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In December 2010, the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (Tax Act) was approved in Congress and signed into law. The tax law changes contained within the Act basically allowed existing tax rates to prevail until 2012. One other thing to keep in mind is that many of the tax breaks in the 2010 Act were designed to be phased in over a number of years, or indexed to inflation. These breaks applied to 2010 and later years.

With 2010 now behind us, let’s take a look at what changes the Act has in store for us with regard to our 2011 tax returns. I’ll focus specifically on what is new or different for 2011.

New Payroll Tax Cut for Wage Earners

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Wage earners and self employed individuals will see a significant cut in their share of payroll taxes. Instead of paying 6.2% on wages up to $106,800, they will now pay 4.2%. That could mean a savings of over $2000 for those making over $100,000 per year. This applies just for 2011. What’s really great about this tax cut is that you’ll see the savings reflected in each paycheck throughout the year. In other words, it’s not going to be reflected in the tax return you file by next April 15, 2012, but in each current paycheck. For example, if you earn $60,000 annually and are paid bi-weekly, you’ll see an extra $46 in each paycheck.

Self-employed individuals also benefit from the payroll tax cut. Self-employed individuals will pay 10.4%, instead of 12.4%, on self-employment income up to the $106,800 threshold.

Perhaps not too surprisingly, the good news is offset by some bad news. The payroll tax cut replaces the Making Work Pay Credit (MWPC), which expired at the end of 2010 and was not renewed for 2011. The MWPC provided a tax credit of up to $400 for individuals and up to $800 for married taxpayers filing joint returns. Nevertheless, you can see that if you’re earning more than $20,000 annually, the payroll tax cut is a big winner.

Mortgage Insurance Premiums

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The deduction for mortgage insurance premiums paid on mortgages taken out after 2006 expired on Dec. 31, 2010 so this deduction no longer applies for 2011. Keep in mind that this is for your mortgage insurance premiums, not your mortgage interest.

Flexible Spending Accounts

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Employees with flexible spending accounts can no longer use pretax funds to pay for many over-the counter medicines, except for insulin, without a doctor’s prescription. So this limits the benefit of paying for drugs like aspirin and other common cold remedies from your flexible spending account. This rule also applies to health reimbursments accounts, health savings accounts, and medical savings account plans. In addition to stingier rules for using your flex spending account funds, the penalty has doubled in some cases when you use these spending account funds for non-qualified expenditures. The penalty can be as much as 20% of the amount taken out of the account.

Residential Energy Improvement Credits

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For individuals making energy-efficient improvements to their homes in 2011 important changes have taken place for a popular tax credit. The Tax Relief Act extended the energy efficient property credit for homeowners for one year, through December 31, 2011. However, more restrictive rules apply for 2011 than applied in 2010. An individual is now entitled to a 10% credit qualified energy efficiency improvements (building envelope components) installed during the tax year.

The maximum credit allowable is $500 over the lifetime of the taxpayer. The $500 amount must be reduced by the total amount of credits previously taken by the taxpayer in 2006, 2007, 2009 and 2010. There are also certain restrictions on the amounts claimed for certain items as well. For example, the amount claimed for windows and skylights in a year cannot exceed $200 less any credits you claimed for these items in all earlier tax years ending after December 31, 2005. The credit also cannot exceed $50 for an advanced main circulating fan, $150 for any qualified natural gas, propane, or hot water boiler, and $300 for any item of energy efficient property.

New Broker Basis Reporting Rules

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Beginning in 2011, generally all brokers will be required to report your “adjusted cost basis” in stock you sell that year as well as whether it is short or long term. This reporting will be done on Form 1099-B. This simplifies the task of tracking your stock costs and ensures that your investment transactions are properly reported.

These are just some of the many important tax changes that you’ll see in 2011 and for the federal return you prepare by the deadline on April 15, 2012.

