With the new year now here and the focus soon turning to the upcoming tax season, there are a number of significant changes to state and federal tax laws of which people should be aware.
First and foremost, be aware of the filing deadline for state and federal tax returns ”“ Monday, April 18. This is because Washington, D.C., will celebrate Emancipation Day on April 15 and, as a result, tax returns filed by the April 18 deadline will be considered timely filings. The extra three days could prove helpful.
Perhaps the most important piece of information to know is an item that dominated news coverage around the new year ”“ the enactment on Dec. 17 of the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010.
This tax-cut package extended the 2010 personal income tax rates for all filers for the next two years, rather than reverting to scheduled higher rates per the 2001 act. The capital gain and qualified dividend tax rates will not increase through 2012, either. This will mean tax savings for individuals this year that had not been anticipated.
Another major benefit this year comes in the area of itemized deductions and personal exemptions. Starting in 2010, these items are no longer being phased out. This will continue in 2011 and 2012. The personal exemption amount for 2010 is $3,650 and the inflation-adjusted rate for 2011 is expected to rise to $3,700.
There is more good news with the extension of a number of tax credits for the coming year, including a tax credit of up to $250 for teachers who spend their own money on classroom expenses.
Additionally, the Residential Energy Property Credit has been extended through 2011, although at a lower level. This credit, for home energy conservation upgrades, will reduce from $1,500 in 2010 to $500 in 2011.
Finally, the American Opportunity Tax Credit (a temporary replacement of the HOPE education credit) has been extended for two more years through 2012. This is a higher education tax credit that can be claimed for all four years of post-secondary education, whereas the old HOPE credit was only available for the first two years of post-secondary education.
A portion of this credit is refundable. Even if you owe no tax, eligible taxpayers could receive a refund of up to $1,000. The income limitations have also been extended, with a phase-out that begins at $80,000 of adjusted gross income (AGI) for singles and $160,000 for married couples filing jointly, and ends at a modified AGI of $90,000 for singles and $180,000 for married couples.
Mary Hoyt is a certified public accountant and a partner with BlumShapiro, an accounting, tax and business consulting firm with offices in West Hartford, Shelton and Westport.
