Yahoo Smart Money Finance Article

Posted January 19, 2011
Many Miss Out on Retirement Tax Credit
By Joe Mont

BOSTON (TheStreet) -- A federal income tax credit of up to $2,000 may be overlooked by most Americans with retirement plans who can take advantage of it.

The Saver's Credit is designed as an incentive for low- to middle-income workers to save for retirement. But, according to the Transamerica Center for Retirement Studies, very few workers who may be eligible may even know it exists.

The Saver's Credit may be applied to the first $2,000 of voluntary contributions an eligible worker makes to a 401(k) or similar employer-sponsored retirement plan or IRA. Credits of up to $1,000 for single filers and $2,000 for married couples are offered.

But only 12% of full-time workers with annual household incomes of less than $50,000 are aware of the credit, according to a survey conducted by the center of 3,598 full-time and part-time workers.

"There are people who meet the income eligibility requirement and are saving through a 401(k) plan who could be claiming the credit, but they just don't know about it," says Catherine Collinson, president of the center, which is funded by contributions from Transamerica Life Insurance.

The center is advocating improved outreach.

"It seems like over time it has gotten lost in the shuffle," she says of the credit. "It was introduced all the way back in 2001 and made permanent in 2006 with the Pension Protection Act. It is there and available, but I think the outreach has just moved on to other tax credits and other types of things."

Taxpayers can only claim the credit on Forms 1040A, 1040 and 1040NR.

"One of the concerns is that, especially for people saving in a 401(k) plan, it is not reflected on the 1040EZ form," Collinson says. "Lower- to middle-income workers are probably the most likely of all income levels to use the 1040EZ form, and because there's no place to put it on the form, they may be completely missing the tax credit ... and are simply not aware of it."

How to claim the credit
The credit is available to workers who have contributed to a company-sponsored retirement plan or IRA in the past year. Single filers with an adjusted income of up to $27,750 last year or $28,250 this year are eligible. For the head of a household, the adjusted income limit is $41,625 last year and $42,375 this year. For those who are married and file a joint return, the adjusted income limit is $55,500 last year or $56,500 this year.

The filer cannot be a full-time student or be claimed as a dependent on another person's tax return.

If you are using tax preparation software to prepare your tax return, use Form 1040A, Form 1040 or Form 1040NR. If prompted, be sure to answer all questions about the Saver's Credit, Retirement Savings Contributions Credit and Credit for Qualified Retirement Savings Contributions.

If you are preparing your tax returns manually, complete Form 8880, the Credit for Qualified Retirement Savings Contributions, to determine the exact credit rate and amount. Then transfer the amount to the designated line on Form 1040A, Form 1040 or 1040NR.

http://www.mainstreet.com/article/moneyinvesting/taxes/many-miss-out-retirement-tax-credit