Now that the dust has settled, what does this mean for you? Here are some of the changes that you should be aware of:

• Tax Rates remain the same for 2011 and 2012: The six federal income tax rates will remain at the same levels they are today: 10%, 15%, 25%, 28%, 33% and 35%. In addition, itemized deductions will continue to be allowed in full for high-income taxpayers.
• AMT extension: More than 20 million taxpayers will be spared from having to pay the Alternative Minimum Tax.
• Unemployment benefits: Unemployed taxpayers get a 13-month extension of the deadline to file for additional unemployment benefits.
• Social Security: Workers will get a 2 percentage-point break on their payroll tax for one year. Instead of paying 6.2% on wages up to $106,800, they will only have to pay 4.2% in 2011. This tax break replaces the Making Work Pay credit, which expires at the end of 2010.
• Child Tax Credit: The bill retains the $1,000 child tax credit and reduces the minimum earnings threshold, which allows more people to claim the refundable credit (meaning you get the credit even if you owe no tax.
• Relief of ‘marriage penalty’: The bill continues to ensure that the standard deduction for couples is exactly twice that for single filers. It also maintains an expanded 15% tax bracket so that the amount of income in that bracket for joint filers is exactly double that for single filers.
• Expanded college credit: Paying for college tuition in 2011 and 2012 will be a bit easier with the retention of the American Opportunity tax credit, which allows a credit up to $2500.
• Additional extensions: The legislation extends a number of tax breaks that have been introduced in the past few years such as the option to deduct on your federal return state and local sales tax instead of state and local income tax. Also, it includes a break for teachers to deduct up to $250 in classroom expenses.

There’s still time – but you’d better move quickly – to save on this year’s taxes. A few simple tips to save you money:

• Make your home more energy efficient. Slash your tax bill by $1,500 and save money on each utility bill.
• Donate to charity. Giving back could pay you back in terms of a bigger refund and is a great way to give back to the community.
• Max out your retirement contributions. Some can save you bucks on your 2010 return and help your retirement nest egg grow tax free.
• Use your flexible spending account funds. Any money you have in these accounts must be spend or lost. Over the counter drugs will no longer be eligible in 2011, so now is a good time to purchase those medications.
• Invest in your child or grandchild’s college education by contributing to a 529 college savings plan. In some cases, these can lower your state taxes.

TurboTax is already up-to-date with these tax law changes so you can be confident you’re getting every deduction and credit to which you’re entitled. We understand these changes seem complex, but in reality, TurboTax is designed to identify all the tax breaks for you. It breaks down all these changes, asks you simple questions you can answer easily, and gets you the biggest possible refund.



I’d like to take a few minutes to highlight two important tax laws that will likely affect you. The most immediate concern is the Alternative Minimum Tax and the second is the expiration of the Bush-era tax cuts at the end of this year. Let’s take a look at what each means to you and your tax refund.

The Alternative Minimum Tax (AMT)

Congress originally crafted the AMT in 1969 to ensure that 155 high income taxpayers paid at least some minimum tax on income that was otherwise sheltered from tax through legal deductions. Since then, the AMT has gradually snared more taxpayers, not because of their rising incomes or aggressive tax deductions, but because Congress did not index the AMT formula for inflation. As a result, the AMT traps more and more middle class folks each year. Last year, approximately 4-5 million taxpayers paid AMT. If Congress does nothing to adjust the AMT formula, experts believe it will affect more than 30 million taxpayers in 2010– an increase of over 400% in just one year!

You are more likely to be affected by the AMT if you have income over $100,000, have large deductions for state taxes (those living in high state tax regions like NY, CA and NJ) and/or medical expenses, and claim a large number of personal exemptions (like for your kids). Unfortunately, there is little you can do to mitigate this tax other than to defer paying taxes and medical expenses into 2011, if possible. On the brighter side, most tax experts are confident Congress will eventually tinker with the AMT rules to avoid affecting millions more American taxpayers. But best of all, when it comes time to file your return, TurboTax software will be updated with the latest tax laws to ensure it’s easy for you get the biggest refund possible.

The Expiring Bush-era Tax Cuts

Much has been written about the Bush tax cuts that expire at the end of 2010. Basically what this means is that if Congress does nothing, tax rates will revert to what they were back in 2000. That means higher tax rates not just for the affluent, but for almost all taxpayers. For example, today the tax rates range from 10% to 35% based on income. Back in 2000 the tax rates ranged from 15% to 39.6%. So even the less affluent would see their tax rate increase next year by 50% just by having the Bush tax cuts expire.

