Embed the above image on your site using the code below:<a href="<a href="http://images.blog.turbotax.intuit.com/swf/TurboTax-Fiscal-Cliff-Interactivefnl.swf"><img" rel="nofollow">http://images.blog.turbotax.intuit.com/swf/TurboTax-Fiscal-Cliff-Interactivefnl.swf"><img</a> src="<a href="http://images.blog.turbotax.intuit.com/swf/TurboTax-Fiscal-Cliff-Interactivefnl.swf&quot" rel="nofollow">http://images.blog.turbotax.intuit.com/swf/TurboTax-Fiscal-Cliff-Interactivefnl.swf&quot</a>; alt="Fiscal-Cliff-Interactive" title="Fiscal-Cliff-Interactive" width="580" height="600" class="alignnone size-full wp-image-8428" /></a><br/>Free Tax Filing, Efile Taxes, Income Tax Returns - <a href="<a href="http://www.turbotax.com">TurboTax.com</a&gt" rel="nofollow" target="_blank">http://www.turbotax.com">TurboTax.com</a&gt</a>;

A recent online poll of TurboTax customers shows that while awareness of the expiring tax cuts is high, understanding the true impact of these changes is low. About 65 percent of those surveyed say they don’t know how these changes could impact their 2010 taxes.

The majority of those responding (70 percent) say they are not making any changes to their year-end tax planning as a result of these pending changes. More than half (58 percent) said they are most concerned about the expiring Bush tax cuts, with 14 percent expressing most concern about the Alternative Minimum Tax, or AMT.

AMT, Tax Cuts Set to Expire

House and Senate tax writing committees have pledged to “do everything possible” to adjust the existing AMT laws so that no additional taxpayers are affected. However, tax bills will rise for an estimated 25 million Americans if Congress fails to act, a dramatic increase over the 4 million taxpayers today facing the AMT.

The fate of several tax credits associated with AMT are also in question, including the child and dependent care credit and the earned income tax credit for low and middle-income workers.

Additionally, tax cuts from 2001 are set to expire at the end of this year. Without Congressional action, personal income tax rates will go up across all income brackets. Taxpayers earning dividends, such as retirees, will see the tax rate on dividends increase and the marriage penalty will once again raise the tax rate on families.

However, if all the current expiring cuts are extended by Congress, the cost will add $3.7 trillion to the national deficit over 10 years according to the Treasury Department.

Automatically Updated

TurboTax is already prepared to handle multiple scenarios. When Congress does act, TurboTax Online will be automatically updated to reflect the most current tax laws. TurboTax desktop software customers can use the easy, One Click Update to get the most up-to-date tax forms before they file.

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.

Interactive by Column Five Media

Embed the above image on your site using the code below:<a href="<a href="http://images.blog.turbotax.intuit.com/swf/Tax-Cuts.swf"><img" rel="nofollow">http://images.blog.turbotax.intuit.com/swf/Tax-Cuts.swf"><img</a> src="<a href="http://images.blog.turbotax.intuit.com/swf/Tax-Cuts.swf&quot" rel="nofollow">http://images.blog.turbotax.intuit.com/swf/Tax-Cuts.swf&quot</a>; alt="Tax-Cuts" title="Tax-Cuts" width="636" height="650" class="alignnone size-full wp-image-8428" /></a><br/>Free Tax Filing, Efile Taxes, Income Tax Returns - <a href="<a href="http://www.turbotax.com">TurboTax.com</a&gt" rel="nofollow" target="_blank">http://www.turbotax.com">TurboTax.com</a&gt</a>;

Bob Meighan, our go-to tax guy, breaks down what these changes are and how they could affect you in an interview with ABC News NOW.

Still have questions?  Leave them in the comments and we will try to help answer them in Bob’s upcoming blog post.

Tax Rates Increase

The first change you’ll see is in the marginal tax rates. Marginal tax rate refers to the rate you’ll pay on each incremental dollar you earn.is the change in the In general terms, those in the lowest and highest income brackets will see their tax rate increase. For example, low income earners will see their tax bracket go from 10% to 15%. On the other hand, “fat cats” will experience a rate increase from 35% to 39.6%. Those in the middle are affected very little by the tax rate changes. Most tax observaters believe the lower tax rates will be preserved, but it’s far from certain whether the high income earners will be given the same reprieve.

Marriage Penalty Comes Back

The marriage penalty refers to the incremental tax a couple pays over the combined tax if each were to file as single taxpayers. Thanks to the Bush tax cuts about a decade ago, the marriage penalty was eliminated by making the standard deduction for joint filers double that of the single filer. Without the Bush tax cuts extended, the joint-filer standard deduction will fall to 167% of the amount for singles.

Dividends and Capital Gains Rates Going Up

Capital gain rates, currently 0% for those in the 10% or 15% bracket are due to rise to 10% or 20% depending on your income. All others will see the capital gains rate tick up from 15% to 20%. More dramatic is what could happen to the tax rate on dividends. Most dividends, now taxed at capital gain rates (as low as 0% to 15%), will skyrocket to as high as 39.6%. Retirees who have built a portfolio of dividend paying stocks will suffer the most from this change.

College Savings Plan Get Cut

One popular and tax advantaged way to save for college is through a Coverdell Education Savings Account. Even though the contribution limit was only $2000 (hardly enough to make a dent in tuition), the contribution maximum in 2011 drops to $500. There are several other college savings plans available, so be sure to check them out before investing for your child’s educational future.

Personal Exemption Deduction Gets Slashed

Personal exemptions, worth $3,650 per family member, are used to reduce taxable income. However, before the Bush tax cuts, higher income folks lost some or all of these deductions. The Bush tax cuts eliminated this hidden tax increase. But if Congress takes no action, the loss of the personal exexmption deduction will roar back.

Itemized Deductions Get Reduced

Similar to the personal exemption deduction phase out above, the same will apply to itemized deductions to high income earners. Rather than potentially losing all of one’s itemized deductions the rule, if not addressed by Congress, could eliminate up to 80% of certain itemized deductions.

Alternative Minimum Tax to Affect More Middle Income Americans

The AMT (alternative minimum tax), if not adjusted, would impact nearly 28 million people in 2011, up from only 4 million in 2009. This alternate tax was created to ensure the wealthy didn’t get away without paying tax. Now it’s closer to impacting many more middle class Americans unless Congress acts before the end of 2010.

College Savings Plan Get Cut

One popular and tax advantaged way to save for college is through a Coverdell Education Savings Account. Even though the contribution limit was only $2000 (hardly enough to make a dent in tuition), the maximum contribution in 2011 drops to a paltry $500. There are several other college savings plans available, so be sure to check them out before investing for your child’s educational future.

Estate Tax Spikes

The federal estate tax, which in 2010 was zero, is scheduled to return in 2011 for taxable estates over $1 million at a top tax rate of 55%. If you follow such things, you’ll recall that in 2000, the estate tax exemption amount was $675,000.  Congress incrementally increased the exexmption amount over the decade to $3,500,000 in 2009.  While the zero estate tax rate in 2010 was great for estates, it created a lot of bookkeeping headaches and tax liabilities for recipients of the estate’s assets. This is just one more item on Congress’ plate.

Last, and perhaps least impactful, is the elimination of non-prescription OTC (over the counter) medicine from FSAs (Flexible spending accounts) and HRAs (Health reimbursement accounts).

This is a lot of information, to be sure, but with this you can start making wise investment decisions with your various portfolios.