Yahoo Smart Money Finance Article

What to Take to Your Tax Preparer Greg Bocquet Friday, January 28, 2011 Share Taxes are a tricky and complex business for most Americans. Whenever you buy something big or send someone to college, it seems like there's a new form, a new receipt or a new statement to consider. Plus, there is the fear of being audited to add to the stress. Jennifer Rempe, senior tax analyst for the Tax Institute, the research arm of H&R Block, says that while about 1% of all tax returns are audited, most of them are "correspondence audits" in which the IRS sends a letter asking for clarification of a certain piece of data. Such audits are almost always easy to resolve with the proper paperwork and having your documents in order can have other benefits too. You will lower your tax burden through maximum deductions, get your refund faster and save on the time needed to prepare your return. Plus, you will already have all of your documents ready to resolve any issues that arise. Read on for the essential documents that everyone should bring to their tax preparer to save the most money they can. Your Taxes Are Yours Alone Even if someone else fills out and files your forms, no one but you will be liable for the information. Problems with the tax return go to the taxpayer, not the accountant or whoever signed the forms. "If the tax preparer relies in good faith on the information the taxpayer provides for them, they can't be held responsible," Rempe says. Bottom line: If you don't give your accountant the right forms, you won't get the right deductions. Last Year's Tax Return Whether you are an experienced record-keeper or just beginning to get organized, you can probably find a copy of last year's return somewhere, and it may be the most important thing you can give your tax preparer. Other than all the Social Security numbers, names of dependents and addresses of property that are necessary for informational purposes, last year's return is a good blueprint for your tax preparer to follow. It will help him or her see what credits you have previously qualified for and identify red flags when the information is inconsistent. Rempe agrees: "Barring serious life events, last year's tax return gives a good idea of what your tax burden will look like this year," she says. W-2 If you work full-time, chances are you have taxes withheld from every paycheck to cover your tax burden for the year. If so, your employer will send you a W-2 form by Jan. 31 reporting your total income and the total amount that you have already paid in income, Medicare and Social Security taxes. For people who had more than one job as a regular employee, each employer will send a W-2 to detail your pay. Unfortunately, if you moved during the year your former employee might not have your current address and your W-2 may never reach you. But keep in mind, your Social Security number didn't change, so while the IRS will know how much you made, employees might need to call their former employers to ensure they get their tax forms in time. 1099 Simply stated, 1099 forms are issued for all additional income that has not yet been taxed. Freelancers and temporary or contract workers typically don't have their taxes taken out at the source. Instead they are paid per job, often by multiple employers, and are responsible for paying the appropriate taxes on that income. Instead of a W-2, this income will be reported on a 1099-MISC form, which is considered "additional income." Because these forms can often come from a variety of employers, it's important for all freelancers or contract workers to track down their 1099s themselves. The IRS will not accept an "I didn't get my 1099" excuse if it audits your return, meaning you'll still have to pay taxes on the amount, along with an additional penalties. 1099s also report dividends from stocks or mutual funds (1099-DIV), or interest earned on savings or other bank accounts (1099-INT), as well as a few others. Unemployment Forms Last year was tough for Americans: Many lost their jobs, and many more had trouble finding new ones. With so many people receiving unemployment benefits last year, President Obama was even forced to agree to tax cuts for people making more than $250,000 a year to get Republicans in Congress to approve an extension of unemployment benefits. Though it's a federal program, unemployment assistance is administered by state governments, and of course all of them do it differently. Some states automatically withhold taxes from unemployment payments (because unemployment income is taxable) and others don't. And some states automatically provide year-end information on a 1099-G form, and others don't. To ensure you get the assistance you need, Rempe of H&R Block recommends contacting your state's unemployment office, because simple bank statements showing your unemployment checks won't do. "Since different states do it differently, the amount of your checks doesn't tell you all of the information," she says. "If your state sends you paper checks, keep the last pay stub of the year to get year-to-date information. If they don't, you should call them and ask for a year-end summary." Are You a Schedule C or Schedule D? Instead of spending 80 hours a week hustling for jobs last year, many frustrated Americans took to sites like eBay or Craigslist to make some extra cash. There are a couple ways this can affect your tax reporting, but remember that anything that you sold for a loss does not need to be mentioned on your taxes. Conversely, if all you did was sell the contents of the attic or your dad's garage that you finally helped him clear out, then any money you made (meaning items you sold for more than their original selling prices) must be reported on Schedule D, a form that is submitted with your individual tax return. If what you did was a little more organized -- you bought things at local garage sales and flea markets so that you could flip them and make money -- then you'll need to report the profits (and expenses) of your little operation on a Schedule C form. If your net profit is more than $400, you will need to pay the self-employment tax. Rempe says the difference is all about intent. Since the distinction is vague, though, best practices apply: Save your receipts and be prepared to document the price at which you bought something. 1098 Now that all your income is accounted for, it's time for the fun part: expenses, deductions and credits. This is the part of the tax process -- if you prepare your returns -- where you can watch your base taxable income drop and expected refund rise with every step. So satisfying! 1098 forms cover the specific tax-deductible expenses that the government forces some institutions to report. If you paid tuition to attend college, or for a child in school, you will receive a 1098-T in the mail to document tuition expenses. If you are a homeowner, your mortgage lender will send you a 1098 that details the mortgage interest you paid (which is deductible) and the real estate taxes you paid last year. If you made a contribution to charity, the organization will send you a 1098-C detailing the amount of the contribution, or the monetary value of a vehicle or other goods you may have donated. If your student loans accumulated at least $600 in interest during the year, your lender must issue you a 1098-E to document the exact amount of interest added to your loan balance, because that is also deductible. All of these documents are issued to you, the taxpayer, so if you do not collect them (which may sometimes mean making a phone call to the charity or school to provide them with the current address), then your tax preparer will not be able to claim the appropriate deductions for you. Taxes on Personal Property Just as the government likes to support homeowners by offering them a range of credits and deductions, it also has provisions for people who make other large purchases, like buying a car, boat or mobile home. These purchases involve expenses that aren't charged at the point of sale, known as personal property taxes, which are deductible from your income taxes. These charges most often refer to the license plates on your car, or the registration fees for your boat, for example, that are collected by someone other than the dealership. While you should keep receipts for any big purchases, make sure to also keep records of your registration fees and bring them to your tax preparer. This also goes for old vehicles, which might also grant you a big deduction. Home Office Receipts With more people freelancing, blogging and otherwise working from home, maintaining a home office can be a huge expense. Consequently, the IRS respects the needs of taxpayers who work at home, but imposes some strict conditions to ensure they don't take advantage of the system. First, a home office has to be used exclusively for business to qualify as a home office at all. If a computer is used half the time for work, you can't simply claim half the related expenses. A space that has personal as well as business uses is not a home office (for tax purposes), although a small desk or table in a corner of your living room used only for business IS considered a home office deduction. Once you have established exactly what your home office includes, then you can start deducting. If your home office takes up 20% of the home or apartment you live in, then you can claim 20% of your rent and utilities as expenses for your home office. Job Search Receipts Just as many people are working from home, a lot of people are still looking for jobs, and sometimes the accompanying costs of a job search can be significant. But in the same way that the IRS imposes strict conditions on home offices, job search expenses can be tricky, Rempe of H&R Block says. For example, you can't just have your friend look over your resume for $20 and then claim that as a job expense -- the friend would have to claim the income on his or her tax return. You also can't claim that $500 suit as a business expense and then wear it to a wedding a week later. What you can do, though, is keep receipts for any job search expenses that could not be anything other than job-related. That leadership seminar you paid $200 for? It counts. That $60 for a membership on a job search website? That counts too. Business lunches can be more complicated, though. If you meet a prospective employer over food or coffee, note the details on the back of the receipt if you plan to claim the expense, and keep in mind you must be able to prove (via e-mail, for example) that the lunch had to do with finding a job.