One element of the Bush tax cuts that has not received much attention is the “marriage penalty”. This refers to the additional tax a couple pays by filing jointly instead of filing two single returns. Under Bush, the tax code was adjusted to virtually eliminate the marriage penalty. However, if the tax cuts expire, the marriage penalty comes back since the standard deduction and tax brackets for couples would be less than twice as large (actually 167%) as those provided to single filers.

Congress has yet to act on the expiring tax cuts, but we expect to see action sometime after the November 2010 elections. Absent quick action, taxpayers may see less take home pay in January to reflect the higher tax rates. Fortunately, the Bush tax cuts do not affect your 2010 tax return, so stayed tuned to find out what happens here.

If it’s stock transactions, have no fear. I’m going to tell you four things you need to know about stock transactions and how TurboTax makes this easy. And while I’m using the term stock transactions generically, they can include bond sales and other “capital asset” sales.

First, TurboTax determines your holding period based on your purchase and sale dates and then computes the correct tax automatically. However, the first thing you need to know about stock transactions is that the gain or loss can either be long- or short-term. This refers to how long you held the investment. Short-term is a holding period of less than one year. Any holding period of longer than one year qualifies the gain or less as long-term. The holding period determines whether you get preferential tax – short term gains are taxed at regular rates (up to xx%) while long term gains are taxed at a maximum 15%.

Second, stock sales can also result in losses, which in this market many of us know quite well. While stock losses hurt, they can be somewhat beneficial because they offset stock gains and other income. The rules for netting gains and losses can be confusing, but once again, TurboTax does all this for you automatically. The other thing to keep in mind is that if after netting stock losses and gains, you have a loss, you can use up to $3000 of that loss to offset other income. Any remaining loss beyond the $3000 can be used to offset income in subsequent years. So, your financial loss today can provide tax benefits by also reducing your future taxable income. TurboTax automatically tracks this for you too.

Third, the IRS has in place diagnostic tools that match your sales to those reported by your broker. Therefore, it is important to account for all your stock transactions, otherwise you might receive one of those dreaded letters from the IRS!

Finally, the best way to overcome any concerns you may have in reporting your stock transactions is to automatically import your transactions from your broker. TurboTax does this, and supports over 100 financial institutions so it is highly likely yours participates. Importing stock transactions eliminates all data entry and ensures your reported transactions match exactly what the broker reported to the IRS. Importing is as simple as identifying your broker and then using your credentials to access your brokerage account. It takes just seconds to do. Once you try it and see the results, you’ll never turn back to manually entering your stock trades.

That’s it for stock transaction. Now it’s time to finish your tax return. Come see us for tax help next year. Get busy!

Two big considerations will drive action in D.C. this year – the economy and the budget deficit. Obviously these actions will affect your tax situation. So, let’s discuss what we know today and what is scheduled to change in 2011. And keep in mind, this is not only about tax planning for 2010, but for years beyond.

Expiring Tax Cuts

In 2001 and 2003, tax breaks were enacted that are scheduled to expire in 2011. These breaks consisted primarily of reducing the top tax rates on capital gains, dividends and all other income.  If no legislative action happens to reverse these expiring tax cuts, taxpayers will see the following tax rate changes in 2011:

From  (2009 tax year)    To (2010 tax year)

Capital gains:        15%   ->     20%

Dividends:             15%   ->     39.6%

Income:                  35%   ->    39.6%

These are substantial increases across the board. Fortunately for some, these increases may apply only to the wealthiest Americans (> $200,000 single or > $250,000 joint). Regardless of what happens, many believe that top tax rates will go up.

Therefore, now is the time to evaluate your income portfolio to determine if it’s time for asset reallocation. For example, consider shifting those dividend generating investments into capital gains generating investments. While this transaction may create a taxable sale now, you’ll be paying tax on those gains at a rate lower than what it may ultimately be in 2011. On the other hand, if you expect to sell at a loss, consider shifting the sale into 2011 where those capital losses will be more valuable if rates go up.

