and lenders to refinance. Borrowers will not be required to submit a new appraisal or tax return. To determine a borrower’s eligibility, a lender need only confirm that the borrower is employed.
Giving Borrowers the Chance to Rebuild Equity in their Homes Through Refinancing: All underwater borrowers who decide to participate in either HARP or the refinancing program through the FHA outlined above will have a choice: they can take the benefit of the reduced interest rate in the form of lower monthly payments, or they can apply that savings to rebuilding equity in their homes. The rebuilding equity program, when combined with a shorter loan term of 20 years, will give the majority of underwater borrowers the chance to get back above water within five years, or less.
The President's housing initiative has other elements as well: 1) a Homeowners' Bill of Rights, which would lay out a "single set of standards to make sure borrowers and lenders play by the same rules"; 2) a pilot program to transform foreclosed owner-occupied properties into rentals; 3) create one year of loan forbearance for borrowers looking for work; 4) pursue joint agency investigations into mortgage origination and servicing abuses; and 5) rehabilitate neighborhoods and reduce foreclosures.
As more information develops on the new plan, I will keep you informed as well!
Key components of the President’s plan include:
Providing Conventional Loan Borrowers Access to Simple, Low-Cost Refinancing: President Obama is calling on Congress to pass legislation to establish a streamlined refinancing program. The refinancing program will be open to all conventinal loan borrowers with standard (non-jumbo) loans who have been keeping up with their mortgage payments. The program will be operated through the FHA.
Simple and straightforward eligibility criteria: Any borrower with a loan that is not currently guaranteed by the GSEs can qualify if they meet the following criteria:
• They are current on their mortgage: Borrowers will need to have been current on their loan for the past 6 months and have missed no more than one payment in the 6 months prior.
• They meet a minimum credit score. Borrowers must have a current FICO score of 580 to be eligible. Approximately 9 in 10 borrowers have a credit score adequate to meet that requirement.
• They have a loan that is no larger than the current FHA conforming loan limits in their area: Currently, FHA limits vary geographically with the median area home price – set at $271,050 in lowest cost areas and as high as $729,750 in the highest cost areas
• The loan they are refinancing is for a single family, owner-occupied principal residence. This will ensure that the program is focused on responsible homeowners trying to stay in their homes.
• Streamlined application process: Borrowers will apply through a streamlined process designed to make it simpler and less expensive for borrowers and lenders to refinance. Borrowers will not be required to submit a new appraisal or tax return. To determine a borrower’s eligibility, a lender need only confirm that the borrower is employed.
Giving Borrowers the Chance to Rebuild Equity in their Homes Through Refinancing: All underwater borrowers who decide to participate in either HARP or the refinancing program through the FHA outlined above will have a choice: they can take the benefit of the reduced interest rate in the form of lower monthly payments, or they can apply that savings to rebuilding equity in their homes. The rebuilding equity program, when combined with a shorter loan term of 20 years, will give the majority of underwater borrowers the chance to get back above water within five years, or less.
The President's housing initiative has other elements as well: 1) a Homeowners' Bill of Rights, which would lay out a "single set of standards to make sure borrowers and lenders play by the same rules"; 2) a pilot program to transform foreclosed owner-occupied properties into rentals; 3) create one year of loan forbearance for borrowers looking for work; 4) pursue joint agency investigations into mortgage origination and servicing abuses; and 5) rehabilitate neighborhoods and reduce foreclosures.
As more information develops on the new plan, I will keep you informed as well!
Thursday, February 9, 2012
Federal Pension Protection Act of 2006
The Federal Pension Protection Act of 2006 was signed into law by President Bush. The Act provides for a mechanism to ensure some safety measures on how your pension is performing in the market, such as giving workers greater control over how their accounts are invested and exceptions to the early withdrawal penalty (some workers are allowed to retire before age 59 1/2).
A very important part of the Act applies specifically to emergency services personnel, including police, firefighters, ambulance personnel and many others in Federal, State and local agencies.
Health Insurance Deduction
Qualified retired "Public Safety Officers" may exclude from income the cost of health insurance premiums or long-term care premiums, up to $3000. However, the health insurance premiums must be paid directly from your pension and the health insurance premiums must be paid to an insurance company that is regulated by your State. Self-insured plans do not qualify. Many municipal governments (like the City of Stockton) are self-insured, which then excludes officers from this tax advantage. The Act does NOT require a pension fund to accept a retiree's election to pay premiums directly from your pension.
