Taxes Archives - Page 5 of 7

2011 Federal Income Tax Increase For Some Despite Tax Rate Extensions

A couple of weeks back I published the new 2011 Federal Income Tax brackets. Basically, because of the tax act that was passed on December 17th, 2010, the current tax rates are being extended for all taxpayers, both high and low earners.

What some people might not realize, however, is that despite the tax rates remaining essentially the same (except for some rate range increases due to inflation) some people will see a 2011 federal income tax increase due to expiring tax credits, and a 2% payroll tax holiday for 2011 that might mean less savings for some.

2011 Federal Income Tax Increase

Not everyone will see their taxes remain the same despite the fact that the tax rates remain unchanged. Some folks will see their taxes go down, and others will see an increase in withholding from their paycheck.

The Making Work Pay credit expired on December 31, 2010; therefore the 2011 income tax withholding tables do not reflect this credit. As a result, employees in a lower income tax bracket may see an increase in their tax withholding amount, while employees in a higher tax bracket may see a decrease.

So it all really depends on how much you make, and how much of a cut you got in previous years from the Making Work Pay tax credit.

Expiring Making Work Pay Tax Credit

As mentioned the Making Work Pay tax credit has now expired, which means taxpayers will no longer receive the benefits from this cut. How much was it, and who got it?

The 2009 stimulus bill will gave a $400 credit per worker and a $800 credit per working couple.
The full credit would be paid to people making $75,000 or less ($150,000 per dual-earner couple).
A partial credit would be paid to those making above those amounts but no more than $100,000 ($200,000 for couples).
The credit was also refundable, meaning even very low-income families who don’t make enough to owe income tax would be able to claim it.

For most working individuals, the credit was paid over time at roughly $15 per period, assuming 26 pay periods in a year. So since it is expiring, you won't have that extra $400-800 in your paychecks in 2011.

2% Payroll Tax Holiday For 2011

The 2% payroll tax holiday for 2011 was meant in part to be a replacement for the expiring $400-800 “Making Work Pay” tax credit. For some people it will more than replace the credit, while for others who have extremely low incomes or don't pay taxes, they won't see as much as with the previous credit (or nothing at all since only those who pay tax will get it).

What does the 2% payroll tax holiday mean for the average taxpayer? Around a $1000 tax savings. Since the Social Security tax is capped at $106,800, the maximum savings that could be seen by a higher income individual is around $2136. This as opposed to a $400 credit for singles and $800 credit for families under the “Making Work Pay” tax credit.

Some Will Pay Less Taxes This Year, Some Will Pay More

So because of the expiring tax credits, and because 2% social security tax holiday is calculated at a percentage of income as opposed to a flat rate, people will be seeing different withholdings this year. Either they'll be coming out ahead from previous years, or if they make extremely low incomes or don't pay taxes, they'll be getting less than previously. Or nothing. It really just depends on their situation.

Is the tax withholding situation – along with expiring credits and new tax cuts confusing? Do you think the government adequately explained that some lower income earners may see a decrease in their paychecks?

Where Can I Get Paper IRS Forms And Tax Publications?

By Mr. Money 4 Comments

With the advent of the internet and widely available free or affordable electronic filing options, the IRS has moved away from sending out paper tax packages every year as they used to. Do you remember how you used to get your tax forms in the mail every year, and the sense dread that it gave you? No longer. The IRS no longer automatically sends out paper tax packages by mail. I'm sure it means a good cost savings for the IRS and for taxpayers, but what if you're one of those folks who just prefers to file their taxes the old fashioned way? What options do you have and where can you get paper IRS forms and publications?

Places To Get Paper IRS Forms And Publications

There are a variety of places that you can still get your paper tax forms, or electronic versions that you can then print out. From the IRS:

On the Internet: You can access forms and publications on the IRS website 24 hours a day, seven days a week, at http://www.irs.gov.

Taxpayer Assistance Centers: There are 401 TACs across the country where IRS offers face-to-face assistance to taxpayers, and where taxpayers can pick up many IRS forms and publications. Visit http://www.irs.gov and go to Contact My Local Office on the Individuals page to find a list of TAC locations by state. On the Contact My Local Office page, you can also select TAC Site Search and enter your zip code to find the IRS walk-in office nearest you as well as a list of the services available at specific offices.

