Think Your Way to Wealth » Taxes

2011 Income Tax Extension Filing Deadline Oct 17th, 2011

RC — Fri, 14 Oct 2011 19:09:41 +0000

Just a quick reminder, if you filed for a tax extension back in April using form 4868, your tax return is due this coming Monday, October 17th. (since the 15th is a Saturday).

If you estimated your taxes and sent a payment when you filed your extension, be sure to also note that in the correct place on your return, so you get credit for the payment.

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When Will I Get My Tax Refund?

RC — Wed, 23 Mar 2011 11:20:36 +0000

If you’ve filed you tax return, either electronically through e-file or with a paper form and are expecting a refund, the next thing you want to know is:

When will I get my tax refund?

Well, the IRS has prepared a chart based on when your tax return is accepted, which is shown below for tax returns accepted through April 21st. Note that if you e-file, you will get a notice when the IRS has accepted your return, which you will not get if you file a paper return and would have to estimate when the IRS accepted your return based on when you mailed it, which will not be as accurate, obviously.

IRS accepts your return—-Direct Deposit————- Paper Check

(by 11:00 am) between ———Sent ————————–Mailed

Jan 14 and Jan 20, 2011 Jan 28, 2011 Feb 4, 2011

Jan 20 and Jan 27, 2011 Feb 4, 2011 Feb 11, 2011

Jan 27 and Feb 3, 2011 Feb 11, 2011 Feb 18, 2011

Feb 3 and Feb 10, 2011 Feb 18, 2011 Feb 25, 2011

Feb 10 and Feb 17, 2011 Feb 25, 2011 Mar 4, 2011

Feb 17 and Feb 24, 2011 Mar 4, 2011 Mar 11, 2011

Feb 24 and Mar 3, 2011 Mar 11, 2011 Mar 18, 2011

Mar 3 and Mar 10, 2011 Mar 18, 2011 Mar 25, 2011

Mar 10 and Mar 17, 2011 Mar 25, 2011 Apr 1, 2011

Mar 17 and Mar 24, 2011 Apr 1, 2011 Apr 8, 2011

Mar 24 and Mar 31, 2011 Apr 8, 2011 Apr 15, 2011

Mar 31 and Apr 7, 2011 Apr 15, 2011 Apr 22, 2011

Apr 7 and Apr 14, 2011 Apr 22, 2011 Apr 29, 2011

Apr 14 and Apr 21, 2011 Apr 29, 2011 May 6, 2011

If you file an extension and are filing after the tax deadline, check out IRS publication 2043 for the full schedule of expected refund dates based on the date of your return.

As you can see, if you opt for direct deposit of your refund, you will get your refund faster from the IRS.

IRS Where is My Tax Refund tool

Alternatively, you can check on the status of your refund(72 hours after IRS acknowledges receipt) using the Where’s My Refund tool available from the IRS web page. Alternatively, you can call 1-800-829-1954 or 1-800-829-4477 to check on your refund status.

IRS2Go Smartphone App

And as I’ve mentioned previously, new this year, you can also check the status of your refund using the IRS2Go Smartphone app for the iPhone or Android, if you have one.

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What Do You Do if You Are Missing a W-2 Form?

RC — Mon, 21 Feb 2011 04:18:20 +0000

Now that the IRS is accepting tax returns from those that itemize and others who were delayed in filing their return, everyone should be able to file there tax returns.

Of course, having all of the necessary documentation to file your taxes is the first step towards filing your tax return. You need to make sure you have your W-2 form or forms (if you have more than one), 1099 forms, and others you will need to prepare your taxes. If you don’t have all of the paperwork necessary it can prevent you from filing, which can be a problem if you are expecting a tax refund and want to get it as quickly as possible.

What if you haven’t received or are missing a W-2 form?