This may not show in Box 2 of the 1099-R (Retirement Income) you receive for taxes. This exclusion may be shown on the tax return as simply subtracting the exclusion from the figure shown on the 1099-R form, and placing the smaller figure on the pension income line on the 1040. Although this may trigger a letter from the IRS because the amount will not match with the amounts listed on the 1099-R form, it can be responded to with a simple explanation by correspondence with the IRS.
Contact PERS to have your premiums deducted directly from your pension.
Please ensure that you provide me with the amount of premiums you paid during the year, and we will deduct it on your tax return. If you have not previously deducted the amounts, we can prepare an Amended form for up to three years, and get you a small refund!
A very important part of the Act applies specifically to emergency services personnel, including police, firefighters, ambulance personnel and many others in Federal, State and local agencies.
Health Insurance Deduction
Qualified retired "Public Safety Officers" may exclude from income the cost of health insurance premiums or long-term care premiums, up to $3000. However, the health insurance premiums must be paid directly from your pension and the health insurance premiums must be paid to an insurance company that is regulated by your State. Self-insured plans do not qualify. Many municipal governments (like the City of Stockton) are self-insured, which then excludes officers from this tax advantage. The Act does NOT require a pension fund to accept a retiree's election to pay premiums directly from your pension.
This may not show in Box 2 of the 1099-R (Retirement Income) you receive for taxes. This exclusion may be shown on the tax return as simply subtracting the exclusion from the figure shown on the 1099-R form, and placing the smaller figure on the pension income line on the 1040. Although this may trigger a letter from the IRS because the amount will not match with the amounts listed on the 1099-R form, it can be responded to with a simple explanation by correspondence with the IRS.
Contact PERS to have your premiums deducted directly from your pension.
Please ensure that you provide me with the amount of premiums you paid during the year, and we will deduct it on your tax return. If you have not previously deducted the amounts, we can prepare an Amended form for up to three years, and get you a small refund!
Monday, February 6, 2012
Mortgage Relief Act Information for Homeowners
I have received a lot of questions about foreclosures and short sales on a taxpayer's principal residence. Here are some facts and tips for you to review.
The Mortgage Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief.
This provision applies to debt forgiven in calendar years 2007 through 2012. Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately). The exclusion does not apply if the discharge is due to services performed for the lender or any other reason not directly related to a decline in the home’s value or the taxpayer’s financial condition.
Here are 10 facts the IRS wants you to know about Mortgage Debt Forgiveness.
1. Normally, debt forgiveness results in taxable income. However, under the Mortgage Forgiveness Debt Relief Act of 2007, you may be able to exclude up to $2 million of debt forgiven on your principal residence.
2. The limit is $1 million for a married person filing a separate return.
3. You may exclude debt reduced through mortgage restructuring, as well as mortgage debt forgiven in a foreclosure.
4. To qualify, the debt must have been used to buy, build or substantially improve your principal residence and be secured by that residence.
5. Refinanced debt proceeds used for the purpose of substantially improving your principal residence also qualify for the exclusion.
6. Proceeds of refinanced debt used for other purposes – for example, to pay off credit card debt – do not qualify for the exclusion.
7. If you qualify, claim the special exclusion by filling out Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness, and attach it to your federal income tax return for the tax year in which the qualified debt was forgiven.
8. Debt forgiven on second homes, rental property, business property, credit cards or car loans do NOT qualify for the tax relief provision. In some cases, however, other tax relief provisions – such as insolvency – may be applicable. IRS Form 982 provides more details about these provisions.
9. If your debt is reduced or eliminated you normally will receive a year-end statement, Form 1099-C, Cancellation of Debt, from your lender. By law, this form must show the amount of debt forgiven and the fair market value of any property foreclosed.
The Mortgage Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief.
This provision applies to debt forgiven in calendar years 2007 through 2012. Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately). The exclusion does not apply if the discharge is due to services performed for the lender or any other reason not directly related to a decline in the home’s value or the taxpayer’s financial condition.
Here are 10 facts the IRS wants you to know about Mortgage Debt Forgiveness.
