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2011 Tax Changes That May Affect You

The IRS has recently released the new changes for the upcoming 2011 Tax Year. As always World Wide Tax Services is working diligently to keep up with issues in Tax that may affect you. With the current buzz about the condition of the economy, increases in unemployment, governmental cuts, and the unknown political changes to occur next year, most of us are watching our wallets and considering making some changes/reductions to improve if not stabilize our financial conditions. Many of us start the new year with hopes of a nice refund to either help offset costs, put away for savings, or purchasing that special item we have been putting off for sometime. We have compiled information to assist you in preparation of your tax return, whether you are brave enough to file independent of a tax provider or gathering the necessary documentation needed by your tax preparer to prepare an accurate return that maximizes your potential refund.

Standard Deductions

The Standard Deduction for filers that do not itemize has increased for 2011. The amount depends on your filing status:

Single or Married Filing Separate                                                $5,800

Married Filing Jointly or Widower with Dependent            $11,600

Head of Household                                                                            $8,500

An additional standard deduction is allowed for filers over 65 and/or blind.

Exemptions

The Exemption amount has increased for 2011, to $3,700 for each qualifying exemption.

Earned Income Credit

The requirements to qualify for the Earned Income Credit (EIC) are:

  • You must be married and filing jointly, head of household, qualifying widow, or single. If married, you may not file separately.
  • Qualifying children must be under 18, or full-time students.
  • Household members must have valid Social Security numbers.
  • You must be a U.S. Citizen.
  • You must have earned income.
  • You cannot be a qualifying child on someone else’s return.

The maximum amount of the credit for 2011 is:

  • $3,050 if you have one qualifying child
  • $5,036 if you have two qualifying children
  • $5,666 if you have three or more qualifying children
  • $457 if you do not have a qualifying child

The maximum amount of income you can earn and still receive the credit has increased for 2011. You may be able to take the credit if:

  • You have three or more qualifying children and you earn less than $43,988($49,078 if married filing jointly),
  • You have two qualifying children and you earn less than $40,964 ($46,044 if married filing jointly),
  • You have one qualifying child and you earn less than $36,052 ($41,132 if married filing jointly), or
  • You do not have a qualifying child and you earn less than $13,660 ($18,740 if married filing jointly).

Investment income amount. The maximum amount of investment income you can have and still get the credit is still $3,150 for 2011.

Advance payment of the credit. The advancement of payment for the Earned Income Credit was disallowed after 2010, due to changes in the tax law.

First Time Home Buyer Credit

The First Time Home Buyer Credit has been extended for members of the uniformed services, foreign services, employees of intelligence communities on qualified official extended duty outside the United States for at least 90 days during the period of December 31, 2008 through May 1, 2010.

Alternative Motor Vehicle Credit

This credit is disallowed for 2011, unless the purchased vehicle is a fuel cell motor vehicle purchased during 2011.

Changes to the Non-Business Energy Credit

The credit remains 10% of the amount paid or incurred for qualified energy efficient improvements installed in 2011 and any residential energy property costs paid or incurred in 2011. The change is the newly added lifetime limit of $500 for all years after 2005.  There are also limitations within the $500 lifetime limit, that can be allocated as follows:

$200 is the limit for windows

$50 for advanced main air circulating fans

$150 for qualified natural gas, propane, oil furnaces or hot water boilers

$300 for any item of energy efficient property

If  the credit taken in previous years was more than $500, the credit will not be allowed for 2011

It should be noted that it is necessary to reduce the basis of your home for any credits allowed.

Residential Energy Efficient Property Credit

A credit up to 30% of costs for qualified solar electric property, solar water heating, fuel cell property, small wind energy property, and Geo-thermal heat property may be taken, there is a credit limit of $500 for each one-half kilowatt of capacity of each property.

It should be noted that it is necessary to reduce the basis of your home for any credits allowed.

Adoption Credit

The adoption credit is $13, 360 for 2011.

Health Coverage Tax Credit

If you were not covered by medicaid or any other health insurance provider or your employer did not pay more than 50% of the costs of coverage, and you did not receive a reduction in premium from Cobra, and you can not be claimed as a dependent you may be able to claim up to 80% of amounts you paid directly to a qualified health plan from January – February. The credit amount has decreased to 72.50% for amounts paid from March – December 31, 2011.

Amounts paid must be reduced by Archer MSA and HSA distributions used to pay for the coverage.

The credit can be taken on your tax return or advanced to your insurance company. Payments made in advance to the insurance company will reduce the amount of the credit on the tax return.

Mileage Rates

Standard

January – July 1, 2011                   $.51

June 30 – December 31, 2011    $.55

Medical and Moving Miles

January – July 1, 2011                  $.19

June 30 – December 31, 2011    $.23 1/2

Potential for Additional Taxes

HSA and Archer MSA

The additional tax for distributions not used for medical expenses increased to 20%.  On another note the benefit of including amounts paid for medicine or prescribed drugs (including insulin) are now considered qualified medical expenses.

Roth IRA Conversions

If you converted your IRA in 2010, but elected not to report the conversion on your 2010 return, generally you must report half in 2011 and the remainder in 2012. This includes roll overs for 401K and 403B accounts.

This information was compiled for the deductions, credits and taxes that are most common to most tax filers. We are at your service to assist with more complex questions or changes that are not mentioned above. Contact our offices at 586.296.0771, or email us at info@worldwidetaxonline.com.

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