Share with your friends










Submit
Rocket Lawyer Family law

Tax Law Changes for 2010-11: What Everybody Needs to Know

The 2011 tax filing season has started, and as with every year, there are new tax laws to keep track of. Not every law may affect you, but here are the overarching changes that impact everyone’s 2010 return this year.

Filing Delays
This year there will be two major filing delays, though one’s really more of a blessing. Some individuals may find that they can’t start filing their return until mid February as a result of the legislative changes Congress made late in 2010. The last-minute extensions of various tax policies have the IRS scrambling to update forms and reprogram their systems. This delay mainly impacts those filing itemized Schedule A returns and those seeking to clam higher education credits. But there’s a silver lining: due to a little-known holiday in Washington D.C. that falls on April 15th this year, we all have until April 18th to file our returns. Use the extra time wisely!

Changes to Standard and Itemized Deductions
Many of the 2009 credits and deductions have been carried over to 2010, but there have been a few replacements and adjustments. You may want to file your taxes differently this year to take maximum advantage of these credits and deductions.

What’s the difference between credits and deductions? Both are essential tools for minimizing your taxes, but they work differently. Credits give you a set cash compensation amount, while deductions reduce the amount of tax you owe by lowering the income used to calculate your taxes. In other words, you subtract or “deduct” qualified expenses from your adjusted gross income to make it look smaller.

While different credits work for select groups, everyone can take advantage of deductions. However, you must choose which deduction method minimizes your taxes. When you file your return, you either take the standard deduction for your status, or you deduct your total itemized deduction amount (plus any personal exemption amounts). Because these two methods have their own benefits and limitations, look over the changes to the 2010 return filing rules before you choose.

For example, for 2010 through 2012, there is no itemized deduction limit. As a result, you can deduct the full amount of all of your itemized deductions. Furthermore, the phaseout rules for personal exemptions (another form of tax deduction) do not apply in 2010. This means that individuals can claim personal exemptions (each worth $3,650) for themselves and any dependents they support, no matter what income bracket they are in.

In order to choose between itemized and standard deductions, you have to know the actual amounts of each. Only you can calculate your total itemized deduction, but the 2010 standard deduction break-down is:

  • $5,700 for single filers and married filing separately
  • $8,400 for heads of household (unmarried individuals caring for dependents)
  • $11,400 for married filing jointly and qualifying widowers

You’d be deducting these amounts from your taxable income, regardless of what tax bracket you fall into. Keep in mind that while 2010’s tax brackets are the same as 2009’s, where you fall depends on both your filing status and your taxable income, so your bracket might be different this year if your situation has changed.

Alternative Minimum Tax Exemptions
The Alternative Minimum Tax (AMT) was designed to ensure that wealthy Americans don’t avoid paying their share of federal income tax: taxpayers pay whichever amount is more, their regular tax or the AMT amount. If your calculated standard and itemized deductions are smaller than your AMT, you’ll have to pay the AMT. To deal with inflation, Congress continually raises the exemption amounts for the AMT. The 2010 exemption level is $47,450 for singles and heads of household. You can also use nonrefundable personal credits to offset your AMT.

This is a very basic overview of important tax law changes for the 2011 filing season.   We’ll be covering more specific areas of tax law changes in future posts, so stay tuned. For more info, check out Rocket Lawyer’s Free Legal Help Personal Tax Articles.

RELATED POSTS

Comments are closed.