Yahoo Smart Money Finance Article

What's New on the 2010 Form 1040 Bill Bischoff Friday, January 28, 2011 By now, some of you may already have your 2010 W-2 and 1099s in hand. If not, it won't be long. So it's not too soon to think about starting your 2010 Form 1040. Before you begin, there are some key changes to note. Here's what you need to know. Due Date is April 18 Even though April 15 falls on a Friday this year, the deadline for your 2010 Form 1040 is Monday April 18. Reason: Emancipation Day is a District of Columbia holiday, and it falls on April 15. So the tax filing deadline for the whole nation is deferred to April 18 . If your return won't be ready by then, you can extend the deadline all the way out to October 17 by filing Form 4868 on or before April 18. No More Phase-Outs for Itemized Deductions and Exemptions For years, high-income folks have seen their write-offs for the most popular itemized deduction items (including mortgage interest, state and local income and property taxes, and charitable donations) reduced by a nasty phase-out rule. Another nasty phase-out rule reduced or eliminated personal and dependent exemption deductions. Thankfully, both phase-outs were completely repealed for 2010 as part of the Bush-era tax cuts. So you can write off the full amount of your itemized deductions and exemptions on your 2010 Form 1040 without any worries and without having to fill out phase-out worksheets to penalize yourself. More good news: the recent tax cut extension legislation repealed the phase-outs for 2011 and 2012 as well. Liberalized Adoption Credit For 2010, the maximum adoption credit was increased to $13,170 (up from $12,150 in 2009). In addition, the credit was made 100% refundable for the 2010 tax year (previously, it was nonrefundable). That means you'll receive a check for any leftover adoption credit after your federal income tax bill has been reduced to zero. To claim the credit, fill out Form 8839 (Qualified Adoption Expenses), and enter the credit on line 71 of Form 1040. One-Time Break for Self-Employed Individuals Self-employed folks can generally deduct their health insurance premiums on page 1 of Form 1040 (use line 29 for 2010). The deduction reduces their federal income tax bills, which is nice. However, the self-employed have never been allowed to deduct those premiums when calculating their self-employment tax bills on Schedule SE. Good news: for 2010 only, you can deduct health insurance premiums on line 3 of Schedule SE. So those premiums will reduce both your income tax bill and your SE tax bill. Unfortunately, this break will not be available for 2011 and beyond unless Congress extends it. Homebuyer Credit Repayment Rules Kick In As I explained in an earlier column, you may have to repay part or all of the credit claimed for a 2008 or 2009 home purchase with your 2010 Form 1040. In most cases, however, only those who purchased homes in 2008 will be affected. They will generally have to repay 1/15 of the credit with the 2010 Form 1040. If this rule impacts you, fill out Form 5405 (First-Time Homebuyer Credit and Repayment of the Credit), and enter the repayment amount as an addition to your tax bill on line 59 of Form 1040. Real Estate Tax Deduction for Non-Itemizers is Gone For 2008 and 2009, unmarried individuals who did not itemize could write off up to $500 of state and local real property taxes by claiming an increased standard deduction. Married joint-filing couples could write off up to $1,000. This add-on standard deduction deal for real estate taxes expired at the end of 2009, and it was not reinstated for 2010. Deductions for Sales Taxes on New Vehicle Purchases Are Gone The 2009 Stimulus Act created a temporary write-off for non-itemizers who paid state and local sales taxes on new vehicles purchased between 2/17/09 and 12/31/09. The write-off came in the form of an additional standard deduction allowance. Similarly, itemizers were allowed to claim an extra itemized deduction for such taxes. Both breaks lapsed at the end of 2009, and they were not reinstated for 2010. Break for Unemployment Benefits Is Gone In 2009, the first $2,400 of unemployment benefits was federal-income-tax-free. This break was not continued for 2010. Therefore, 100% of 2010 unemployment benefits generally must be reported as income on Form 1040 (use line 19). Your Tax Preparer Might E-File Your Return This Time Over the last few years, Congress has made tax-law changes that place increasing pressure on professional return preparers to electronically file more and more returns. As a result, your preparer might be forced to e-file your 2010 Form 1040 even if your returns for earlier years have always been done on paper. Get used to it.

http://custom.yahoo.com/taxes/article-111872-5cc81c6a-7a82-4485-8532-908e59dcf761-whats-new-on-1040-in-2010

Summary of Federal Tax Law Changes for 2010-2017

 
Summary of Federal Tax Law Changes for 2010-2017
Updated for Tax Year: 2010
Learn how federal tax law changes could impact your tax return in 2010 and beyond.

