What Does This Mean for Taxpayers?

Tax implications of the decision(or lack of decision) remains uncertain at this point.  What is certain are automatic (mandatory) budget cuts of 1.2 trillion, will commence in the beginning of 2013, unless Congress and the “Super Committee” can agree on a bipartisan (balanced) plan before January 2013.

The last resort, mandatory reductions, will cut evenly from both domestic and defense programs.  The automatic Budget Control Act, passed in August, already mandated $450 billion in defense spending cuts over 10 years.

We also know that the credit rating agency, Standard and Poor’s issued a statement, that failure to reach an agreement would not downgrade the United States credit rating as long as the automatic spending cuts remained in place.

We will continue to update you on tax implications of the automatic budget cuts. Who knows, maybe congress will come up with a bipartisan agreement before January 2013.  One thing is certain, we will find out soon if Congress can agree on a series of budget decisions set to expire – The payroll tax cut, which reduced the amount of social security taxes taken out of your paycheck and the extension of unemployment benefits both set to expire December 31, 2011 and Bush Tax cuts set to expire December 31, 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.



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.

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Fast forward two years and for the most part this tiny line item in that giant bill hasn’t received nearly as much attention as it should.

Qualified employees who bike to work can take home $20 a month. And considering our big cities across the nation are becoming more and more bicycle friendly it is pretty hard to say no to an extra $240 a year.

Former President Bush signed the Bicycle Commuter Benefits Act which gives each commuter a tax break and credit for their environmentally sound commuting decision.

The money can be used to purchase, store, maintain or repair bikes that are used for a substantial portion of an employee’s commute. Tip: You do have to commute by bike at least three times a week and your employer has to be a part of the program. All employers are eligible, and by doing this for their employees they are also entitled to a federal tax break.

Of course, by biking to work, you are saving gas money as well. To figure out how much money biking to work can save you, check out the Bicycling to Work calculator. The average driver, which commutes around 30 miles round trip, is saving around $40 a week if they bike to work at least three days. During an average month, that’s about $160 bones!

Of course, that is a lot to ask of a novice biker, but there are several other benefits to biking to work. A book creatively called Bike To Work talks up some of those benefits – including the positive affect it has had on the waistline.

Biking is an easy way to go green, save green and even make green. What do you think?