The IRS began accepting the last group of forms impacted by late tax legislation today, Monday, March 4.

This includes:

• Residential Energy Credit(Form 5695) – This tax credit may save you up to $500 if you purchased energy efficient windows, doors, roofs, and insulation.
• Mortgage Interest Credit (Form 8396) –  Lower income individuals may receive an additional tax credit for part of their home mortgage interest paid.

Most of the other forms are related to business tax credits or tax credits and deductions that impact more complex tax returns.  For a complete list of forms please see the IRS list of forms.

Have any of the forms mentioned?  If you do, don’t worry.  TurboTax is up to date with all tax law changes, so you can file today and feel confident that you will get every tax deduction and credit you deserve.

The IRS began accepting tax returns for the vast majority of taxpayers on January 30. As of today, March 4, the IRS began accepting and processing all 2012 tax returns..

Have a question?  Only TurboTax lets you talk to CPAs, IRS enrolled agents, and tax attorneys while you prepare your taxes, free.

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The act includes a permanent patch of the Alternative Minimum Tax (AMT), the permanent reduction of tax rates, and reinstating various tax deductions such as the Educator Expense Deduction, the Tuition and Fees Deduction, state sales taxes in lieu of state income taxes, among others.

Now, are you asking yourself, “What does this mean for me?”  You are certainly not alone.  Here is a quick snapshot of what this could financially mean to you and your family in 2013.

The Alternative Minimum Tax (AMT): The AMT patch was permanently extended, which means 34 million middle-income families can celebrate the New Year with an average of $3,700 back in their pockets.  Under current law, the AMT typically hits taxpayers who have a household income of over $75K and are married with more than two kids.

The Tax Extenders: The “Tax Extenders” refer to a broad set of temporary tax laws.  Here are just a few of the tax deductions and credits that were included in this “Tax Extenders” package:

•    The Educator Expense Deduction– If you are a teacher, you can claim up to $250 of classroom expenses for supplies, materials, books and software.

•    Tuition and Fees Deduction – College students or parents can once again deduct education expenses related to schooling, including tuition, books and other supplies, up to $4,000.

•    Mortgage Debt Relief – Previously, taxpayers who have mortgage debt canceled or forgiven after 2012 may be required to pay taxes on that amount.  Under the new law, up to $2 million of forgiven debt is eligible to be excluded from income in 2013.

•   Energy Tax Breaks – Homeowners who made energy efficient improvements to their homes in 2012 will still be able to claim the Residential Energy Property Credit. This credit could mean as much as $500.

Reduction in Individual Income Tax Rates:  98% of Americans will continue to see lower tax rates as a result of the permanently extended Bush Tax Cuts, keeping more money in their pocket.  Tax rates will remain at 10%, 25%, 28%, and 33% on incomes below $400,000 if single ($450,000 married filing jointly). The top rate goes from 35% to 39.6% only for the highest earners. Dividends and capital gains top tax rate goes to 20% from 15% for those with income above $400,000 ($450,000 if filing jointly).

Tax Relief for Families and Children

•       Child Tax Credit:  You will continue to be able to qualify for a $1,000 tax credit for each dependent child you are able to claim under the age of 17.

•      Earned Income Tax Credit (EITC):  If you have three children and are married you can still receive a maximum tax credit worth over $5,700.

•      Dependent Care Credit:  Increased dependent care credits remain in place that allow you to claim up to $2,100 of your eligible dependent care cost for two or more children.

•      Commuter Transit Tax Provision: Average hardworking families can continue to save money on their daily commutes through higher allowable pre-tax payroll deductions if employers offer commuter transit plans.  In 2013 taxpayers will see a federal tax savings up to about $570 per year in their paychecks.

We know your money is important to you and that’s why we’ve planned ahead for these changes.  TurboTax will automatically update to reflect all recent changes, and will be ready for you to start your taxes on January 3^rd.

Plus, remember, at TurboTax, we’re here for you. If you still have questions about the tax law changes, only TurboTax software lets you talk to CPAs, EAs or tax attorneys as often as you like to answer your questions while you’re preparing your taxes. And you can ask as many questions as you want, as often as you like – all for free. We’ll help you get your biggest refund – guaranteed and help make sure your taxes are done right.  We guarantee all our calculations are 100% accurate – so you can be sure you get every penny you deserve.

Fiscal Cliff

Let’s start with the facts.

Every year, a small portion of the IRS tax code expires, requiring Congress to pass laws to extend them.   This year is no exception. There are a handful of tax laws that will expire if they are not extended by December 31.

So what’s on the table?

Alternative Minimum Tax (AMT) Patch

The AMT was originally created as a special tax for the wealthiest taxpayers.  Today the AMT usually hits taxpayers who have a household income over $75K and are married with more than two kids.

This is where a lot of the hubbub is coming from because unless the AMT is patched by Congress by the end of the year, an estimated 26 million households will, for the first time, face the AMT, which threatens to add an average of $3,700 onto taxpayers’ bills for the current tax year.

But the reality is that, historically, Congress has patched the AMT every year, since 1969, without fail.