Lastly, if Congress does nothing about the alternative minimum tax (AMT) this year, 24 million additional Americans taxpayers will face paying the AMT this year. This scenario has played out each year for the last few years. What we have learned is that Congress generally acts on this “stealth” tax at the last possible minute to mitigate its impact.

And finally, the estate tax uncertainly still exists. While there is no estate tax at least for now, it is scheduled to come roaring back in 2011 at a rate of 55%. The exemption amount is $1 million. Obviously, the lack of certainly in this area makes planning difficult.

In summary, while no action has been taken yet on tax legislation for next year, it is prudent to keep an eye on it so you can anticipate its impact on your bottom line. Although I can’t predict what Congress will do with specific legislation, I think it’s safe to assume that high income taxpayers will see higher tax rates in the future. Use this as a guide for beginning your tax planning in 2011, and check back with us often as we’ll keep you updated here on tax changes you need to know about.

So this means a potential delay of up to two weeks. But don’t fret. I’d suggest you start completing your return with the information you do have. And not all financial institutions will push the deadline. Furthermore, the information from your last statement or online statement is likely to be accurate. Use this information until you receive the Form 1099. When you enter the preliminary information in TurboTax, bookmark the item with the new “flags” feature. That way if there is any change, TurboTax enables you to easily make the change by clicking on each flag.

When it comes to filing your return, select electronic filing. You’ll get your refund in as little as 10 days versus 4-6 weeks paper filing it. And if you one of the unlucky ones having to pay, well then you’re in no rush to file and this blog post is probably irrelevant to you anyway!

A new notice clarifies that, for calendar year 2009, filers of Form 1099-B, Proceeds From Broker and Barter Exchange Transactions, Form 1099-S, Proceeds From Real Estate Transactions, and certain information on Form 1099-MISC, Miscellaneous Income, have until Feb. 16, 2010, to report both the information required on these forms and certain other tax information furnished on the same date.

There’s been a lot of talk – and confusion — about the homebuyer credit. Part of the confusion can be attributed to the fact that Congress made at least 3 major changes to the homebuyer credit over the last couple years. So let’s try to make some sense of it. Rather than focus on what each of the changes are, I’m going to talk about what homebuyer credits are now available and how you qualify.

But first, let’s get rid of some of the confusion brought on by the first homebuyer credit in 2008. Initially, the first-time homebuyer credit applied to homes purchased during a period in 2008. It was a $7,500 “credit” that despite its name required you to pay back the $7,500 credit over 15 years. So it wasn’t really a credit, but a loan. That is now history so you can forget about this “credit.”

For 2009 there is now a true homebuyer credit (one that does not require you to pay it back… unless you sell it within three years) worth up to $8,000. While most of the attention has been focused on the first-time homebuyer, the credit has been expanded to include “repeat” buyers—worth up to $6,500.

To qualify for the first-time or repeat homebuyer credit, you have to meet several qualifications including home ownership and income tests. First-time homebuyers must not have owned a home in the last three years. Repeat homebuyers require home ownership for five consecutive years of the last eight years. The income test is described in the table below and is based on when you purchase your home. One thing to note about the income test is that the credit is reduced when your income exceeds the base income amount and the credit is completely wiped out when your income is $20,000 above the base amount. Not surprisingly, the homebuyer credit rules can become quite complex and that’s where TurboTax comes in. TurboTax walks you through a series of simple questions to determine eligibility and then computes your credit. You can wrack your brain trying to figure all this out, or just let TurboTax do the hard work for you.  But since the Congress just passed the repeat homebuyer credit, you are going to have to wait until January to claim the credit on your return to give the IRS some time to update the tax forms.  Bottom line, though, you could see your refund soar by $8,000!

This is such great news to homebuyers that it’s likely to tempt those who are looking to make a fast buck illegally. To mitigate fraud, the IRS requires documentation in the form of a completed settlement statement be attached to your tax return. As a result, homebuyers claiming the credit in 2009 will be unable to electronically file their return. While this will delay your refund by weeks, it still makes for a nice refund when it comes.

With home prices down, mortgage rates low and sweet credits available from Uncle Sam, now is a great time to purchase a home. Visit our web site for more information on the homebuyer credit.