At Convenient Locations in Your Community: During the tax filing season, many libraries and post offices offer free tax forms to taxpayers. Some libraries also have copies of commonly requested publications. Many large grocery stores, copy centers and office supply stores have forms you can photocopy or print from a CD.

By Mail: You can call 1-800-TAX-FORM (800-829-3676) Monday through Friday 7:00 am to 10:00 pm local time – except Alaska and Hawaii which follow Pacific time – to order current year forms, instructions and publications as well as prior year forms and instructions by mail. You will receive your order by mail, usually within 10 days.

The IRS requests that taxpayers wait until after January 10, 2011, to put in a request for tax products for 2010.

Other IRS Resources

Publication 910, Guide to Free Tax Services (PDF 636K)
Publication 2053A, Quick and Easy Access to IRS Tax Help and Forms (PDF 40K)
State tax forms (link)

State tax forms

Tax Filing Deadline Extended To April 18th For Filing 2010 Taxes In 2011

By Mr. Money 3 Comments

Earlier this week we wrote about how because Congress took so long to act on the tax bill in December (the act was passed on December 17th), the IRS had to push back the filing start date for those that itemize. There would be a tax filing delay well into the month of February for all of us itemizers out there because the IRS needs more time to update their systems. Of course all the companies who help us to file our taxes like TurboTax will be updated long before the government is, and you can start your return there at any time. But of course that's no big suprise- that private business moves at a faster pace than government.

Tax Filing Deadline Extended

This week the IRS announced that there would be a tax filing deadline extension for everyone – and that the deadline would be pushed back from April 15th as it normally is, to April 18th.

The Internal Revenue Service today opened the 2011 tax filing season by announcing that taxpayers have until April 18 to file their tax returns. The IRS reminded taxpayers impacted by recent tax law changes that using e-file is the best way to ensure accurate tax returns and get faster refunds.

Taxpayers will have until Monday, April 18 to file their 2010 tax returns and pay any tax due because Emancipation Day, a holiday observed in the District of Columbia, falls this year on Friday, April 15. By law, District of Columbia holidays impact tax deadlines in the same way that federal holidays do; therefore, all taxpayers will have three extra days to file this year. Taxpayers requesting an extension will have until Oct. 17 to file their 2010 tax returns.

So the reason for the deadline extension isn't because of the delays in people being able to file, or because of the impact of the new tax bill, it's because there's a government holiday observed on that day – meaning it has to be pushed back. Ah, to be a government worker and get all those extra days off!

Tax Filing Delay – Who Must Wait To File?

As mentioned in the first paragraph above, there is going to be a delay in the start to tax filing season as well. As many as 50 million taxpayers itemize on their taxes, and would be affected by the delay. Of those 50 million usually only around 9 million usually file in January or February and would be affected by the delay.

For most taxpayers, the 2011 tax filing season starts on schedule. However, tax law changes enacted by Congress and signed by President Obama in December mean some people need to wait until mid- to late February to file their tax returns in order to give the IRS time to reprogram its processing systems.

Some taxpayers – including those who itemize deductions on Form 1040 Schedule A – will need to wait to file. This includes taxpayers impacted by any of three tax provisions that expired at the end of 2009 and were renewed by the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act Of 2010 enacted Dec. 17. Those who need to wait to file include:

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 that was also extended and which primarily benefits people living in areas without state and local income taxes. Because of late Congressional action to enact tax law changes, anyone who itemizes and files a Schedule A will need to wait to file until mid- to late February.

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 extended last month and the 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.

So basically the start to filing season is delayed so that the IRS can implement the extensions of several tax cuts, tax credits and other things that were to be expiring, and that have now been renewed.

Do What I Plan On Doing – File Your Taxes Now With TurboTax

While the government is still updating all of their software, many or most of the tax filing software are already up to date for the new tax law. While you won’t be able to file and get a refund until the IRS starts actually accepting returns, you can file your return with companies like TurboTax (who will allow you to file your return starting January 6th), and then just let them file the return for you when the government is ready to accept it.

don’t wait to start your return. TurboTax products are already up-to-date with all the latest forms and schedules. You can prepare your return with TurboTax and electronically file it beginning on Jan. 6.

TurboTax will securely hold your return until the IRS begins accepting returns impacted by the processing delays. TurboTax will send you an email confirmation that your return has been e-filed and accepted by the IRS.