Many of the tax breaks in recent tax-relief bills were designed to be phased in over a number of years, or are indexed to inflation. To help you determine how these tax laws affect your long-term planning, this article explains the changes scheduled to come into effect through 2017.

Pick a year from the list below to learn what tax changes affect that year's returns. We include changes for 2010 because they affect the tax returns you'll be working on in the spring of 2011. Congress made many significant tax changes in late 2010, including passage of the Tax Relief Act, that will have a major impact over the next several years.

• 2010
• 2011
• 2013
• 2017

 

Started or Continuing in 2010

Tax Credit of up to $8,000 for First-Time Homebuyers and $6,500 for Existing Homeowners

The Congress and the Obama Administration extended and expanded the wildly popular 2008 first-time homebuyer tax credit. In addition, the income limits were increased, making even more people eligible.

Existing homebuyers are eligible to receive a tax credit of 10% of the purchase price up to $6,500 if they bought and closed on a replacement home by September 30, 2010. In order to be eligible for the credit, homeowners must have lived in the same principal residence for any five-consecutive-year period during the past eight years. They are not required to sell or dispose of their current home, but the new home must become their principal residence.

If you purchased and closed on a primary residence before September 30, 2010, and are a "first-time" homebuyer, you can qualify for a tax credit of 10% of the purchase price up to $8,000. To be eligible, you must not have owned a residence in the United States in the previous three years.

To qualify for either credit, you must have signed a binding contract to buy the house by April 30, 2010, and closed on it by September 30.

Members of the armed forces who were on official extended duty outside of the United States for at least 90 days between Jan .1, 2009, and May 1, 2010, may qualify for a one-year extension.

The credit is refundable to the extent it exceeds your regular tax liability, which means that if it more than offsets your tax liability, you'll get a refund check. But it does not offset the Alternative Minimum Tax.

In addition, income limits were expanded from earlier versions of the credit. Homebuyers who file as single or head-of-household taxpayers can claim the full credit if their modified adjusted gross income (MAGI) is less than $125,000. For married couples filing a joint return, the combined income limit is $225,000.

Single or head-of-household taxpayers who earn between $125,000 and $145,000, and married couples who earn between $225,000 and $245,000 are eligible to receive a partial credit. The credit is not available for single taxpayers whose MAGI is greater than $145,000 and married couples with a MAGI over $245,000. Also, homes costing more than $800,000 are not eligible for the credit.

Payroll Tax Credit

For 2009 and 2010, Congress gave workers a credit of 6.2 percent of their earned income, capped at $400 for single filers and $800 for joint filers. For single filers, the credit starts phasing out at $75,000 of Adjusted Gross Income and dries up at $95,000. The phaseout zone for couples is $150,000-$190,000. Employees will get the credit in advance via lower income tax withholding in each paycheck, not as a rebate check.

Self-employed taxpayers can reduce their quarterly estimated payments to get an advance benefit from the credit. The exact amount of the payroll tax credit for the year will be calculated on the filers' tax returns.

Indexed Tax Brackets

The 10 percent, 15 percent, 25 percent, 28 percent, 33 percent and 35 percent tax brackets all kick in at income levels that are more than 4 percent higher than they were in 2009.

Personal Exemptions

For 2010, each personal exemption you can claim is worth $3,650, the same as in 2009.

Standard Deductions

For 2010, the standard deduction for married taxpayers filing a joint return is $11,400, the same as in 2009.

For single filers, the amount is $5,700 in 2010, up by $250 over 2009. Heads of household can claim $8,400 in 2010, up $50 from 2009.

Non-itemizers can also add any casualty losses that occurred in presidentially-declared disaster areas.

Income Phaseouts for Itemized Deductions and Personal Exemptions for High-Income Taxpayers

The amount of itemized deductions and personal exemptions you can take are normally phased out as your income rises. In 2010, however, those income limits have been repealed, and the recent tax relief act extends the repeal for two more years, through 2012.

Section 179 Expense Deduction

The maximum amount of equipment placed in service in 2010 and 2011 that businesses can expense was increased to $500,000. And the annual investment limit was raised to $2,000,000. Thus, you won't begin to lose the benefit of expensing until you place more than $2,000,000 of assets in service in 2010 and 2011. The allowance drops to $125,000 for tax years beginning in 2012.

Tax-Free Parking for Employees

Companies can pay for $230 a month of parking tax-free for employees. The cap on tax-free transit passes is now $230 a month as well, the same as for parking.

Tax Credit for College Tuition

For 2010 through 2012, the Hope credit is replaced by a new credit. Now called the American Opportunity Tax Credit, it provides a credit of up to $2,500 per student per year for four years of college. It now also covers the cost of books, and begins to phase out at $80,000 of Adjusted Gross Income for single filers and $160,000 for joint filers. If the credit is more than your income tax liability, 40 percent of it is refundable. Also, the full credit is allowed against the Alternative Minimum Tax.

Child Tax Credit

If the credit exceeds the filer's tax liability, all or part of the credit will be refunded if the filer earns more than $3,000 in 2010, down from $12,550 in earnings previously.