Employers were supposed to mail W-2 forms by January 31st. Unfortunately, they don’t always get them out in a timely fashion, and worse, mistakes happen and you may not get one at all. If you still haven’t received a W-2 from your employer or a past employer, take the following steps recommended by the IRS in order to file your taxes :

1.) Contact Your Employer or Past Employer-Contact your employer or past employer to find out if the form was mailed yet. Also, check to make sure they have your correct address. It may have been returned to them if the address they had for you was incorrect.

2.) Contact the IRS – If you do not receive your W-2 by February 14th, contact the IRS for assistance at 1-800-829-1040. When you call, you must provide your personal information (name, address, SS #, etc.) the following information:

• Employer’s name, address, city and state, including zip code and phone number

• Dates of employment

• An estimate of the wages you earned, the federal income tax withheld, and when you worked for that employer during 2010. The estimate should be based on year-to-date information from your final pay stub or leave-and-earnings statement, if possible.

3.) File your return- You still must file your tax return or request an extension to file April 18, 2011, even if you do not receive your Form W-2. If you have not received your Form W-2 by the due date, and have completed steps 1 and 2, you may use Form 4852, Substitute for Form W-2, Wage and Tax Statement. Attach Form 4852 to the return, estimating income and withholding taxes as accurately as possible. There may be a delay in any refund due while the information is verified.

4.) File a Form 1040X On occasion, you may receive your missing W-2 after you filed your return using Form 4852, and the information may be different from what you reported on your return. If this happens, you must amend your return by filing a Form 1040X, Amended U.S. Individual Income Tax Return.

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H&R Block At Home Federal Premium Online Tax Return- Free Code Giveaway

RC — Mon, 14 Feb 2011 00:45:05 +0000

H&R Block, who provided a guest post yesterday, has given me 5 free codes for their Federal Premium Online Tax Return product ($49.95 value) to give away to 5 lucky readers.

This will allow you to do your federal return totally free (state filing is extra), and the premium version includes the following features.

* Import your W-2, 1099 and last year’s return
* Searches hundreds of deductions
* Personalized tax guidance
* Mortgage interest and charitable tax deduction maximizers
* Sale of stocks, bonds, and mutual funds
* FREE live tax advice
* Schedule C guidance
* Tax laws and planning resources
* Advanced tax calculators
* Rental income assistance
*Note that state filing is an additional fee.

To enter, all you have to do is leave a comment below, and you will receive 1 entry.
As a bonus, if you “like” the Think Your Way To Wealth Facebook Page, you will receive a bonus entry for a total of 2 entries. ( I just created this page recently, so I’m looking to get some more fans. I’ll be doing some exclusive giveaways on the facebook page only in the near future as well.) Just let me know in your comment below if you “liked” the Think Your Way to Wealth Facebook page, and you’ll get the 2 entries.

Be sure to leave a valid email address when you leave a comment, so I can contact you if you win.

The giveaway will run until next Friday (Feb. 18th) at 10:00 pm cst. I’ll put all of the entries in a spreadsheet by number, and select the winners at random using a random number generator.

Good Luck!

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Tax Tip: Be Prepared Before You Start Your Tax Return

RC — Sat, 12 Feb 2011 21:48:15 +0000

This Tax Prep Checklist outlines what you need to assemble before starting your taxes.

Help take the stress out of starting your taxes by making sure you have everything you need before you get started. Once you have all have secured all the documents, forms and other information included in this checklist, completing your taxes should be a breeze!

Tax Preparation Checklist:

1. Personal Information

Your social security number
Your spouse’s full name and social security number
Amount of any alimony paid and ex-spouse’s social security number

2. Other people who may belong on your return

Dates of birth and social security numbers
Childcare records (including the provider’s ID number) if applicable
Approximate income of other adults in your home (not spouse, if you’re filing jointly)
Form 8332, copies of your divorce decree, or other documents showing that your ex-spouse is releasing their right to claim a child to you

3. Education

Bills from the educational institution or anything else that itemizes what you paid or received loans for versus what was covered by scholarship or other financial aid
Forms 1098-T and 1098-E, if you received them
Scholarships and fellowships
Learn more about Tuition, education credits, deductions and student loan interest