1. Normally, debt forgiveness results in taxable income. However, under the Mortgage Forgiveness Debt Relief Act of 2007, you may be able to exclude up to $2 million of debt forgiven on your principal residence.
2. The limit is $1 million for a married person filing a separate return.
3. You may exclude debt reduced through mortgage restructuring, as well as mortgage debt forgiven in a foreclosure.
4. To qualify, the debt must have been used to buy, build or substantially improve your principal residence and be secured by that residence.
5. Refinanced debt proceeds used for the purpose of substantially improving your principal residence also qualify for the exclusion.
6. Proceeds of refinanced debt used for other purposes – for example, to pay off credit card debt – do not qualify for the exclusion.
7. If you qualify, claim the special exclusion by filling out Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness, and attach it to your federal income tax return for the tax year in which the qualified debt was forgiven.
8. Debt forgiven on second homes, rental property, business property, credit cards or car loans do NOT qualify for the tax relief provision. In some cases, however, other tax relief provisions – such as insolvency – may be applicable. IRS Form 982 provides more details about these provisions.
9. If your debt is reduced or eliminated you normally will receive a year-end statement, Form 1099-C, Cancellation of Debt, from your lender. By law, this form must show the amount of debt forgiven and the fair market value of any property foreclosed.
Saturday, January 28, 2012
Franchise Tax Board 2011 Tax Law Update
Differences between California and Federal Law
In general, for taxable years beginning on or after January 1, 2010, California law conforms to the Internal Revenue Code (IRC) as of January 1, 2009. However, there are continuing differences between California and federal law. When California conforms to federal tax law changes, we do not always adopt all of the changes made at the federal level. For more information, go to ftb.ca.gov and search for conformity. Additional information can be found in FTB Pub. 1001, Supplemental Guidelines to California Adjustments, the instructions for California Schedule CA (540 or 540NR), and the Business Entity tax booklets.
2011 Tax Law Changes/What’s New
Tax Decrease – Beginning on January 1, 2011, the tax rate decreased by 0.25%.
Dependent Exemptions Credits – Beginning on January 1, 2011, the dependent exemption credit increased from $99 to $315 per dependent.
Child and Dependent Care Expenses Credit – For taxable years beginning on or after January 1, 2011, the child and dependent care expense credit is nonrefundable.
Use Tax Table – For taxable years beginning on or after January 1, 2011, you may be eligible to use the Estimated Use Tax Table to estimate and report the use tax due on individual non-business items you purchased for less than $1,000 each.
Voluntary Contributions – For taxable years beginning on or after January 1, 2011, you may contribute to the following new funds:
• Municipal Shelter Spay-Neuter Fund
• ALS/Lou Gehrig’s Disease Research Fund
• Child Victims of Human Trafficking Fund
Community Development Financial Institutions Investment Credit – The Community Development Financial Institutions Investment Credit has been extended for taxable years beginning on or after January 1, 2012, and before January 1, 2017.
Mortgage Forgiveness Debt Relief Extended – California law conforms, with modifications, to federal mortgage forgiveness debt relief for discharges occurring on or after January 1, 2009 thru 2012. Federal law limits the amount of qualified principal residence indebtedness to $2,000,000 ($1,000,000 for married filing separate). See federal Publication 544, Sales and Other Disposition of Assets, and federal Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonment, for more information. California law limits the amount of qualified principal residence indebtedness to $800,000 ($400,000 for married/RDP filing separate) and debt relief to $500,000 ($250,000 for married/RDP filing separate).
New Home/First-Time Buyer Credit – To claim the New Home/First‑Time Buyer Credit of 2010 you must have received a Certificate of Allocation from the FTB. The credits were available if you purchased a qualified principal residence on or after May 1, 2010, and on or before December 31, 2010. Additionally, the New Home Credit is available if you purchase a qualified principal residence on or after January 1, 2011, and before August 1, 2011, pursuant to an enforceable contract executed on or before December 31, 2010. For more information, go to ftb.ca.gov and search for home credit or get FTB Pub. 3549, New Home/First-Time Buyer Credit.
As always, if you have any questions, please call me at (209) 329-1255.