TurboTax is the tax software I used last year to file my taxes, after having used several others in past years, including a good one from TaxSlayer.com. While TaxSlayer and other packages aren't bad, I found the TurboTax interface to be much easier to use, and less complicated to complete. I double checked my return with TaxSlayer and CompleteTax last year, and both of them gave me about the same number for my amount due as TurboTax. So based on TurboTax's better interface, I would recommend it first.

Check out all of your filing options at the TurboTax site!

Do you usually not file your taxes til the last minute? Will this extension be just what you needed in order to file on time? Are you expecting to be delayed in filing your taxes because you itemize? Tell us in the comments!

Child Tax Credit Of $1000 Extended Temporarily For 2011-2012

By Mr. Money 7 Comments

Yesterday we talked about one of the negative effects of the recent tax cut package that was passed, the fact that taxpayers who itemize must delay filing. If you're expecting a big refund and anticipate claiming quite a few deductions, you'll most likely need to wait to file taxes until mid to late February.

Today I want to touch on another tax credit that was extended that a lot of parents will be happy about, the $1000 child tax credit.

An Extension Of The $1000 Child Tax Credit

Congress and President Obama took action on the expiring Bush era tax cuts on December 17th last month. The passage of the bill lead to a lot of relieved sighs for many folks as a lot of popular tax breaks were set to expire, and the bill extended many of them, even if just temporarily. There was a smaller version of the home improvement tax credit, an extension of the current tax rates (instead of a huge tax hike), and a payroll tax holiday, meaning a cut of 2% in Social Security tax withholdings in 2011.

In addition to the measures mentioned above, under H.R.4853 the Child Tax Credit (CTC) of $1000 per child will be extended for 2011-2012 as well.

I've got a co-worker and friend who just had his 5th child this past year. In most instances having that many children leads to a ton of expenses, but this is one case where he comes out ahead. I think he was pretty happy that the $1000 child tax credit was passed as it will mean $5000 in tax credits for him – $2500 more than if it had expired and returned to the previous $500 per child level.

We'll be claiming the child tax credit for the first time this year as well as we just had our first child. Daddy thanks you, my little one!

Since this is a tax credit, it means that once you figure out how much you owe in taxes for the year, the amount of credit will reduce the amount of tax owed (as opposed to a deduction which reduces taxable income). For example, if we owed $3000, and claimed the child tax credit for our one child, we would then owe $2000.

Who Is Eligible For The Child Tax Credit?

The Child Tax Credit has eligibility requirements, and is subject to income limits and phaseouts.

Income limit of $75,000 for single parents.
Income limit of $110,000 for married couples.
Income limit of $55,000 for married filing separately.

After these income levels the credit is reduced by 5% of adjusted gross income.

Quick Facts From The IRS: The Child Tax Credit

The IRS recently put some guidance on their website about who is able to claim the Child Tax Credit. If you've already claimed the credit you probably already know these things, but I thought I’d share them here as a reminder.

1. Amount – With the Child Tax Credit, you may be able to reduce your federal income tax by up to $1,000 for each qualifying child under the age of 17.

2. Qualification – A qualifying child for this credit is someone who meets the qualifying criteria of six tests: age, relationship, support, dependent, citizenship, and residence.

3. Age Test – To qualify, a child must have been under age 17 – age 16 or younger – at the end of 2010.

4. Relationship Test – To claim a child for purposes of the Child Tax Credit, they must either be your son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister or a descendant of any of these individuals, which includes your grandchild, niece or nephew. An adopted child is always treated as your own child. An adopted child includes a child lawfully placed with you for legal adoption.

5. Support Test – In order to claim a child for this credit, the child must not have provided more than half of their own support.

6. Dependent Test – You must claim the child as a dependent on your federal tax return.

7. Citizenship Test – To meet the citizenship test, the child must be a U.S. citizen, U.S. national, or U.S. resident alien.

8. Residence Test – The child must have lived with you for more than half of 2009. There are some exceptions to the residence test, which can be found in IRS Publication 972, Child Tax Credit.

9. Limitations – The credit is limited if your modified adjusted gross income is above a certain amount. The amount at which this phase-out begins varies depending on your filing status. For married taxpayers filing a joint return, the phase-out begins at $110,000. For married taxpayers filing a separate return, it begins at $55,000. For all other taxpayers, the phase-out begins at $75,000. In addition, the Child Tax Credit is generally limited by the amount of the income tax you owe as well as any alternative minimum tax you owe.