4. Employee Information

Forms W-2

5. Rental Income

Records of income and expenses
Rental asset information for depreciation

6. Retirement Income

Pension/IRA/annuity income (1099-R)
Social security/RRB income (1099-SSA, RRB-1099)

7. Savings and Investments

Interest, dividend income (1099-INT, 1099-OID, 1099-DIV)
Income from sales of stock or other property (1099-B, 1099-S)
Dates of acquisition and records of your cost or other basis in property you sold

8. Other Income

Unemployment, state tax refund (1099-G)
Gambling income (W-2G or records showing income, as well as expense records)
Amount of any alimony received and ex-spouse’s name
Health care reimbursements (1099-SA or 1099-LTC)
Jury duty records
Hobby income and expenses
Prizes and awards

9. Itemizing Deductions

Forms 1098 or other mortgage statements
Amount of state/local income tax paid (other than wage withholding), or amount of state and local sales tax paid
Real estate and personal property tax records
Invoice showing amount of vehicle sales tax paid
HUD statement showing closing date of home purchase
Cash amounts donated to houses of worship, schools, other charitable organizations
Records of non-cash charitable donations
Amounts paid for healthcare insurance and to doctors, dentists, hospitals
Amounts of miles driven for charitable or medical purposes
Expenses related to your investments
Here’s a list of the most commonly overlooked deductions

10.Employment-related expenses (dues, publications, tools, uniform cost and cleaning, travel)

This job deduction calculator lets you see all eligible deductions based on your occupation
Job-hunting expenses

11. IRA Information

Amount contributed for 2010 (and 2011, if applicable)
Traditional IRA basis
Value of IRAs on Dec. 31, 2010

The following was a guest post by H&R Block’s Leigh Mutert, CPA and hrblock.com Community Manager. You can complete your taxes online at home using H&R Block tax prep software that helps you automatically identify and claim all the tax savings you are eligible for, and it guarantees you’ll get the maximum refund. You can get a 30-minute free consultation with a tax pro at an H&R Block office near you. Find an office in your area.

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IRS Introduces IRS2Go Smartphone App- Check Your Tax Refund Status on Your iPhone or Android Smartphone

RC — Tue, 25 Jan 2011 22:35:40 +0000

Want to check on the status of your tax refund? There’s an app for that….

The IRS has joined the smartphone app crowd, introducing the IRS2Go iphone and Android app, which will let tax filers check on the status of their tax return right from the smart phone. The app also will offer tax tips in addition to the tax return status information.

From the IRS:

”This new smart phone app reflects our commitment to modernizing the agency and engaging taxpayers where they want when they want it,” said IRS Commissioner Doug Shulman.
”As technology evolves and younger taxpayers get their information in new ways, we will keep innovating to make it easy for all taxpayers to access helpful information.”

“This phone app is a first step for us,” Shulman said. “We will look for additional ways to expand and refine our use of smartphones and other new technologies to help meet the needs of taxpayers.”

In order to use the app, taxpayers enter a Social Security number, which is masked and encrypted for security purposes, according to the IRS. Next, taxpayers pick the filing status they used on their tax return. Finally, taxpayers enter the amount of the refund they expect from their 2010 tax return.

For people who e-file, the refund function of the phone app will work within about 72 hours after taxpayers receive an e-mail acknowledgement saying the IRS received their tax return. For people filing paper tax returns, longer processing times mean they will need to wait three to four weeks before they can check their refund status. (About 70 percent of the 142 million individual tax returns were filed electronically last year.
Apple users can download the free IRS2Go application by visiting the Apple App Store. Android users can visit the Android Marketplace to download the free IRS2Go app

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IRS to Start Accepting Itemized and Delayed Filer’s Tax Returns on February 14th

RC — Sun, 23 Jan 2011 16:24:06 +0000

For those of you affected by the delay in the IRS’ ability to accept 2010 tax returns for those who itemize using Schedule A, are claiming the Higher Education Tuition and Fees Deduction, or the Educator Tax Credit, and were told you had to wait until mid-February to file your taxes, the IRS is giving you an early Valentine’s Day present, so to speak.