In general, for taxable years beginning on or after January 1, 2010, California law conforms to the Internal Revenue Code (IRC) as of January 1, 2009. However, there are continuing differences between California and federal law. When California conforms to federal tax law changes, we do not always adopt all of the changes made at the federal level. For more information, go to ftb.ca.gov and search for conformity. Additional information can be found in FTB Pub. 1001, Supplemental Guidelines to California Adjustments, the instructions for California Schedule CA (540 or 540NR), and the Business Entity tax booklets.
2011 Tax Law Changes/What’s New
Tax Decrease – Beginning on January 1, 2011, the tax rate decreased by 0.25%.
Dependent Exemptions Credits – Beginning on January 1, 2011, the dependent exemption credit increased from $99 to $315 per dependent.
Child and Dependent Care Expenses Credit – For taxable years beginning on or after January 1, 2011, the child and dependent care expense credit is nonrefundable.
Use Tax Table – For taxable years beginning on or after January 1, 2011, you may be eligible to use the Estimated Use Tax Table to estimate and report the use tax due on individual non-business items you purchased for less than $1,000 each.
Voluntary Contributions – For taxable years beginning on or after January 1, 2011, you may contribute to the following new funds:
• Municipal Shelter Spay-Neuter Fund
• ALS/Lou Gehrig’s Disease Research Fund
• Child Victims of Human Trafficking Fund
Community Development Financial Institutions Investment Credit – The Community Development Financial Institutions Investment Credit has been extended for taxable years beginning on or after January 1, 2012, and before January 1, 2017.
Mortgage Forgiveness Debt Relief Extended – California law conforms, with modifications, to federal mortgage forgiveness debt relief for discharges occurring on or after January 1, 2009 thru 2012. Federal law limits the amount of qualified principal residence indebtedness to $2,000,000 ($1,000,000 for married filing separate). See federal Publication 544, Sales and Other Disposition of Assets, and federal Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonment, for more information. California law limits the amount of qualified principal residence indebtedness to $800,000 ($400,000 for married/RDP filing separate) and debt relief to $500,000 ($250,000 for married/RDP filing separate).
New Home/First-Time Buyer Credit – To claim the New Home/First‑Time Buyer Credit of 2010 you must have received a Certificate of Allocation from the FTB. The credits were available if you purchased a qualified principal residence on or after May 1, 2010, and on or before December 31, 2010. Additionally, the New Home Credit is available if you purchase a qualified principal residence on or after January 1, 2011, and before August 1, 2011, pursuant to an enforceable contract executed on or before December 31, 2010. For more information, go to ftb.ca.gov and search for home credit or get FTB Pub. 3549, New Home/First-Time Buyer Credit.
As always, if you have any questions, please call me at (209) 329-1255.
Friday, January 27, 2012
State Requesting Delinquent Tax Returns
Do you know of anyone who has not filed their taxes the last few years? While most people are working on their 2011 state tax returns, the Franchise Tax Board (FTB) today announced that it is contacting more than 900,000 people who did not file a 2010 state income tax return.
FTB finds nonfilers by using more than 400 million income records it receives each year from third parties such as the IRS, banks, employers, state departments, and other sources. In addition, FTB uses occupational licenses and mortgage interest payment information to detect others who may also have a requirement to file a state tax return. FTB then contacts those who earned California income, but did not file a return for the 2010 filing year.
Last year, FTB collected more than $574 million through these efforts.
If you know someone who has not yet filed their Federal or State returns for prior years, please have them contact me immediately and I can get them filed quickly!
FTB finds nonfilers by using more than 400 million income records it receives each year from third parties such as the IRS, banks, employers, state departments, and other sources. In addition, FTB uses occupational licenses and mortgage interest payment information to detect others who may also have a requirement to file a state tax return. FTB then contacts those who earned California income, but did not file a return for the 2010 filing year.
Last year, FTB collected more than $574 million through these efforts.
If you know someone who has not yet filed their Federal or State returns for prior years, please have them contact me immediately and I can get them filed quickly!
Saturday, January 21, 2012
Refer a Friend and Save 10%!
Know of anyone that needs assistance with their taxes? Refer them and receive a 10% discount off our already low fees this year! We provide professional, courteous service and expert knowledge. As an Enrolled Agent, I have earned the privilege of practicing before the Internal Revenue Service. Like attorneys and CPAs, I have unrestricted practice with all taxpayers including individuals, corporations and partnerships, as well as the ability to represent in any US tax office.
