As we head into the last quarter of 2010, it’s time to not only think about (and plan) your 2010 tax return, but also to note how the expiring “Bush Tax Cuts” will impact you financially in 2011. Unless our legislature decides otherwise, here are some of the changes coming:
1. Tax Brackets: The current brackets of 10%-15%-25%-28%-33%-35% will INCREASE to 15%-28%-31%-36%-39.6% beginning in 2011.
2. Child Tax Credit: Beginning 2011, this credit (which is available to families with children under 17) will be reduced from $1,000 to $500 per eligible child, AND refundability will be limited to families with earned income and 3 or more children.
3. Marriage Penalty Returns: Beginning 2011, the Married Filing Jointly Standard Deduction and lower tax brackets will decrease from 200% to 167% of the Single amounts.
4. Capital Gains: Long-term Capital Gain tax rates increase from 0%-15% rates to 10%-20%, AND Qualified dividend tax rates increase from the 0% to 15% rates to the taxpayer’s ordinary income tax rate (as high as 39.6%).
5. If you adopt a child in 2010 or 2011, the Adoption Credit increases to $13,170 AND is fully refundable.
6. The Estate Tax is repealed for tax year 2010, but reverts to pre-2001 rates in 2011.
7. Energy Credit: If you plan to make improvements to your primary home to make it more energy efficient, you may want to do it before Dec. 31, 2010 when it expires. This credit is 30% of the total costs (up to a $1,500 credit) of the qualified improvements.
8. Education Credits: The American Opportunity Credit, which allows a credit of up to $2,500 for the first FOUR years of college, and includes course materials (in addition to just tuition and fees) is set to expire the end of 2010. There will still be Education Credits in 2011, but not as extensive.
9. Making Work Pay Credit, which provides a refundable credit of up to $400 (Single) and $800 (Married Filing Jointly) sunsets on December 31, 2010.
10. ROTH IRA Conversions: Beginning 2010 and CONTINUING into future tax years, the income limit ($100,000 modified AGI) is now eliminated, opening the door for everyone to convert their traditional IRA’s to the ROTH. While the conversion amount is taxable, you can elect to pay half the tax in 2011 and half in 2012.