They announced Friday that they will start accepting and processing those returns starting Monday, February 14th.

According to the IRS:

Beginning Feb. 14, the IRS will start processing both paper and e-filed returns claiming itemized deductions on Schedule A, the higher education tuition and fees deduction on Form 8917 and the educator expenses deduction. Based on filings last year, about nine million tax returns claimed any of these deductions on returns received by the IRS before Feb. 14.

For those of you who are expecting a refund and wanted to get it as quickly as possible, this at least lets you know when you can file you taxes (and have the IRS actually accept them) and gives you an idea of when you might get your refund money back- depending on how you file of course. Those who file their taxes electronically and opt for direct deposit of their refund will get their money the fastest.

Of course, if you owe the government money in the form of additional income taxes, you are probably going to wait until the last minute, with this year’s deadline for filing taxes or an extension being April 18th, so it may not really make a difference to you.

Why Do You Have to Wait Until February To File Your Taxes?

The delay in the IRS’ ability to accept tax returns for those who itemize or are claiming the other credits is due to the late year tax bracket reduction extension, and credits and deductions being extended in the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 that became law on Dec. 17. The IRS needed the additional time to reprogram their computers, I guess, and had not anticipated that those deductions would be extended, since Congress waited so long to pass the bill and only did so after President Obama threw his support behind the tax reduction extension for tax brackets and extending certain credits.

Should You File Now or Wait Until February to File Taxes?

You can prepare your tax return now, and depending on how you file (paper or electronic) will determine what you should do. If you fill out your taxes on paper, just hold it until February 14th, and mail it in. If you are filing your taxes using an online preparer, such as Turbo Tax, H&R Block at Home, or Complete Tax , they will accept your return and hold it until the IRS is ready to accept it on the 14th, and will file it for you then. So if you have everything ready (forms such as W-2, 1099′s etc.) you can go ahead and prepare your tax return now.

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IRS E File Opens and 2011 Tax Filing Deadlines

RC — Sun, 16 Jan 2011 17:19:59 +0000

The IRS announced on Friday that it opened up its 2011 e-filing program for tax returns, meaning it is now accepting electronically filed tax returns for 2010 taxes.

photo credit: Manchester Library

According to the IRS press release, IRS e-file is approaching the milestone of 1 billion returns processed. The electronic transmission system, which has revolutionized the way the IRS processes tax returns and made speedy refunds possible, has safely and securely processed 892 million tax returns since its national debut in 1990. In 2010, nearly 100 million people – 70 percent of the taxpayers – used IRS e-file.

“IRS e-file is the best option for everyone, especially for people impacted by recent tax law changes,” said Doug Shulman, IRS commissioner. “E-file ensures people can file accurately and get refunds quickly. With a new legislative e-file mandate for tax preparers, we anticipate that more tax return preparers will be using e-file this year, and we urge people who prepare their own taxes to give it a try. IRS e-file is now the norm, not the exception.

As I mentioned previously, taxpayers who itemize deductions on their tax returns will have to wait until sometime in mid-February in order to file their tax returns with the IRS, due to late tax code changes and extension of tax cuts passed by Congress in December. Many tax preparation software providers will allow you to go ahead and do your taxes, and will hold them until the IRS is ready to accept them in mid-February, so you may be able to prepare them ahead of time and fill them then. Check with your tax software provider to see if they offer this service.

If you efile your taxes, you may be able to take advantage of free ways to e-file your taxes this year, as in previous years. You can file for free through the IRS if you meet certain income limitations, you can use free fillable forms, and many income tax service providers have free federal filing offers as well. Check out my article on free e-file tax filing options for more information.