Remember, evening and weekend appointments are available for your convenience.
Remember, evening and weekend appointments are available for your convenience.
Friday, January 13, 2012
2012 IRS E-Filing Refund Cycle Chart
Today is the beginning of the IRS E-filing season! To check on your refund status, go to:
https://sa1.www4.irs.gov/irfof/lang/en/irfofgetstatus.jsp
To check out the Direct Deposit and Paper Check Refund Cycle, go to:
http://www.irs.gov/pub/irs-pdf/p2043.pdf
If you have any questions, please call me.
https://sa1.www4.irs.gov/irfof/lang/en/irfofgetstatus.jsp
To check out the Direct Deposit and Paper Check Refund Cycle, go to:
http://www.irs.gov/pub/irs-pdf/p2043.pdf
If you have any questions, please call me.
2011 Tax Law Changes: Part 2
Here is Part 2 to last week's update on the 2011 Tax Law Changes....
No Changes to Tax Rates
The new tax law averted an increase in the tax brackets. Low income taxpayers still benefit from the 10% bracket. High-income tax payers will remain in the 35% bracket. The marriage tax penalty, where married couples pay more than they would if each person filed a single return, will NOT return until 2013. Since most families require two incomes, this would have penalized a large number of American families.
Payroll Tax Cut
The temporary tax rate extension passed in December 2010 included a new provision for 2011. All wage earners will see a temporary reduction in the payroll tax from 6.2% to 4.2%. This applies on up to the first $106,800 of W-2 or Self Employment income earned by each individual. For example, if you earn $106,800 per year this translates into a $2,136 savings. If you earn $50,000 per year, this translates into a $1,000 savings.
Personal Exemption Phaseouts Delayed
According to the tax law each person covered by a return entitles the tax payer to reduce their taxable income by $3,750. This remains the case for 2011 and 2012. However, starting in 2013, the personal exemption phaseout returns. Under this rule, the amount you can claim starts decreasing around $166,000 and goes to zero by $291,000. This effectively serves as a stealth tax hike on middle and higher income taxpayers.
Itemized Deduction Limits Delayed
The so-called "Pease" limits on itemized deductions have been repealed for 2011 and 2012. If you itemize your deductions, the amount you can deduct would have been phased out above a certain income amount ($169,750 for all returns). The reduction in the value of the itemized deduction can be up to 80% depending on your income level. This tax hike tends to punish people who pay large amounts of state taxes, live in high cost-of-living areas, and even people who donate large sums to charity. Fortunately, this scheme will not return until 2013.
The Return of the Estate Tax
In 2010 the estate tax was repealed entirely, meaning any wealth you accumulated during your life could be passed tax-free to your heirs. But that goes away in 2011, when the 35% tax on assets returns, with a $5,000,000 exemption ($10,000,000 for married couples). This insidious tax, often called the "Death Tax" is the most unfair and unjust tax on the books. It taxes people on wealth that they accumulated through their lifetime and on money they paid taxes on already. The Heritage Foundation assembled and excellent article on the Estate Tax and its implications called The Economic Case Against the Death Tax. Estate taxes will rise again in 2013.
Bonus Depreciation
For 2011 only, bonus depreciation is increased to 100% for purchases of certain qualifying property. Bonus depreciation will return to 50% in 2012.
1099 Reporting Requirements
Starting in 2011, any business that does more than $600 in business with any vendor will be required to submit a 1099 form. This massive increase in paperwork will increase the cost of every small and large business and will likely increase prices on the goods and services that these businesses provide. For example, if a business purchases a $1,000 computer from Amazon, that business will be required to file a 1099 with the IRS, something not previously required for vendors organized as corporations.
Mortgage Insurance Premiums
As of January 1, 2012, taxpayers will no longer be allowed to deduct mortgage insurance premiums from their tax returns. In 2010, homeowners making less than $100,000 who were paying insurance premiums on mortgages established after December 31, 2006 were able to take this deduction. This provision was set to expire in 2011, but the temporary tax cut law extended it to 2013.