Earned Income Tax Credit (EITC)

For families with three or more children, the maximum Earned Income Tax Credit for 2010 rises by $628.50. And the phaseout of the credit for joint filers starts at higher income levels in 2010, allowing more of them to claim the credit.

Nontaxable Combat Pay Allowed for Earned Income Tax Credit (EITC)

The election to include nontaxable combat pay in the calculation of earned income for the Earned Income Tax Credit applies for 2010.

Direct Donations of IRAs to Charity

IRA owners age 70½ and older can donate up to $100,000 of their IRAs to charity through 2012 without having to report the withdrawal as income and deduct the donation as a charitable contribution. Deductions will not be limited by the Adjusted Gross Income cap on charitable contributions or the itemized deduction phaseout.  Keeping IRA distributions out of adjustable gross income in the first place can also have other benefits.  Amounts donated in this way count as all of part of the IRA owner's required minimum distribution.

Higher Income Limits for Deductible IRAs and for Roth IRAs

If you are covered by a retirement plan at work, you can take a full IRA deduction in 2010 if your modified Adjusted Gross Income is less than $109,000 (married filing jointly) or $66,000 (single or head of household). A partial deduction is allowed until your Adjusted Gross Income reaches $109,000 if you are married filing jointly, or $75,000 if you are single or a head of household. Also, the opportunity to contribute to a Roth IRA is now phased out as your modified Adjusted Gross Income rises between $166,000 and $176,000 if you are married filing jointly, or $105,000 to $120,000 if you are single or a head of household.

Roth IRA Conversions

Starting in 2010, individuals with any amount of modified Adjusted Gross Income are free to convert a traditional IRA to a Roth IRA. Conversions are fully taxable at your regular tax rate. For conversions in 2010, taxpayers can spread the tax due over two years. Half of the conversion will be taxed in 2011, and the remainder will be taxed in 2012. Removing the limit on conversions effectively eliminates the income limit on contributions to Roth IRAs. A taxpayer with income too high to use a Roth will be able to contribute to a traditional IRA (which does not have income limits for contributions) and immediately convert to a Roth.

Contribution Limit for 401(k) Plans

The maximum employee contribution is $16,500 in 2010 for 401(k) and similar workplace retirement plans, including 403(b)s and the federal Thrift Savings Plan. Workers age 50 and older in 2010 can put in an additional $5,500, making their maximum $22,000.

Tax Rate on Capital Gains

The tax rate on capital gains from the sale of assets held longer than one year remains at zero percent for people in the 10 percent or 15 percent tax brackets. The 15 percent maximum tax rate on long-term capital gains for taxpayers in higher brackets also remains the same.

Tax Rate on Dividends

Similarly, the special 5 percent maximum rate on dividends of taxpayers in the 10 percent and 15 percent tax brackets remains at zero percent.

Estate Tax Exemption

For 2010, there is no federal estate tax.  However the executors of estates where the taxpayer died in 2010 can elect to apply the 2011 exemption of $5,000,000, with a maximum estate tax of 35%.  Different rules for the step up in cost basis apply in these two years, meaning some estates may find the 2011 rules more beneficial.  The estate tax was reinstated in the 2010 Tax Relief Act.

Higher Annual Gift Tax Exemption

For 2010, you can give up any individual up to $13,000 without owing any gift tax.

Credit for Residential Energy Efficient Property

The credit for 30 percent of the cost of installing solar water heating equipment, solar electric equipment, geothermal heat pumps or small wind turbines in your primary residence or a second home is unlimited in 2010. But the credit for fuel cell property cannot exceed $500 per half-kilowatt capacity.

Credit for Energy-Saving Home Improvements

The tax credit for the cost of energy-saving home improvements is 30 percent for 2010, up to a combined maximum of $1,500 in both 2009 and 2010. It applies to qualified insulation, windows, outside doors, biomass fuel stoves and high-efficiency furnaces, water heaters and central air conditioners.

Converting a Second Home to a Primary Home

If you convert a second home into a principal residence after 2008, you may not be able to exclude all of your gain. A portion of the gain on a subsequent sale of the home will be ineligible for the home-sale exclusion of up to $500,000, even if the seller meets the two-year ownership-and-use tests. The portion of the profit that's subject to tax is based on the ratio of the time after 2008 when the house was a second home or a rental unit, to the total time you owned it. So if you have owned a vacation home for 18 years and make it your main residence in 2011 for two years before selling it, only 10 percent of the gain (two years of nonqualified second home use divided by 20 years of total ownership) is taxed. The rest qualifies for the home-sale exclusion of up to $500,000.

Refundable Child Tax Credit

The income threshold needed to qualify to claim the child tax credit if it exceeds your regular income tax bill is $3,000.

College Savings Plans

529 College Savings Plans can now be tapped tax-free to pay for a computer or Internet access.

Estimated Tax Relief for Owners of Small Businesses

If an individual's Adjusted Gross Income for 2009 was less than $500,000 and more than half of the gross income was from a business with fewer than 500 workers, the estimated income taxes for 2010 estimated tax payments can be based on the lesser of 90 percent of tax liability for 2009 or 2010. The usual estimated tax benchmarks of 100 percent or 110 percent of tax liability do not apply.