File your taxes online fast and easy:
Turbotax | Complete Tax | H&R Block at Home

2011 Tax Deadlines for 2010 taxes

The deadline for filing taxes this year will be Monday, April 18th, 2011, and not April 15th ,like normal. Although the deadline is usually the following Monday when the 15th falls on a weekend (Saturday or Sunday), the deadline was moved to the following Monday due to Friday April 15th being a holiday in the District of Columbia (D.C.).

If you file an extension for your taxes, your return will be due Monday, October 17th, since October 15th is on a Saturday this year. Of course, you still have to pay or estimate what you owe for tax even if you file an extension.

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Taxpayers Who Itemize Must Wait Until Mid-February to File Tax Returns

RC — Wed, 05 Jan 2011 12:00:21 +0000

The IRS announced last week that taxpayers who itemize will have to wait until mid to late February to file their taxes, due to the late tax bracket changes and extension of deductions that were extended in the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 that became law on Dec. 17.

Also, taxpayers claiming any of these three items —the state and local sales tax deduction, higher education tuition and fees deduction, and educator expenses deduction as well as those taxpayers who itemize deductions on Form 1040 Schedule A — will need to wait to file their tax returns until tax processing systems are ready as well, which the IRS estimates will be in mid- to late February.

According to the IRS, they will announce a specific date in the near future when it can start processing tax returns impacted by the late tax law changes. In the interim, people in the affected categories can start working on their tax returns, but they should not submit their returns until IRS systems are ready to process the new tax law changes.

While most taxpayers do not itemize according to the IRS, this will obviously effect those who do, and were planning on filing early in order to get a refund- they will now have to wait until the IRS is ready to accept returns, thanks to delays from Congress in passing the tax cut extension.

Taxpayers will need to wait to file if they are within any of the following three categories:

Taxpayers claiming itemized deductions on Schedule A. Itemized deductions include mortgage interest, charitable deductions, medical and dental expenses as well as state and local taxes. In addition, itemized deductions include the state and local general sales tax deduction extended in the recent tax cut extension, which primarily benefits people living in areas without state and local income taxes, is claimed on Schedule A, Line 5.

Taxpayers claiming the Higher Education Tuition and Fees Deduction. This deduction for parents and students — covering up to $4,000 of tuition and fees paid to a post-secondary institution — is claimed on Form 8917. However, the IRS emphasized that there will be no delays for millions of parents and students who claim other education credits, including the American Opportunity Tax Credit and Lifetime Learning Credit.

Taxpayers claiming the Educator Expense Deduction. This deduction is for kindergarten through grade 12 educators with out-of-pocket classroom expenses of up to $250. The educator expense deduction is claimed on Form 1040, Line 23, and Form 1040A, Line 16.

File your taxes online at one of the following:
Turbotax | Complete Tax | H&R Block at Home

For those falling into any of these three categories, the delay affects both paper filers and electronic filers.

The IRS urged taxpayers to use e-file instead of paper tax forms to minimize confusion over the recent tax changes and ensure accurate tax returns. The IRS Free File program also will be updated.

Updated information will be posted on IRS.gov, and I’ll keep you guys posted here as well.

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2011 Federal Income Tax Brackets and Tax Changes

RC — Mon, 03 Jan 2011 04:10:52 +0000

Now that the Bush tax cuts have been extended and signed into law by President Obama, the 2011 federal income tax brackets, for taxes to be paid in 2012, have become official. While it seems like a long way off until you have to file your taxes, these are the rates that will be used for the taxes you will pay out of each paycheck, starting with your 1st paycheck in 2011.

photo credit: alancleaver_2000

2011 Federal Income Tax Brackets

Tax Rate	Single	Married Filing Jointly
—	2011 Taxable Income	2011 Taxable Income
10%	$0 – $8,500	$0 – $17,000
15%	$8,500 – $34,500	$17,000- $69,000
25%	$34,500 – $83,600	$69,000- $139,500
28%	$83,600 – $174,400	$139,500- $212,300
33%	$174,400 – $379,150	$212,300- $379,150
35%	$379,150+	$379,150+

*Note that the 2012 tax brackets will likely be similar, since the extension was passed for 2 years, although their will likely be slight increases due to whatever inflation (if any) occurs in 2011.

