How to Get a Jump on Next Year’s Taxes
You probably haven’t even filed your tax return for 2010, but it’s not too early to start thinking about your 2011 return.
Here’s what you need to know.
The folks at Freedom Tax Relief point to nine aspects of the 2010 Tax Relief Act that might benefit you in 2011.
Extended unemployment benefits. The tax compromise that passed in mid-December extended emergency unemployment compensation (EUC) so that unemployed workers can receive a total of up to 99 weeks of unemployment payments. Benefits are issued according to specific rules. Workers who have already received benefits for 99 weeks will not be eligible for any additional benefits.
Tax cuts continue. The 2010 tax compromise extends existing tax cuts for all taxpayers for two years. This means you will still benefit this year from several tax breaks, such as the removal of the marriage tax penalty—meaning that taxpayers who are married filing jointly do not pay more tax than two taxpayers filing separately.
Credits stay too. Tax payers will also benefit financially from the extension of several tax credits. What’s on the list? The Child Tax Credit (up to $1,000 for each dependent child under age 17), the Earned Income Credit (which helps people with a low income – and the maximum income to qualify increases this year), and the American Opportunity Tax Credit, which assists those attending college.
Fatter paychecks. For 2011, workers will pay 2 percent less in Social Security deductions from their paychecks. This could amount to more than $2,000 for someone earning the maximum subject to FICA tax (just below $107,000 per year).
Deduct, deduct, deduct. For 2011, deductions can be itemized no matter what percentage of income they comprise. This should allow more folks to claim deductions.
Big breaks for estate and gift taxes. The 2010 Tax Relief Act makes estate and gift tax limits “portable” between couples. Simply put, if one spouse does not use his or her limit, the other one can. Gift-givers pay no tax on gifts of $13,000 or less ($26,000 for married couples) to any one person, with a lifetime limit of $5 million – up from $1 million last year.
Rethink IRAs. With new rules, more taxpayers will qualify for deductions for payments to individual retirement accounts (IRAs). The IRS calculates how much tax payers can deduct based on their AGI (adjusted gross income). The limits are slightly higher in 2011 than in 2010.
AMT revamp. You’ll be able to take more credits against the alternative minimum tax (AMT). The AMT exemption also will decrease.
Count those miles. Self-employed people who drive their cars for business and people who use their car to travel to medical appointments or for charitable causes might be able to deduct their mileage at 2011 deductible amounts. Know however, that you must follow certain tax guidelines, including keeping a record of total miles driven and the specific tax-deductible purpose. For 2011, the IRS has established deductible mileage amounts at 51 cents per mile for business miles driven, 19 cents per mile for medical miles, and 14 cents per mile for charitable purposes. Mileage also might be deductible (at 19 cents per mile) for some moving purposes.
Many of these credits and deductions are subject to income limitations or other restrictions. Talk to your tax professional.
While maybe you’re procrastinating about putting 2010 taxes to bed, don’t let history repeat itself. Get going now for 2011. Avoidance won’t make Uncle Sam go away, and with a bit of planning, you may just have less to cry about next time.
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