10. Additional Child tax Credit – If the amount of your Child Tax Credit is greater than the amount of income tax you owe, you may be able to claim the Additional Child Tax Credit.

Child Tax Credit Resources

IRS Publication 972: Child Tax Credit (PDF)

Are you claiming the child tax credit this year? How much will you save because the credit is extended at the current $1000 level?

If You Itemize Your Taxes You’ll Have To Wait A Month Or Two To File Your Returns

By Mr. Money 11 Comments

This past month the Congress and the Obama administration passed a stop-gap tax cut package that would allow the current tax rates to continue for 2 more years, in addition to passing a 2011 payroll tax holiday, extending $1000 child tax credit and the estate tax.

While many folks are glad that an extension of the current rates was passed – even if it is temporary – there are still going to be problems as a result of how late in the year the tax package was passed. Some people will now experience tax filing delays if they itemize. Expecting a hefty refund – and were counting on it early in the year? You may be out of luck.

Tax Filing Delays If You Itemize

Because of how late in the year the tax bill was passed (December 17th, 2010), the IRS has now announced that the estimated 50 million taxpayers who itemize their deductions will not be able to file taxes until the IRS has had a chance to update their software to account for the tax package. From CNN:

Itemize your tax deductions? Itching for a refund? You're going to have to wait.

The IRS said that it needs until mid- to late-February to reprogram its processing systems because Congress acted so late this year cleaning up the tax code. The bill, which includes deductions for state and local sales taxes, college tuition and teacher expenses, wasn't signed into law until Dec. 17.

The bill ensured that the federal income tax rates would not change, and itemized deductions will continue to be allowed in full for high-income taxpayers.

As a result, the 50 million taxpayers who itemize their deductions will have to hold off for a bit before they file. Of course, not everyone files early: only about 9 million of the 140 million U.S. tax filers filed in January or February of last year.

So those of us who itemize on our taxes, we won't be able to file until mid to late February.

UPDATE: The IRS has released a statement saying that February 14th is the day that itemizers can start filing their returns. Details here: Tax Filing Delays

On the bright side, while an estimated 50 million taxpayers itemize their taxes, of those only about 9 million usually file in January in February.

Who Does The Tax Filing Delay Affect?

The tax filing deadline basically affects anyone who will be itemizing on their taxes.

The delay affects both paper and electronic filers who itemize deductions on Form 1040 Schedule A. That includes those claiming the new Educator Expense Deduction, which credits grade school teachers for out-of-pocket expenses of up to $250.

It also includes those claiming deductions for college students, covering up to $4,000 of tuition, which is claimed on Form 8917, though the IRS said there will be no delays for those that claim other education tax credits.

If you file a form 1040 Schedule A, you'll be affected.

When Will Itemizers Be Able To File?

So while there will be a delay for itemizers in filing til mid to late February, is there an actual date that the IRS anticipates that they'll be ready to go? Not as of yet.

Though itemizers can work on their tax returns before the IRS is ready to accept them, the government said people should not send them in before it is ready to process the returns.

The IRS hasn't yet said exactly what day it will be able to begin processing the impacted tax returns, but it expects to announce that date “in the near future.”

So they don't have a date yet, but should be announcing one in the “near future”. So don't send your tax returns in yet.

Some Software Allows Itemizers To File Now

Many or most of the tax filing software are already up to date for the new tax law, and while you won't be able to get a refund until the IRS starts actually accepting returns, you can file your return with some companies already. For example, TurboTax will allow you to file your return starting January 6th.

don’t wait to start your return. TurboTax products are already up-to-date with all the latest forms and schedules. You can prepare your return with TurboTax and electronically file it beginning on Jan. 6.

TurboTax will securely hold your return until the IRS begins accepting returns impacted by the processing delays. TurboTax will send you an email confirmation that your return has been e-filed and accepted by the IRS.

Once the IRS gives the OK TurboTax will file the return, and send you an email confirmation once the return is e-filed and accepted by the IRS.

TurboTax is the software I used last year to file my taxes, and I highly recommend it. It has several different packages to choose from – I chose TurboTax Deluxe as it works nicely for my small business scenario – and Schedule C income. Check out all of your filing options at their site.

Are you itemizing your taxes this year, and were you planning on filing right away to get a refund? What are your thoughts on the delay?

