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Tax Saving Strategies for the 2011 Filing Season

Tax Saving Strategies for the 2011 Filing Season. Updated January 2011. Select 2010 Tax-Law Changes. Wide-ranging tax-law changes in 2010: Health care Retirement Home ownership Unemployment And many others. Alternative Minimum Tax (AMT). AMT Triggers

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Tax Saving Strategies for the 2011 Filing Season

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  1. Tax Saving Strategiesfor the 2011 Filing Season Updated January 2011

  2. Select 2010 Tax-Law Changes • Wide-ranging tax-law changes in 2010: • Health care • Retirement • Home ownership • Unemployment • And many others

  3. Alternative Minimum Tax (AMT) • AMT Triggers • Higher-than-average dependency exemptions • Large deductions for state and local income taxes • High real estate taxes • High miscellaneous itemized deductions and medical expenses

  4. AMT Exemption Amounts and Patch • Single/Head of Household $47,450 • Married/Joint/Qualifying Widow(er) $72,450 • Married/Filing Separately $36,225

  5. Estate Tax - New Law, New Options • 2010: Carryover basis and limited step-up basis regime for inherited assets or new estate tax law • 2010, 2011, and 2012: $5 million exemption, top rate of 35% • Due date for filing estate tax returns extended • No change in gift tax in 2010 (annual exclusion $13,000)

  6. First-Time Homebuyer Credit • Required purchase periods • First-time homebuyer/long-time resident requirement • Different credit amounts and phaseout ranges • Unavailable in certain circumstances • Expanded availability and repayment under certain circumstances • Repayment terms for 2008 purchases

  7. Mortgage Debt Forgiveness • Mortgage liability post-foreclosure • Tax-free debt discharge on/after Jan. 1, 2007, and before Jan. 1, 2013 • Primary resident requirement • $2 million debt limit ($1 million if married filing separately)

  8. COBRA Premium Assistance • 65% premium federal government subsidy • Termination period: on or after Sept. 1, 2008 and before June 1, 2010 • Fifteen-month availability • Feb. 17, 2009, coverage date • Tax-free feature phaseout* • $125,000 to $145,000 (single filers) • $250,000 to $290,000 (joint filers) • Other options available *MAGI

  9. Making Work Pay Credit • 6.2% of income earned, up to $400 tax credit ($800 if married filing jointly) • Phaseout range*: $75,000 to $95,000 (single filer) and $150,000 to $190,000 (married filing jointly) • Received through reduction in tax withholding and estimated tax payments • Special situation: both spouses employed and had withholdings adjusted *MAGI

  10. American Opportunity Tax Credit • Applies to first four years of college/ postsecondary school • $2,500 per student per year • Expanded qualified tuition and related expenses • Phaseout ranges* • $160,000 to $180,00 (married filing jointly) • $80,000 to $90,000 (other filers) • Allowed against AMT *MAGI

  11. $1,000 credit per qualifying child Child: Younger than age 17 Qualified dependent U.S. citizen or resident Phaseout for higher-income families Enhanced or Additional Child Tax Credit Child Tax Credit

  12. Filing Status Tax Rates Standard Deduction Standard Deduction Additions Itemizing Deductions Personal Exemptions Charitable Deductions The Basics

  13. Single Married Filing Jointly Married Filing Separately Head of Household Qualifying Widow(er)/Surviving Spouse Filing Status

  14. 10% 15% 25% 28% 33% 35% Married filing jointly treatment Tax Rates

  15. Personal Exemptions

  16. Standard Deduction

  17. Additional standard deduction for taxpayers age 65 and older or blind: $1,400 (single or head of household) $1,100 (married filing jointly, married filing separately or qualifying widow/er) State/federal filing requirements Standard Deduction Additions

  18. Alternative to standard deduction Use when total itemized deductions exceed standard deductions No phaseout rules apply Wide range of itemized deductions Advance planning reduces tax liability Other deductions available Itemizing Deductions

  19. 50% of AGI deduction Documentation required for monetary donations and some non-monetary donations Donations of $250 or more (substantiation) Donate appreciated property and avoid capital gains tax Clothing, household items and automobiles in good condition Charitable Deductions

  20. Family Education Job Home Investments Retirement Tax Strategies for Life

  21. Kiddie Tax Adoption Credit Dependent Care Credit Long-Term Care Premium Earned Income Credit Shifting Income Family Strategies

  22. Makes income shifting to children less beneficial Applies to All children younger than age 18 Most children who are age 18 Most full-time students between ages 19-23 Kiddie Tax

  23. Up to $13,170 per eligible child Employer reimbursement of up to $13,170 Phaseout rules apply Special-needs child — full credit regardless of actual expenses Rules for U.S. and foreign adoptions differ Adoption Credit

  24. Dependent Care Tax Credit • Child must be younger than age 13 and a dependent • 20% to 35% of qualifying expenses (up to $2,100) • Up to $3,000 of expenses ($6,000 for two or more dependents) • AGI considered • May also apply to other dependents • Employer-provided day care benefit • Documentation required

  25. Long-Term Care Premium • Tax deduction for portion of insurance costs • Age-based deduction amount

  26. Earned Income Credit Phaseout rules apply

  27. Kiddie Tax option Gifts: Up to $13,000 not subject to gift tax ($26,000 if split with spouse) Family business (hiring your minor children): First $5,700 earned is tax-free Earned income not subject to Kiddie Tax W-2 and other tax forms Shifting Income

