Archive for the ‘2011 Tax Information’ Category

Understanding the Tuition and Fees Deduction

Tuesday, January 10th, 2012

One of the tax provisions that was set to expire in 2010 but was extended to include 2011 is the Tuition and Fees Deduction.

The Tax Benefit

Eligible taxpayers may deduct up to $4,000 of qualified education expenses for eligible students. This benefit must be evaluated along with other educational tax benefits such as the American Opportunity Credit and the Lifetime Learning Credit.

What is the benefit?

  • Up to $4,000 if: Married Filing Joint (MFJ) and your modified Adjusted Gross Income (AGI) is less than $130,000 ($65,000 if Single)
  • Up to $2,000 if: MFJ and your modified AGI is between $130,000 – $160,000 ($65,000-$80,000 if Single)

Who/What is not eligible?

  • Clients that can be claimed as a dependent on someone else’s return
  • Filing status of married filing separately
  • Personal expenses including room and board
  • Double benefits are not allowed. In other words, if you use the same expense to qualify for another education tax benefit, it will not qualify.

Navigating the maze of education tax benefits can be complicated and often requires running through different scenarios. Feel free to call if you wish a review of your situation.

Avoid Common Tax Filing Mistakes

Tuesday, January 10th, 2012

Want to ensure your refund gets to you in the shortest amount of time? Want to avoid a letter from the IRS? Here are some of the most common Tax Filing Mistakes:

  • Forgetting a W-2 or 1099. The IRS does an effective job in comparing W-2s and 1099s they receive from organizations to the amounts you claim on your tax return. If they do not match, rest assured you will receive a notice in the mail asking for clarification.
  • Duplicate Dependent Reporting. If more than one tax return claims the same person as a dependent, the second return will be rejected. The IRS does not try to determine which tax return is correct. They leave that up to you.
  • Forgetting a Name Change. If you fail to change your name with Social Security after marriage and you file a tax return with your “new” last name, be prepared for either a rejected tax return or an adjusted tax return.
  • Other Missing Information. When preparing your tax return, often the return is held up because key information is missing. These missing items range from property tax and mortgage interest statements, to 1099s and W-2s.
  • Signing the e-file Authorization Form. Your tax return cannot be e-filed without proper authorization. After reviewing your return, a properly signed Form 8879 must be received.

Changing Tax Laws-Finally, a Little Certainty

Monday, January 9th, 2012

The last few tax years have been filled with uncertainty as late changing tax laws, impacting the majority of taxpayers, were passed by Congress. Thankfully, 2011 has many of these tax laws already established. Key among them are:

  • The Child Tax Credit remains at $1,000.
  • The Alternative Minimum Tax (AMT) higher exclusion patch is all set for 2011. This patch saves an estimated 21 million taxpayers a higher tax bill.
  • Qualified teachers may continue to deduct up to $250 of out-of-pocket classroom expenses.
  • You may continue to take the sales tax deduction as an itemized deduction instead of deducting state income taxes.

What’s with MeF?

Monday, January 9th, 2012

In 2012, the IRS is planning a wide-spread improvement in how it processes e-filed returns. The current system fondly called the “legacy” system by the IRS processed over 70% of the 2010 individual tax returns.

The current plan is to replace this system with the Modernized e-File (MeF) System. Full shutdown of the “legacy” e-file system is currently scheduled for October of 2012.

What is MeF?

MeF is a web based system that will provide faster tax filing acknowledgements, improved error explanations, year round electronic filing and “real time” filing with better ability to include attachments like .pdf’s to your tax return.

What’s happening this year?

The MeF system was available in 2011 to file 2010 Form 1040s and 21 other related forms and schedules. Approximately 8 million tax returns were processed last year within the MeF system. For 2011 tax returns, 128 new forms are being added to the system and all states must begin to make their processing compliant to the new system.

What do you need to Know?

The new MeF system has not been tested with the anticipated tax return volume expected this year. While no problems are anticipated, there may be an impact on e-filed tax returns. Hopefully, it will mean more accurate e-filling and better/quicker processing of refunds.

2011 Tax Rates

Monday, January 9th, 2012

The income brackets for each tax rate are:

Single Married Jointly Head of Household Married Filing Separately Tax Rate
$1-8,500 $1-17,000 $1-12,150 $1-8,500 10%
$8,501-34,500 $17,001-69,000 $12,151-46,250 $8,501-34,500 15%
$34,501-83,600 $69,001-139,350 $46,251-119,400 $34,501-69,675 25%
$83,601-174,400 $139,351-212,300 $119,401-193,350 $69,676-106,150 28%
$174,401-379,150 $212,301-$379,150 $193,351-379,150 $106,151-189,575 33%
Over $379,150 Over $379,150 Over $379,150 Over $189,575 35%

Key 2011 Exemptions and Deductions

Monday, January 9th, 2012

Listed here are key deduction rates for 2011.

Personal Exemptions

The personal exemption for each qualifying dependent in 2011 is:

  2011 2010
Exemption $3,700 $3,650

Note: The exemption phase-out calculation for clients above certain income thresholds does not apply in 2011.

Standard Deductions

Standard Deductions in 2011 for those who do not itemize are presented here. Unlike 2010, most Standard Deductions increase slightly versus last year.

  2011 2010
Single $5,800 $5,700
Married Filing Sep. $5,800 $5,700
Married Filing Joint $11,600 $11,400
Head of Household $8,500 $8,400


If 65 or over and/or blind add:

  2011 2010
Single/Head of Household $1,450 $1,400
Married / Surviving Spouse $1,150 $1,100

Note: The deduction phase-out calculation for clients above certain income thresholds does not apply in 2011.

Standard Mileage Rates

The standard mileage rates for 2011 are:

Rate/Mile 1/1-6/30 7/1-12/31
Business Travel $.51 $.555
Medical/Moving $.19 $.235
Charitable Work $.14 $.14

Changes in 1099s

Monday, January 9th, 2012

There are two major changes to 1099 information reporting this year.

1099-B Broker reporting

Investment companies are now required to report the cost of investments you sold during the year to the IRS. This “basis” will be used by the government to audit your reported gain or loss on the sale of these investments.

New 1099-Ks

If you used PayPal or similar credit card processing service for Ebay or other similar transactions you may receive a 1099-K that recaps these transactions. This form is also being sent to the IRS to try to report previously underreported small business activity.

If you receive either of these forms it is important to make sure the amounts reported on them are correct. Any errors should either be corrected on your tax return or be brought to the attention of the supplier for re-issuance.