Domestic Production Activities Deduction

In 2010, this deduction increases to nine percent of qualifying business net income. This deduction applies to businesses engaged in construction, engineering or architectural services, film production, or the lease, rental or sale of equipment you manufactured. However, the rate remains six percent for oil and gas companies.

Educators' Deduction

You can deduct up to $250 ($500 if married filing joint and both spouses are educators, but not more than $250 each) of any unreimbursed expenses you paid or incurred for books, supplies, computer equipment (including related software and services), other equipment, and supplementary materials that you use in the classroom. You must have worked at least 900 hours a school year in a school that provides elementary or secondary education.

This deduction has been extended through the end of 2011.

Tuition and Fees Deduction

You can deduct up to $4,000 of college tuition and fees through 2011.

Income Earned Abroad

The maximum foreign earned income exclusion is increased to $91,500. This is a $100 increase from 2009.

Limits on Deducting Farm Losses

Beginning in 2010, the amount of farm losses you can enter to offset nonfarm income is capped at the greater of $300,000 or your net farm income over the past five years. But this limit will apply only if you get federal farm payments or Commodity Credit Corporation (CCC) loans. You can take suspended losses in later years. The caps will also apply to partners and S corporation owners.

Exemptions for the Alternative Minimum Tax

For 2010, the exemption levels were increased to $72,450 for married couples filing jointly, $47,450 for singles and heads of household, and $36,225 for married couples filing separately.

Partial Exclusion for Unemployment Benefits

For 2010, the first $2,400 of unemployment benefits you receive is no longer tax-free.

Sales Tax Deduction for New Vehicles

Beginning in 2010, buyers of new vehicles no longer get a tax benefit for sales tax paid on new vehicles, unless they itemize and elect to deduct sales taxes instead of state income taxes.

Starting in 2011

Lower Tax Rates Extended

The 2010 Tax Relief Act extends through the end of 2012 the tax rates in effect in 2010. They had been scheduled to increase to the higher tax rates that were in effect prior to 2001.

Estate Tax

For individuals dying after 2010, the federal estate tax continues with a $5 million exemption and a 35 percent maximum rate. The current federal estate tax rules are scheduled to end after 2012.

Lower Capital Gains and Dividend Tax Rates Extended Through 2012

The tax rate reductions for long-term capital gains remain in effect for 2011 and 2012.

Child Tax Credit

The credit of $1,000 per eligible child continues through 2012. The credit was extended by two years by the 2010 Tax Relief Act.

Payroll Tax Credit

Starting in 2011, the partial credit for payroll taxes paid by employers is no longer available.

Section 179 Expense Deduction

The $500,000 maximum amount of equipment placed in service that businesses can expense and the annual investment limit of $2,000,000 remain in effect for 2011.

Tax Credit for College Tuition

The American Opportunity Tax Credit remains in effect through 2012.

Earned Income Tax Credit (EITC)

Temporary increases in the Earned Income Tax Credit for filers with three or more children and the higher income levels for the phaseout of the credit have been extended through the end of 2012.

Mortgage Insurance Premiums

The special itemized deduction for mortgage insurance premiums paid on mortgages taken out after 2006 expires on Dec. 31, 2010.

Credit for Energy-Saving Home Improvements

The 30 percent tax credit of the cost of energy-saving home improvements was extended by the Tax Relief Act of 2010 through 2011.

Starting in 2013

Tax Relief for Taxpayers Who Lose Their Homes Due to Foreclosure Expires

Beginning in 2013, debt forgiven in connection with the foreclosure of a principal residence will once again be considered taxable income (unless you are in bankruptcy or insolvent).

Starting in 2017

Credit for Residential Energy-Efficient Property

The credit for 30 percent of the cost of installing solar water heating equipment, photovoltaic or fuel cell equipment, geothermal heat pumps or wind turbines in your primary residence or a second home does not apply after 2016.

http://turbotax.intuit.com/tax-tools/tax-tips/IRS-Tax-Return/Summary-of-Federal-Tax-Law-Changes-for-2010-2017/INF12041.html

NY Times Your Money Article; Smarty Pig Cuts Interest Rates…Again

By TARA SIEGEL BERNARD

SmartyPig customers received a disappointing note when they logged into their accounts this week: the online savings bank cut its interest rate — the second rate cut in less than four months — to 1.35 percent from 1.75 percent.

So the Pig is no longer the star of the high-yield savings scene that it once was. Now, it's largely on par with other high-yield online savings accounts (Can we still call them that?) at institutions like American Express and Sallie Mae (which is still much better than most big brick-and-mortar banks).

SmartyPig customers with balances less than $50,000 will now earn the 1.35 percent rate, while savers who hold balances of more than $50,000 across all their accounts will continue to receive 0.50 percent. That follows a cut from 2.15 percent to 1.75 in September (for balances under $50,000).