Changes to 2011 taxable income and rates

In 2011, personal exemptions and standard deductions will rise and tax brackets will widen due to inflation, according to the Internal Revenue Service.

These inflation adjustments relate to eight tax provisions that were either modified or extended by the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 that became law on Dec. 17. New dollar amounts affecting 2011 returns, filed by most taxpayers in early 2012, include the following:

* The value of each personal and dependent exemption, available to most taxpayers, is $3,700, up $50 from 2010.

The new standard deduction is $11,600 for married couples filing a joint return, up $200, $5,800 for singles and married individuals filing separately, up $100, and $8,500 for heads of household, also up $100. The additional standard deduction for blind people and senior citizens is $1,150 for married individuals, up $50, and $1,450 for singles and heads of household, also up $50. Nearly two out of three taxpayers take the standard deduction, rather than itemizing deductions, such as mortgage interest, charitable contributions and state and local taxes.

Tax-bracket thresholds increase for each filing status. For a married couple filing a joint return, for example, the taxable-income threshold separating the 15-percent bracket from the 25-percent bracket is $69,000, up from $68,000 in 2010.

The maximum earned income tax credit (EITC) for low- and moderate- income workers and working families rises to $5,751, up from $5,666 in 2010. The maximum income limit for the EITC rises to $49,078, up from $48,362 in 2010.The credit varies by family size, filing status and other factors, with the maximum credit going to joint filers with three or more qualifying children.

The modified adjusted gross income threshold at which the lifetime learning credit begins to phase out is $102,000 for joint filers, up from $100,000, and $51,000 for singles and heads of household, up from $50,000.

Several tax benefits are unchanged in 2011. For example, the monthly limit on the value of qualified transportation benefits (parking, transit passes, etc.) provided by an employer to its employees, remains at $230. Details on these inflation adjustments can be found in Revenue Procedure 2011-12.

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Flexible Spending Account Changes Starting in 2011

RC — Sat, 18 Dec 2010 15:53:17 +0000

If you are using a flexible spending account (FSA) as part of reducing your medical costs, there are some changes coming in 2011 that you definitely need to be aware of.

Flexible spending accounts allow you to take money out of your paycheck pre-tax, and spend it tax free on medical related items. Since a flexible savings account is a “use it or lose it” type of account, many people end up trying to use up their remaining funds at the end of the year, either for necessary items/expenditures, or to stock up for the next year, so they do not lose their FSA funds.

In 2010 and previous years, over the counter (OTC) medicines such as aspirin, cold medicine, and others qualified as items which could be purchased with FSA funds.

However, starting in 2011, due to the health care act passed this year, many of these OTC drugs will no longer qualify, unless prescribed by a doctor. So things like cold medicines, pain relievers, and other similar normally non-prescription drugs will not qualify, unless a doctor has written a prescription for that item specifically. So, if you purchase many of these items, you will have to decide whether you are going to stop purchasing them with FSA funds, or try to get your doctor (or a doctor) to prescribe them for you- if they are so inclined. Seems like a real pain!

I’m not sure if this list is comprehensive or final, but here is a list of items that will remain FSA eligible in 2011.

The change does not affect insulin, even if purchased without a prescription, or other health care expenses such as medical devices, eye glasses, contact lenses, co-pays and deductibles. The new standard applies only to purchases made on or after Jan. 1, 2011, so claims for medicines or drugs purchased without a prescription in 2010 can still be reimbursed in 2011, if allowed by the employer’s plan.

A similar rule goes into effect on Jan. 1, 2011 for Health Savings Accounts (HSAs), and Archer Medical Savings Accounts (Archer MSAs).