Tax Extenders

The “Tax Extenders” refer to a broad set of temporary tax laws.  Here is a short list of the higher-impact tax deductions and credits that are included in the “Tax Extenders” package currently on the table:

Tuition and Fees Deduction:  This tax deduction allowed some college students or parents to deduct education expenses related to schooling, including tuition, books and other supplies.   TurboTax data shows that about only 2% of our taxpayers claim this tax deduction.

Residential Energy Property Credit:  This tax credit increased the energy tax credit for homeowners who made certain energy efficient improvements to their existing homes.  TurboTax data reveals that only an estimated 4% of our taxpayers claim this tax credit.

Educator Expense Deduction:  This is a $250 tax deduction available to teachers K-12, who purchase classroom supplies.  TurboTax data shows that only about 3% of our taxpayers claim the Educator Expense Deduction.

While only a small percentage of TurboTax customers claim these tax deductions and credits, be assured that no matter what is decided, TurboTax will be fully up to date with the latest tax laws shortly after decisions are made.

Bush-era Tax Cuts

As the name implies, the “Bush Tax Cuts” were tax cuts first passed in 2001 under George W. Bush and then extended in December 2010 by President Obama

The tax deductions and credits included in the Bush Tax Cuts do not impact your 2012 taxes.  They won’t come into play for another year, when you file your 2013 taxes. What you could see next year is changes to your paycheck, starting in Jan. 2013, due to changes in 2013 tax brackets.

So when will we know for sure? No one knows. But it’s not uncommon for tax laws like these to not be extended until midnight on Dec. 31.

That’s why, at TurboTax, we plan ahead so we’re prepared for any outcome. TurboTax will be up to date and ready for taxpayers within a matter of days of changes to the tax code.

And if you have questions, TurboTax CPAs are here for you year-round to answer your tax questions, helping you understand what these changes may mean to you and your family.

Payroll Tax

The payroll tax cut bill extension keeps taxpayers’ portion of social security tax at 4.2%, renews  unemployment benefits, and the medicare reimbursement rate for an additional two months.  When Senate leaders return from vacation, a joint House Senate panel is set to negotiate how to continue the tax break through the end of 2012.

Now Congress has gone on vacation and we can start to enjoy our holiday without worrying about a loss of income for the first two months of the year. The extension of the payroll tax bill will continue to help a typical family making $50,000 per year keep $40 additional per paycheck.

Now, how will the $40 per paycheck savings help you as you start the new year?

The two month extension enables taxpayers to continue to pay the lower 4.2% of earnings instead of 6.2% for an additional two months.  There was some disappointment among Senate leaders since they were unable to agree on a longer-term deal this time, however the two month extension continues to give some relief to families at a time when many are still struggling.

The House is now expected to vote on the two month payroll tax extension deal next week and Congress will be required to revisit the issue in 2012.  At least we can try to relax and enjoy the holidays, knowing that our government will not face shut down and many of us can continue to receive the payroll tax break through February 2012.

Spending/Payroll Tax Bill

The House of Representatives passed the $1.043 trillion spending bill this afternoon.  The bill now will go to the Senate, where Senate leaders are optimistic that the bill will be passed avoiding partial government shutdown at midnight tonight.

The spending bill will fund the government for another fiscal year, through the end of September 2012.  It is unknown if the Senate will be able to tackle the big bill tonight, but the presumption of the bill passing will extend the authorization for government spending 24 more hours in case the Senate is unable to complete the vote tonight.

As explained earlier this week, in our blog “The House Passes the Payroll Tax Bill“, the President called Congress to stay in session until both the spending bill and the payroll tax cut bill passes the Senate since the payroll tax cut measure, a major part of President Obama’s job creation plan, would put $1,000 in an average worker’s pocket and may impact 160 million Amercians.

There is optimism that there will be some way to extend the payroll tax cut bill, which reduces Social Security Tax from 6.2% to 4.2%. Senate talks involve extending the payroll tax cut and some other provisions which are set to expire at the end of this year.

The Senate is still negotiating at this moment on the payroll tax bill due to additional provisions possibly attached to the bill such as the extension of unemployment benefits, the increase in payments to doctors who provide medicare services, and the Keystone XL oil pipeline.

It is unknown at this time whether the Senate will vote on both tax bills today, but check back for more up to date information regarding the spending bill and the payroll tax bill.

Payroll Tax Bill

The tax break is said to put $1,000 in an average workers’ pocket and is thought to impact 160 million Americans.

What’s next?  The payroll tax package goes to the Senate, however the President has threatened to veto the bill as Democrats are opposed to the GOP non-tax related revenue raisers that they don’t think should be added to a payroll tax bill.  One of the priorities added, which is receiving opposition is one to accelerate the Keystone XL oil pipeline from Canada to the U.S.

Bipartisan lawmakers have also reached an agreement on the $1 trillion measure to finance government agencies through September 2012, which would also stop federal government shut down this week, however Democrats are refusing to proceed with the agreement until a final deal is made on the payroll tax measure.

Although, there are a number of additional tax related and non-tax related changes added to the payroll tax bill, no one knows the final tax implications of the additional tax law changes until the bill passes the Senate.

Check back soon to find out the additional tax implications of the payroll tax bill once the Senate reaches an agreement.

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.

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.