Student Loan Interest Deduction
The Student Loan Interest Deduction has been extended for two more years. Starting in 2013, income limits for individuals or married couples drop and taxpayers can only deduct interest from the first 5 years of their student loans.
Medicine Cabinet Taxes
The recent Healthcare law imposes a new rule in 2011 that Health Savings Accounts (HSAs), Health Reimbursement Accounts (HRAs) and Flexible Spending Accounts (FSAs) cannot be used for non-prescription medicine. This is in effect a tax increase on anyone with such an account. Also, an annual tax on brand name pharmaceutical manufactures will increase the cost of brand name drugs (even though this tax isn't paid directly by individuals).
Tanning Tax (a.k.a "The Snooki Tax")
The Tanning Tax of 10% that just began in July continues next year.
Despite the length of this list of tax changes, there are many other less significant changes on the horizon. Always consult an accountant or tax professional regarding your specific circumstances.
No Changes to Tax Rates
The new tax law averted an increase in the tax brackets. Low income taxpayers still benefit from the 10% bracket. High-income tax payers will remain in the 35% bracket. The marriage tax penalty, where married couples pay more than they would if each person filed a single return, will NOT return until 2013. Since most families require two incomes, this would have penalized a large number of American families.
Payroll Tax Cut
The temporary tax rate extension passed in December 2010 included a new provision for 2011. All wage earners will see a temporary reduction in the payroll tax from 6.2% to 4.2%. This applies on up to the first $106,800 of W-2 or Self Employment income earned by each individual. For example, if you earn $106,800 per year this translates into a $2,136 savings. If you earn $50,000 per year, this translates into a $1,000 savings.
Personal Exemption Phaseouts Delayed
According to the tax law each person covered by a return entitles the tax payer to reduce their taxable income by $3,750. This remains the case for 2011 and 2012. However, starting in 2013, the personal exemption phaseout returns. Under this rule, the amount you can claim starts decreasing around $166,000 and goes to zero by $291,000. This effectively serves as a stealth tax hike on middle and higher income taxpayers.
Itemized Deduction Limits Delayed
The so-called "Pease" limits on itemized deductions have been repealed for 2011 and 2012. If you itemize your deductions, the amount you can deduct would have been phased out above a certain income amount ($169,750 for all returns). The reduction in the value of the itemized deduction can be up to 80% depending on your income level. This tax hike tends to punish people who pay large amounts of state taxes, live in high cost-of-living areas, and even people who donate large sums to charity. Fortunately, this scheme will not return until 2013.
The Return of the Estate Tax
In 2010 the estate tax was repealed entirely, meaning any wealth you accumulated during your life could be passed tax-free to your heirs. But that goes away in 2011, when the 35% tax on assets returns, with a $5,000,000 exemption ($10,000,000 for married couples). This insidious tax, often called the "Death Tax" is the most unfair and unjust tax on the books. It taxes people on wealth that they accumulated through their lifetime and on money they paid taxes on already. The Heritage Foundation assembled and excellent article on the Estate Tax and its implications called The Economic Case Against the Death Tax. Estate taxes will rise again in 2013.
Bonus Depreciation
For 2011 only, bonus depreciation is increased to 100% for purchases of certain qualifying property. Bonus depreciation will return to 50% in 2012.
1099 Reporting Requirements
Starting in 2011, any business that does more than $600 in business with any vendor will be required to submit a 1099 form. This massive increase in paperwork will increase the cost of every small and large business and will likely increase prices on the goods and services that these businesses provide. For example, if a business purchases a $1,000 computer from Amazon, that business will be required to file a 1099 with the IRS, something not previously required for vendors organized as corporations.
Mortgage Insurance Premiums
As of January 1, 2012, taxpayers will no longer be allowed to deduct mortgage insurance premiums from their tax returns. In 2010, homeowners making less than $100,000 who were paying insurance premiums on mortgages established after December 31, 2006 were able to take this deduction. This provision was set to expire in 2011, but the temporary tax cut law extended it to 2013.
Student Loan Interest Deduction
The Student Loan Interest Deduction has been extended for two more years. Starting in 2013, income limits for individuals or married couples drop and taxpayers can only deduct interest from the first 5 years of their student loans.
