- Days left

What will your taxes look like in 2011?

Tax Day 2010 has come and gone, much to the relief of many taxpayers. But it's never too early to start planning for the next tax year. Given all of the government's moves to stimulate the economy -- and the debt it has acquired doing so -- can you expect to pay more or less in taxes in 2011?

Here's a rundown of what's in store for the next tax year:
  1. More Making Work Pay Credit. Despite criticism heaped upon the IRS for its handling of the ill-designed Making Work Pay Credit, we're in for a second helping in 2010. The credit, aimed at the middle class as part of the American Recovery and Reinvestment Act, provides taxpayers with a refundable tax credit of up to $400 for working individuals and up to $800 for married couples filing joint returns, so long as they otherwise qualify. As before, most taxpayers will see an adjustment in their withholding amounts in their paychecks throughout the year, resulting in a small increase in take-home pay; taxpayers will actually claim the credit on their 2010 tax returns. Employees with more than one job or married couples who both work may want to try out the IRS's withholding calculator to see if any adjustments will be necessary on their form W-4.
  2. No deduction for sales tax on the purchase of a new vehicle. The tax provision that allowed taxpayers to take the itemized deduction or increase in standard deduction for sales tax on the purchase of a new motor vehicle has expired.
  3. No more state and local sales tax deduction. In 2009, taxpayers who itemized were able to deduct their state sales tax payments instead of deducting their state and local income taxes. This provision ended after December 31, 2009 -- although Congress could decide to extend it.
  4. Roth IRA conversions. In 2010, the rules governing who can invest in a Roth are a bit different. The change, which was signed into law as part of the Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA), allows anyone with an existing traditional IRA to convert to a Roth IRA -- regardless of their income -- for one year. The tax attributable for any such conversion will be paid in 2011 and 2012.The rules that otherwise govern establishing and making contributions to new Roth IRAs will not change.
  5. Homebuyer's Tax Credit payback begins. For 2009, the first-time home buyer's credit was a flat out credit -- no repayment required. However, the first iteration of the bill, which was part of the Housing and Economic Recovery Act of 2008, required the repayment of the credit over a period of 15 years. For taxpayers who claimed the credit in 2008, repayment begins with the filing of their 2010 tax return.
  6. No change in the gift tax exclusion. Inflation didn't move much at all from 2009 to 2010, which means that the annual gift-tax exclusion of $13,000 also won't change. For 2010, a U.S. taxpayer can give away $13,000 per person (to one person or a million different people -- the exclusion is unlimited) without any tax considerations.
  7. No federal estate tax. When the federal estate tax was repealed -- for one year -- under the Economic Growth and Tax Relief Reconciliation Act of 2001, it was widely believed that Congress would tweak the law to avoid the repeal before we actually made it to 2010. However, in a stunning show of inaction (some are calling it "Congressional malpractice"), Congress has simply chosen to do nothing. The result? No federal estate tax for 2010. But don't get too comfortable: In 2011, the federal estate tax is reinstated with a lower personal exemption ($1 million) and a higher tax rate (55%) than in 2009.
  8. Alternative Minimum Tax (AMT) exemption rollbacks. For 2009, the AMT exemption was $46,700 for individual taxpayers; $70,950 for married taxpayers filing jointly or for qualifying widow(er)s; and $35,475 if married filing separately. But for 2010, these exemption amounts will drop back to $33,750 for single taxpayers; $45,000 for married taxpayers filing jointly or for qualifying widower(s); and $22,500 if married filing separately in 2010. The scaled back exemption rate is expected to affect a whopping one in five taxpayers.
  9. No change in the Medicare tax (yet). The health care reform bill pushed through a number of tax provisions affecting employers and individual taxpayers. Most of the changes, however, including an additional Medicare tax on higher-income individuals, won't kick in until 2013. There is no change for 2010.
  10. Unemployment income tax breaks expire. For 2009, unemployed taxpayers who received related benefits could exclude up to $2,400 from their taxable income. Unless Congress votes to change the law for 2010, this tax benefit will no longer be available.
  11. Section 179 Expense Deduction. Most new business equipment can either be depreciated over its useful life or expensed immediately under Section 179 of the Internal Revenue Code; the latter tends to be the most popular among taxpayers. The deduction is calculated beginning in the taxable year in which the property is placed into service. For 2010, the maximum amount of equipment placed in service that businesses can expense was expected to drop to $135,000, down nearly 50% from the 2009 limit of $250,000 - but was given a last minute reprieve. The $250,000 limit remains, with limitations, for 2010 (but be forewarned: for 2011, it's slated to plummet).
Normally, this would be the point where I tell you to bookmark this post so you can refer to it during the tax year. But in a key election year, nothing is sacred. Expect to be surprised -- and keep checking back in with WalletPop to see what's developing in tax year 2010.

Increase your money and finance knowledge from home

Timing Your Spending

How to pay less by changing when you purchase.

View Course »

Understanding Credit Scores

Credit scores matter -- learn how to improve your score.

View Course »

TurboTax Articles

Will Medicare/Medicaid be Impacted by ACA?

The Affordable Care Act put in place significant tax-related programs that impact Medicare and Medicaid, such as increased Medicare taxes on earned and unearned income for high-wage earners, and Medicaid changes that increase the number of insured individuals. Establishing whether you are affected by the ACA-imposed taxes, or are eligible for certain health programs that fall under the Centers for Medicare and Medicaid Services, is determined by filing your income tax.

8 Things You Think Are Tax Deductible That Aren't

There?s a fine line between looking to save money on your taxes and taking deductions that will raise eyebrows at the Internal Revenue Service. Some taxpayers are tripped up by expenses that they assume are tax deductions, but don?t qualify under IRS guidelines. Here are a dozen items that can lead to unpleasant surprises in case of an audit.

Essential Tax Forms for the Affordable Care Act

The Affordable Care Act (ACA), also referred to as Obamacare, affects how millions of Americans will prepare their taxes in the new year. The law now includes penalties for all who haven?t obtained health insurance -- and those penalties are expected to be paid at tax time. The ACA also provides tax credits to help people pay for insurance, and you can claim those credits when you file your taxes. The Internal Revenue Service (IRS) has introduced a number of tax forms to accommodate the ACA.

How to Determine if You Have Minimum Essential Coverage (MEC)

The Affordable Care Act, also known as Obamacare, requires most Americans to have health insurance that meets a government standard known as "minimum essential coverage," or MEC. Whether your insurance qualifies as MEC depends not on the plan itself, but on how you obtained your coverage.

What are 1095 Tax Forms for Health Care?

In 2014 the Affordable Health Care Act, also known as Obamacare, introduced three new tax forms relevant to individuals, employers and health insurance providers. They are forms 1095-A, 1095-B and 1095-C. These forms help determine if you need to comply with the new shared responsibility payment, the fee you might have to pay if you don't have health insurance. For individuals who bought insurance through the health care marketplace, this information will help to determine whether you are able to receive an additional premium tax credit or have to pay some back.

Add a Comment

*0 / 3000 Character Maximum