Saturday, January 22, 2011

Get schooled on taxes

1040 individual income tax return.
Tim Boyle/Getty Images

Two more years of the same tax rules, right? Not exactly. While federal legislation passed in December extended income-tax brackets and many other key provisions for two more years, not everything stayed the same. Here are some of the notable items that could affect individual taxpayers' 2010 income-tax returns with a look forward to 2011 and 2012.

TAXPAYER GROUP: Lower-income workers
CHANGES AND EXTENSIONS: The bottom two income brackets will feature tax rates of 10 and 15 percent. Those rates, in effect in 2010, will continue in 2011 and 2012. People in those brackets also pay a zero percent tax on qualifying dividends and capital gains. The child tax credit stays at $1,000 in 2011 and 2012. Workers face a 4.2 percent payroll tax reduction in 2011 only, down from 6.2 percent.

TAXPAYER GROUP: Middle-class workers
CHANGES AND EXTENSIONS: Most middle-income people will continue paying taxes at rates of 25 or 28 percent. Workers in this group will benefit from the 2 percentage point payroll-tax cut on income up to $106,800. A "patch" will insulate more middle-class people from the alternative-minimum tax. A top rate of 15 percent applies on qualifying dividends and capital gains for anyone above the bottom two brackets. The recent legislation will insulate virtually all middle-class people from estate taxes.

CHANGES AND EXTENSIONS: The top marginal tax rates will stay at 33 and 35 percent for two more years, with a top rate of 15 percent on qualifying dividends and capital gains. The maximum rates had been set to rise to 36 and 39.6 percent. Also for two more years: no limits on itemized deductions and no phasing out of personal-exemption deductions. Estate taxes are reinstated for 2011 but at a modest top rate of 35 percent, with a $5 million exclusion.

CHANGES AND EXTENSIONS: Teachers still can deduct up to $250 in out-of-pocket classroom costs in 2010 and 2011.

CHANGES AND EXTENSIONS: Taxpayers can deduct state and local sales taxes instead of state/local income taxes in 2010, 2011.

TAXPAYER GROUP: Homebuyers and owners
CHANGES AND EXTENSIONS: A limited property-tax deduction for homeowners who don't itemize was not renewed. Nor was the first-time homebuyers credit (though there is a temporary extension for military personnel).

CHANGES AND EXTENSIONS: College students can continue taking advantage of several breaks, including an "above the line" higher-education tuition deduction and the American Opportunity Tax Credit.

CHANGES AND EXTENSIONS: People older than 70 with Individual Retirement Accounts can elect to transfer up to $100,000 to charities without having to take and report withdrawals as taxable distributions.

TAXPAYER GROUP: Energy users
CHANGES AND EXTENSIONS: Certain residential energy credits continue through 2011 but on less-favorable terms.

CHANGES AND EXTENSIONS: Married couples will enjoy two more years of marriage-penalty relief.

TAXPAYER GROUP: The unemployed
CHANGES AND EXTENSIONS: In 2009, up to $2,400 in unemployment benefits were not taxed as income, but that break wasn't extended for 2010 or 2011.

by Russ Wiles The Arizona Republic January 21, 2011

Get schooled on taxes

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