The move is frustrating for SmartyPig savers, including myself, who thought the Pig was a bit different from the rest and had hoped that it had figured out a way to pay a slightly more competitive rate (idealistic, I know). I called up the Pig's chief executive, Bob Weinschenk, for an explanation, and it seems that the company's business model has simply evolved.

Instead of rewarding customers with an especially enticing rate for a longer-term savings goal, it's simply more profitable to reward customers who want to save for smaller goals — usually over one to two years — and buy something, for which they'll receive a small bonus on top of the interest they've earned while saving up. SmartyPig also recently introduced a reloadable prepaid card, which provides cash back savings.

"Most of our customers are saving for things that are tangible and are within that time period," Mr. Weinschenk said. "One of the goals was to get off credit cards."

That's an admirable goal. But now it will take customers a little longer to reach those goals with the lower rates — though SmartyPig does make it easy to save by automatically shuttling your money into an account. That, after all, is often half the battle.

But from here on in, you can probably expect a rate that is competitive with other higher-yielding online banks, not one that exceeds those rates by much. Mr. Weinschenk said its partner bank, BBVA Compass, ultimately decides what to do with rates, though the Pig is "party to those discussions." But their agreement with the bank is to maintain a top tier rate, and the bank has.

For now, SmartyPig is working on beefing up its new mobile application — it enables you to reload its prepaid card with cash — which will eventually tell customers which retail partners offering discounts are nearby. It's also negotiating deals with retailers, where, say, a big-box store can run its own version of SmartyPig on its Web site and customize discounts for customers.

SmartyPig offended some customers by not sending out an e-mail notifying them of this most recent rate change, as it has in the past (customers do see a notice, however, when they log into their account). Executives realized that the omission was a bad idea and said it would send e-mails in the future.

Mr. Weinschenk said that the bank lost "an incredibly small number of people" when the Pig last cut rates. But that's probably because savers don't have many better options. If it lowers rates again, those numbers may grow.

http://bucks.blogs.nytimes.com/2011/01/06/smartypig-cuts-interest-rates-again/?ref=your-money

A simple New Years resolution

Posted by Jill Boynton
December 30, 2010 10:55 AM


On January 1st all wage earners will be getting a 2% raise, thanks to the recently passed tax package. That's because the amount you usually contribute to the Social Security system, 6.2% of your first $106,800 of wages, is reduced to 4.2% for 2011. (If you are self-employed, you still get only a 2% reduction even though you pay 12.4%.) That 2% savings could be as much as $2,136 over the course of the year.

A simple fiscally-responsible New Years resolution would be to take that extra money and put it to good use. Here's how:

- Increase the amount you pay towards your credit card balances
- Increase your 401(k) or 403(b) contribution
- Deposit it directly into your savings or investment account

Remember this change is good for 2011 only. If you decide to increase your spending you will have to make an adjustment down on Jan 1, 2012 as your Social Security withholding reverts back to 6.2%. It's better to use this money towards a financial goal and keep your spending at its current level.

http://www.boston.com/business/personalfinance/managingyourmoney/archives/2010/12/a_simple_new_ye.html

Tax benefits to increase in 2011

Link
Posted by Andrew Chan
December 29, 2010 10:00 AM
The IRS announced last week that several key tax provisions for 2011 will increase to adjust for inflation. These provisions were either modified or extended as part of the new Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 that President Obama signed on December 17. These new amounts will affect taxpayers on their 2011 tax returns (which are filed in 2012).

The specific changes will be are as follows:

* The personal and dependent exemption amount per person will increase to $3,700.

* The standard deduction amounts will increase to:
• $11,600 for married couples filing a joint return
• $5,800 for singles and married individuals filing separately
• $8,500 for heads of household

- The additional standard deduction for blind people and senior citizens will increase to:
• $1,150 for married individuals, and
• $1,450 for singles and heads of household.

- The maximum earned income tax credit (EITC) will increase to $5,751 and the maximum income limit for the EITC will increase to $49,078.

- The modified adjusted gross income phase-out for the Lifetime Learning Credit begins at $102,000 for joint filers and $51,000 for singles and heads of household.

Although the 2011 tax tables have not yet been released, tax-bracket thresholds will increase for each filing status. For example, the taxable-income threshold separating the 15-percent bracket from the 25-percent bracket for a married couple filing a joint return will increase by $1,000 to $69,000.
http://www.boston.com/business/personalfinance/managingyourmoney/archives/2010/12/tax_benefits_to.html

401(k)’s: What You Need to Know

By TARA SIEGEL BERNARD
Published: December 16, 2008

For many people, saving for retirement means squirreling away as much as possible through employer-provided plans, the most popular being the 401(k).

The 401(k) — named for a section of the tax code — is a type of defined-contribution plan, where you make regular contributions into a retirement account that you own. You make all of the investment decisions, unless you hire a professional to help you out. This differs from a defined-benefit pension plan, which provides workers with a guaranteed paycheck (or lump sum) in retirement — and the onus is on the employer to finance it. Many companies have phased out pension plans in recent years given their high costs, which means that most people need to worry about financing their own retirement.