A second big change is that, starting in 2013, there will be a $2500 cap on flexible spending accounts, with provisions for yearly increases based on inflation. There is currently no limit, although most employers have a limit in the $4k to $5k range.

I would guess most people would not max out their FSA (particularly after OTC drugs are not eligible), unless they have recurring or chronic medical needs, but some people will be adversely affected by it.

Reminder to spend this year’s FSA funds

If you have a flexible spending account as part of your medical insurance or health plan for 2010, it’s that time of year again. Time to use up any remaining balance you have in the account, that is!

Note:-According to the IRS, your plan can provide for a grace period of up to 2½ months after the end of the plan year. If there is a grace period, any qualified medical expenses incurred in that period can be paid from any amounts left in the account at the end of the previous year. Your employer is not permitted to refund any part of the balance to you. If you are unsure, check with your employer/health plan, but err on the side of caution!

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Bush Tax Cuts to Be Extended Through 2012, Social Security Payroll Tax Reduced

RC — Wed, 08 Dec 2010 04:59:26 +0000

After negotiations with Republicans, President Obama agreed to extend the Bush tax cuts for another 2 years, through 2012, in exchange for extending unemployment benefits for another 13 months. This follows some contentious debate and rhetoric on mainly on whether the tax cuts should be extended for those making over $200,000 for single filers and $250,000 for married filing jointly filers, and whether Congress would have to make cuts elsewhere in order to pay for the appx. $60 billion the unemployment benefit is expected to cost. The compromise also addresses several other taxes and credits as follows:

Income Taxes

Income tax rates will stay the same for all taxpayers, with President Obama agreeing not to rescind the Bush tax cuts for those making over $250,000 ($200,000 single filer) as he had previously wanted. The agreement has angered some democrats as well who wanted to let the lower tax rates for those making over $200,000/$250,000 expire while keeping the lower rates in place for those making less.

Estate Tax

The estate tax, which was essentially nonexistent in 2010 due to a lapse in legislation, will be back starting January 1st, 2011 with an exemption of $5 million per person, $10 million per couple, with the amount above that being taxed at 35%. It was scheduled to return with an exemption of $1 million per person with a 55% tax on any amount above that- although most expected it to at least be changed to something similar to 2009 rates, when the amount of the exemption for 2009 was $3.5 million per individual, with a tax rate at 45%.

Payroll Tax Reduction- Social Security Taxes

The social security payroll tax will be decreased 2 percentage points, from 6.2% to 4.2% for 1 year, meaning wage earners will see more money in their paychecks. This is intended to replace the Making Work Pay tax credit from last year and the year before which is expiring. For someone making $50,000, this will be appx. $1,000, while for someone making the max (or above) social security wage base of $106,800, this would mean a savings of $2,136. For self employed workers, who pay both the employee (worker) portion at 6.2% and the employer portion (picked up by most worker’s employer) at an additional 6.2% (for a total of 12.4%) it is unclear what the reduction will be, but it will likely apply only to the employee portion, which would give a total of 10.2% for the year.

American Opportunity Tax Credit

The tax credit is for undergraduate college tuition and expenses, and will be extended for 2 years with a max credit of $2,500 per year. It can be used up to 4 years of post-secondary education, and phase outs start at $80k for single filers (phasing out completely at $90k) and $160k for married filing jointly (phasing out completely at $180k).

Child Tax Credit

The child tax credit will be extended for another 2 years. The credit of $1000 per child starts to phase out at $75k for single filers and $110 for joint filers.

AMT and Capital Gains Tax Rate

There was also a patch to prevent more Americans from getting caught having to pay the Alternative Minimum Tax, or AMT, as well as keeping the capital gains tax rate at 15% vs. potentially raising it to the rate one’s income is taxed at.

While none of these taxes are a done deal yet for 2011, and some democrats have vowed to fight against them, it seems likely they will pass due to the compromise on unemployment benefits, particularly with the President taking part in the negotiations.

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