President Obama has signed into law a sweeping tax bill that gives taxpayers some closure and certainty about their tax situation, at least for the next 2 years. The tax bill benefits a broad range of taxpayers by extending the current tax rates for the next two years, reinstating some expiring tax breaks, and offering longer-term help for the jobless.
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.