In 2011, Many Tax Benefits Increase Slightly Due to Inflation Adjustments

According to the IRS' newest press release, personal exemptions and standard deductions will rise and tax brackets will widen due to inflation in 2011.

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.

Read more at IRS.gov...

Tax Info For New Grads

Spring is here and many students are getting ready to graduate from college. Let me commend all you grads for your outstanding accomplishment. You have laid the foundation for a successful life ahead. As you get ready to land your first job, there are a few things you should know about filing your income taxes. Klipinger.com published a great article a couple years ago, but here’s the most relevant and up to date information:

First, you need to file your taxes. One of the first things to find out is whether your parents qualify to claim you as a dependent or if you can claim your own $3,650 exemption. To find out, answer these questions: Will you be under age 24 at the end of 2010? Were you a full time student for at least five months of the year? Did you live with your parents more than half the year without proving more than half your own support? If the answer is yes, your parents can still claim you as a dependent and that means they get the $3,650 exemption. If you are older or provided more than half your financial support, then the exemption is yours.

What do most college students have in common? Student loans. Once you start claiming your own exemption, you can also start deducting the interest you paid on your student loans. You can deduct up to $2,500 in student loan interest by filing the regular 1040 form. This deduction phases out if you earned more than $60,000 for single filers ($120,000 for joint filers) so talk to a tax professional to be sure you qualify.

If landing your new post-college job means a move you may be able to deduct those expenses. So long as the job makes you move more than 50 miles from your previous home and your new company does not reimburse you for the costs, you should be able to claim the deduction for the costs of a moving van, mileage, and any other normal moving expenses. You don’t have to itemize to claim this deduction, just make sure you keep receipts and records.

The Standard Deduction

Last week the RDTC Tax Help Blog posted a new entry in its Deduction of the Week series. The new article explains the standard deduction, and how to determine if you should itemize or not. I have included a section of the Deduction of the Week entry below, but you can find the full text at the RDTC Tax Help Blog.

To Itemize or Not?

If you itemize deductions on your tax return, you will be eligible to claim dozens of tax deductions, such as the mortgage interest deduction or vehicle registration fee deduction. However, if you do not qualify for many deductions, you can claim the standard deduction, which will reduce your adjusted gross income by a flat amount.

To decide if you should itemize or not, you should first determine all the deductions you qualify for and the total amounts of those deductions. If that number is higher than the standard deduction you would qualify for then you should itemize. If the number is lower, then you should claim the standard deduction.

Standard Deduction Amounts

Listed below are the standard deduction amounts for 2010:

• Single $5,700
• Married Filing Jointly $11,400
• Married Filing Separately $5,700
• Head of Household $8,400

Questions for the Tax Lady: April 5th, 2010

Check out the following new Questions for the Tax Lady answers and feel free to ask me questions through one of the links below. You can send me an email, direct message or @ reply, and I will do my best to get an answer for you!

Question #1: I visit my local tanning salon every few weeks, and they have warned me that a new tanning tax will be enacted as part of the health care reform package. When will this new tax take effect?

Beginning on July 1^st of this year a 10% “tanning tax” will be imposed on all payments made for indoor tanning services.

Question #2: Was there an increase in the standard deduction amount for 2010?

The standard deduction for married couples filing a joint return remains unchanged at $11,400 for 2010. The standard deduction for single individuals and married couples filing separate returns is $5,700 for 2010. The standard deduction for taxpayers filing head of household increases by $50—from 8350 to $8,400—for tax year 2010.

Want a Bigger Tax Refund? Don’t Itemize

Although itemizing can lead to a huge refund for some taxpayers, there are many others who benefit more from taking the standard deduction. If you think you may be one of those taxpayers that will get more for their buck by simply taking the standard deduction, read this Forbes.com article.

Year after year taxpayers spend hours hunting down and organizing all their receipts and canceled checks for totally legitimate deductions--gifts to charity, medical expenses, unreimbursed business expenses and so on. Then they're told by their tax professionals, (or discover while using software such as Intuit's TurboTax or H&R Block's At Home) that all their conscientious record keeping is for naught. Those itemized deductions won't be showing up on their tax returns, because they'll get a bigger refund by claiming the "standard deduction."

Often people are left feeling a little cheated and confused by the process. So it helps to understand why you may be better off not itemizing, particularly this year. Here are six reasons:

1. The standard deduction isn't so small or so standard.

The standard deduction is an amount assigned to each filing status. The base amount for 2009 is $5,700 for a single filer and double that--$11,400--for a married couple filing jointly. A head of household (a single parent with kids, for example) gets a standard deduction of $8,350. There are additions to these standard amounts for those who are blind or over age 65.

Continue reading at Forbes.com…

Questions for the Tax Lady: December 7th, 2009

Check out the following new Questions for the Tax Lady answers and feel free to ask me questions through one of the links below. You can send me an email, direct message or @ reply, and I will do my best to get an answer for you!

Question #1: My boss usually gives me a present for the holidays, but this year she gave me a bonus check. Will I need to include these funds on my next tax return?

Yes, any cash gifts or items that are “easily exchangeable” for cash that you are given by an employer should be reported to the IRS. However, since your employer printed you out a check then odds are that she intends to include it on your W-2 form, but if you want to be extra cautious then you can always ask her. For more information on the tax implications of holiday presents from employers check out this entry on the RDTC Tax Help Blog.

Question #2: What is the 2009 standard deduction amount?

According to this IRS press release, for the 2009 tax year “the new standard deduction is $11,400 for married couples filing a joint return (up $500), $5,700 for singles and married individuals filing separately (up $250) and $8,350 for heads of household (up $350). 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.”