2011 Home Improvement Tax Credits For Energy Efficient Products: Insulation, Windows, Heaters And More

By Mr. Money 24 Comments

In the past couple of years a lot of people have been enticed into purchasing new windows, doors or other energy efficient home improvements because of the $1500 in tax credits that are available on qualified energy efficient home improvements. I think this last week of 2010 may see a flurry of activity as thousands of people rush to home improvement stores and contractors to get improvements done before the end of the year, and the expiration of the $1500 tax credit. Why you ask? Because the 2011 home improvement tax credit has been reduced in the amount, in addition to what qualifies. From the latimes.com

provisions in the bill could be bad news for homeowners interested in remodeling projects to conserve energy next year. The legislation slashed the popular tax credits for energy-efficient remodeling from 30% of an improvement’s cost ($1,500 maximum per taxpayer) to just a 10% credit with a $500 maximum for expenditures on insulation materials, exterior windows and storm doors, skylights, and metal and asphalt roofs that resist heat gain.

Energy Efficient Home Improvement Tax Credit For 2011

The home improvement tax credit we've had for the past 2 years allowed homeowners to claim up to 30% of cost of the home improvement, up to $1,500. The amount of that credit is substantial enough that a lot of people were deciding to finally upgrade old windows or doors – $1500 was just too much to pass up.

That tax credit is expiring on December 31st, 2010 (so act this week if you want in!). The tax cut package passed last week passed a new version of the tax credit for 2011, but the amounts have been reduced. Here are the details.

Home improvement tax credit: 10% of cost of the home improvement, up to a maximum of $500.
Expiration: December 31, 2011
Eligibility: Must be on an existing home & your principal residence. New construction and rentals don’t qualify.
Reduced max credits: Some items have reduced maximum tax credits now as well. Details below.

So you can receive at most a home improvement tax credit of $500. If you've already received credits totaling $500 or more from 2005-2010, you aren't able to claim the credit in 2011.

What Products Are Eligible For The 2011 Home Improvement Tax Credit?

energystar

Most of the same products that were eligible for the 2010 home improvement tax credit are eligible for the 2011 version. The amounts on most have just been reduced and/or capped. Some of the eligible products include:

Energy efficient doors and windows. Installation costs are not eligible for the credit. Other restrictions apply. EnergyStar windows have a max of only $200 eligible for the credit

Water Heaters. Credit includes installation costs; some restrictions for energy efficiency apply. $300 max credit.

Insulation, whether spray foam, fiberglass, or blow-in cellulose, they’re all covered so long as they meet IECC requirements. Installation cost is NOT covered.

HVAC components, including advanced air handlers, air force heat pumps, central A/C units, boilers, propane, and gas furnaces. Tax credits include installation costs. $300 limit, and furnaces must now be 95% efficient.

Biomass Stoves. $300 credit limit.

Metal and asphalt roofs. Credit doesn’t include installation costs.

According to the government site, some of the tax credits allow you to claim installation costs, while other credits do not. To find out if your product is included, and whether you can include installation costs, check the government site here.

Applying For The 2011 Tax Credit?

To claim the energy efficient products tax credit, you’ll need to claim the credit on your 2011 taxes in 2012. There will be a form from the IRS to send in with your return. (I’ll update with a link once it becomes available). The product has to be placed in service in 2011.

2011 Federal Income Tax Brackets for your reference.

Willl People Still Take Advantage Of The Credit?

The tax credits have been greatly reduced for many products. For example, if you replaced your windows last year, you may have been able to claim the full $1500 credit. This year, you'd be maxed out at $200. That's quite a drop.

Will that mean that less people go out to buy these energy efficient home products? Most likely. To me that really reduced the effectiveness and the reason for the credit. Why even have it if it doesn't have a stimulus effect?

A lot of building industry folks aren’t happy about the reduction in the credit either.

The net effect of all this, say home building and remodeling experts, will be to severely diminish consumers’ interest in energy-efficient home improvements. Donna Shirey, chairwoman of the Remodelers Council of the National Assn. of Home Builders and president of a contracting firm in the Seattle area, said the gutting of energy-efficiency credits “is a big step backward. It’s bad for the environment, bad for consumers and, of course, bad for jobs in our industry. We’re heading the wrong way here, sending absolutely the wrong message.”

What are your thoughts about the reduction in the amount of the credit? Do you think it will have a negative effect on home remodelers, contractors and other building trades? Tell us your thoughts in the comments.

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