  28. Education Strategies • Tax Credits • Lifetime Learning Credit • Student Loan Deduction • Higher Education Tuition and Fees Deduction • 529 Plans • Prepaid Tuition Plans • U.S. Savings Bonds

  29. American Opportunity Tax Credit and Lifetime Learning Credit Not available to all taxpayers Restrictions apply Tax Credits

  30. Lifetime Learning Credit • Worth up to $2,000 per year • Applies to undergraduate, graduate and professional-degree expenses • Not limited to any number of years • Phaseout ranges* • $50,000 to $60,000 • $100,000 to $120,000 (joint filers) *Pertains to MAGI

  31. Deduct up to $2,500 No limit on repayment period No need to itemize Qualification requirements Phaseout range* — $60,000 to $75,000 ($120,000 to $150,000 for joint filers) Student Loan Deduction *MAGI

  32. Deduct up to $4,000 Modified AGI Does not exceed $65,000 Does not exceed $130,000 (married/filing jointly) Deduct up to $2,000 Phaseout limits apply* $65,000 – $80,000 $130,000 – $160,000 (married/filing jointly) Barred in certain circumstances Higher Education Tuition and Fees Deduction *MAGI

  33. Tax-advantaged way to save money for college expenses Money grows tax-free Tax-deferred earnings Qualified tax-free withdrawals Wide range of qualified expenses (no set dollar limit) Can be used for gifts from family members 529 Plans

  34. State-instituted plan Plan inception date and child’s age key factors to amount contributed Tuition costs covered — not room, board or books In-state vs. out-of-state schools Tax treatment similar to 529 Plans Prepaid Tuition Plans

  35. Tax benefits for qualified higher-education expenses Benefit limited in certain circumstances Phaseout ranges* (interest exclusion) $105,100 to $135,100 (married filing jointly or qualifying widow/er) $70,100 to $85,100 (single or head of household) U.S. Savings Bonds *MAGI

  36. Job Strategies • Health Flexible Spending Arrangements • Health Savings Accounts • Economic Recovery Payments

  37. Health Flexible Spending Arrangements (HFSA) • Tax-free contributions from wages • Fully accessible for certain medical expenses • Terms and limits determined by company plan • Use or lose component • Distributions to reservists in certain circumstances

  38. Health Savings Accounts • Eligibility requirements • Tax advantages – contributions, withdrawals and earnings • Minimum annual HDHP deductible: $1,200 (self only) and $2,400 (family) • Maximum annual deductible/other out-of-pocket expenses: $5,950 (self only) and $11,900 (family) • Employee and employer contributions • Contribution limits

  39. Economic Recovery Payments • One-time, tax-free $250 payment • Making Work Pay Credit offset for 2010 payments • Exceptions apply • Possible tax liability

  40. Homeowner Strategies • Deductions • Selling Your Home • New Energy Incentives

  41. Deductions • Mortgage Interest Deduction • Up to $1 million ($500,000 if married filing separately) of home-acquisition loans • Up to $100,000 ($50,000 if married filing separately) of home-equity loan or line of credit • No restrictions on use of proceeds • Two types of points deductions • Real Estate Taxes • No limits on dollar amount or number of homes • Prepay/delay choice • Option if deduction is not itemized

  42. Exclude up to $250,000 in capital gains; $500,000 if married filing jointly or surviving spouse in certain cases Home owned/used as principal residence at least two of five years preceding sale Special exceptions available Available once every two years Selling Your Home

  43. Qualified Energy Efficiency Improvements and Residential Energy Property Expenditures Credit Residential Energy Efficiency Property Credit Alternative Motor Vehicle Credit New Energy Incentives

  44. Dividends Capital Gains Tax Offset Capital Gains with Losses Investment Strategies

  45. Top tax rate of 15% for qualifying dividends 0% for taxpayers in 10% or 15% bracket Check ex-dividend date Does not apply to interest payments Do not let tax considerations drive investment decisions Dividends

  46. Maximum tax rate on net long-term gains is 15% 0% for taxpayers in 10% or 15% bracket Asset must be held more than one year 28% maximum tax rate for collectibles Capital Gains Tax

  47. Capital losses netted against capital gains $3,000 ($1,500 if married filing separately) in net long-term capital losses can be deducted against ordinary income or total net losses Keep track of losses – unused, and short and long term Beware of wash sale rule Offset Capital Gains with Losses

  48. Employer-Sponsored Plans IRAs Traditional IRA to Roth IRA Rollover to In-Plan Roth IRA Inherited IRA Saver’s Credit Retirement Strategies

  49. Pre-tax contributions help reduce tax bill Employer matches $16,500 maximum contribution (younger than age 50) $5,500 additional “catch-up” contribution (age 50 or older) No minimum distribution requirement Roth 401(k) option Employer-Sponsored Plans

  50. $5,000 maximum contribution $1,000 additional “catch-up” contribution (age 50 or older) Two types: traditional and Roth Phaseout rules apply No minimum distribution requirement Open/contribution deadline: April 15, 2011 Individual Retirement Accounts (IRAs)

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