Medicine Cabinet Taxes
The recent Healthcare law imposes a new rule in 2011 that Health Savings Accounts (HSAs), Health Reimbursement Accounts (HRAs) and Flexible Spending Accounts (FSAs) cannot be used for non-prescription medicine. This is in effect a tax increase on anyone with such an account. Also, an annual tax on brand name pharmaceutical manufactures will increase the cost of brand name drugs (even though this tax isn't paid directly by individuals).
Tanning Tax (a.k.a "The Snooki Tax")
The Tanning Tax of 10% that just began in July continues next year.
Despite the length of this list of tax changes, there are many other less significant changes on the horizon. Always consult an accountant or tax professional regarding your specific circumstances.
Saturday, January 7, 2012
2011 Tax Law Changes: Part 1
Happy New Year! I truly hope you had a very Merry Christmas and a joyous New Year celebration! I hope that all of your wishes and dreams come true in 2012!
Tax season is ready to begin on January 9, 2012. There are several new tax laws in place and a few changes for the 2011 tax filing year.
Laundry List of 2011 Tax Law Changes - Part 1
Tax Credits:
Child Tax Credit The child tax credit was going to drop from $1,000 per child to $500; however, that drop is delayed until 2013. The credit is still refundable for certain filers.
Payroll Tax Credit (Making Work Pay)
The partial credit of 6.2% for payroll taxes that low income earners pay is eliminated. This will increase the tax liability of low-income single payers by $400, and joint filers by $800. The payroll tax cut mentioned above will take the place of this credit.
Earned Income Tax Credit (EITC) The economic stimulus act provided for a 45% increase of the EITC credit for families with three or more children, and higher income limits for qualifying for the credit. This provision is extended for 2011 and 2012. It is set to expire in 2013.
College Tuition Tax Credit
The economic stimulus act (“American Recovery and Reinvestment Act of 2009”) tax credit is renewed and now expires in 2013.
Energy Savings CreditThe 2011 credit of 30% (up to $1,500) for energy efficiency improvements to principal residences expires. In its place is a 10% credit (up to $500). There are additional limitations specific items such as furnaces, water heaters, and windows.
Other Changes:
College Savings Plans With the expiration of the Bush tax cuts, in 2011, 529 Plans can no longer be used to pay for a computer or broadband access.
Stable Investment Taxes
The capital gains tax rate will remain 0% for earners in the 15% income tax bracket or lower. Capital gains taxs on other earners remains 15%. Income from dividends is taxed at capital gains rates.
This is just an overview of the latest changes. Please check back for 2011 Tax Law Changes Part 2. If you have any questions, please feel free to call me at (209) 329-1255.
Tax season is ready to begin on January 9, 2012. There are several new tax laws in place and a few changes for the 2011 tax filing year.
Laundry List of 2011 Tax Law Changes - Part 1
Tax Credits:
Child Tax Credit The child tax credit was going to drop from $1,000 per child to $500; however, that drop is delayed until 2013. The credit is still refundable for certain filers.
Payroll Tax Credit (Making Work Pay)
The partial credit of 6.2% for payroll taxes that low income earners pay is eliminated. This will increase the tax liability of low-income single payers by $400, and joint filers by $800. The payroll tax cut mentioned above will take the place of this credit.
Earned Income Tax Credit (EITC) The economic stimulus act provided for a 45% increase of the EITC credit for families with three or more children, and higher income limits for qualifying for the credit. This provision is extended for 2011 and 2012. It is set to expire in 2013.
College Tuition Tax Credit
The economic stimulus act (“American Recovery and Reinvestment Act of 2009”) tax credit is renewed and now expires in 2013.
Energy Savings CreditThe 2011 credit of 30% (up to $1,500) for energy efficiency improvements to principal residences expires. In its place is a 10% credit (up to $500). There are additional limitations specific items such as furnaces, water heaters, and windows.
Other Changes:
College Savings Plans With the expiration of the Bush tax cuts, in 2011, 529 Plans can no longer be used to pay for a computer or broadband access.
Stable Investment Taxes
The capital gains tax rate will remain 0% for earners in the 15% income tax bracket or lower. Capital gains taxs on other earners remains 15%. Income from dividends is taxed at capital gains rates.
This is just an overview of the latest changes. Please check back for 2011 Tax Law Changes Part 2. If you have any questions, please feel free to call me at (209) 329-1255.
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