While retirement plans differ — and go by an alphanumeric soup of names — most medium-sized and large companies offer 401(k)'s. There are two similar varieties — 403(b) and 457 plans — with the former offered to certain employees of public schools, hospitals and certain tax-exempt organizations, while the latter is provided to governmental employees. If you work for a small business, you might be offered a different type of plan, but the inner workings and concept will most likely be similar to those of a 401(k).

Employer-sponsored plans are usually the place you want to start saving for retirement because many employers match a piece of your contribution — and that serves as a guaranteed return on your money. They also provide certain tax benefits. Traditional 401(k)'s and similar plans allow employees to make their contributions on money that has not yet been taxed. So you're effectively reducing your taxable income by the amount you contribute.

The mechanics of a 401(k) plan are relatively simple: An employee must first decide the amount to contribute, typically measured as a percentage of salary. The contributions are automatically deducted from your paycheck, but they're subtracted from your gross income (before you've paid any income tax). By deferring, say, 10 percent of your salary, you're also reducing your taxable income by 10 percent. So if you earn $60,000 annually and make a 10 percent contribution, you will be taxed on only $54,000. Contributions are held in your account and are invested in any of the mutual funds on a menu selected by your employer. (If new employees do not sign up for the company plan, some employers will sign them up automatically.)

Most 401(k) plans provide matching contributions. So if you set aside 10 percent of your salary, your company should make a matching contribution each time you do. Most companies that provide matching contributions match up to 3 percent of pay, but they use different formulas to get there. For instance, some companies will match you dollar for dollar up to 3 percent of pay, but more companies tend to pay 50 cents for every dollar you contribute, up to 6 percent of your pay.

All of the money inside the account grows tax-deferred, but ordinary income taxes will be owed on all withdrawals. If you want to avoid paying any penalties, you must wait until you are 59 1/2 to start tapping your 401(k). Individuals who leave their employer during the year of their 55th birthday or later may also begin to withdraw funds penalty-free.Before then, you'll pay a 10 percent penalty fee on top of ordinary income taxes.

ROTH 401(K)

An increasing number of employers are adopting what are known as Roth 401(k)'s. These operate the same way traditional 401(k)'s do, but employees make their contributions with dollars that have already been taxed, and everything inside grows tax-free. No taxes are owed on withdrawals — but you must be at least 59 1/2 and have held the account for five years or more.

If your employer makes matching contributions, those will be put into a separate account, similar to a traditional 401(k), because that money has not been taxed and can not be commingled with your after-tax contributions. When you withdraw your match money, you'll pay ordinary income taxes just as you would with a regular 401(k).

There are calculators that will help you figure out which 401(k) makes the most financial sense, but it really comes down to whether or you think you will be in a higher tax bracket in retirement than you are now. A better question might be whether you think federal deficits will push tax rates higher over all. Either way, if you expect to pay more in taxes in retirement, a Roth 401(k) probably makes more sense. Or, you can simply diversify — from a tax perspective — and contribute to both plan types.

MAXIMUM CONTRIBUTIONS

The maximum you can contribute to your 401(k) in 2009 is $16,500. For those 50 and older, you can contribute another $5,500, known as a "catch-up contribution," as long as your plan allows them. In 2009, the total amount that can be contributed by both you and your employer cannot exceed the lesser of 100 percent of your salary or $49,000.

BORROWING AND HARDSHIP WITHDRAWALS

Most plan sponsors provide programs that can lend you money from your accumulated funds, but your employer can limit the reasons for borrowing to, say, buying a home, medical bills or higher education. You are usually allowed to borrow up to half of your vested account balance, up to $50,000. (Vesting is the amount of time you need to be employed with your company before you have access to their matching contributions; these contributions usually vest over several years).

Loans generally need to be paid back within five years, though you should contact your employer because rules will vary by company. Interest rates are usually priced at the prime rate plus one percentage point, but the interest is paid back to yourself. Keep in mind that if you leave your company before you've repaid your loan, you'll need to repay it within 60 days or so. If you fail to do so, it will be treated like a withdrawal and you will owe income taxes and any penalty fees.

In some cases, you might qualify for a hardship withdrawal, which means you can take money out if you encounter certain situations that qualify. But you will still owe the 10 percent penalty fee (if you are under age) and income taxes on all withdrawals. Qualifying hardships usually include: medical bills that will not be reimbursed by insurance for yourself, your spouse or dependents; foreclosure and eviction costs; buying a primary home; costs to repair your primary home; college costs; funeral and burial expenses. There are some cases where you might be able to avoid the penalty fee, for instance, if your medical bills not covered by insurance exceed 7.5 percent of your income. But check with your employer first.

If your employer happens to go kaput, your 401(k) plan would most likely be terminated. But your money is protected -- and cannot be touched by your bankrupt employer.

If you leave your job, it might make sense to roll your 401(k) funds over into an individual retirement account. If your balance is less than $5,000, your former employer may require that you do so anyway.

http://www.nytimes.com/2008/12/17/your-money/401ks-and-similar-plans/primer401k.html?ref=your-money&pagewanted=all