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Each year, the IRS rolls out changes to tax laws and the form 1040. Credits are added or phased out. Dollar amounts are increased. Rules are clarified.
Many of us are getting ready to file our 2011 tax returns, myself included. So what are the major changes this year that we all need to be aware of? Here is what I found.
If you have not heard already, the due date for our individual tax returns is not April 15. Each year, if the 15 falls on a Sunday, the IRS allows until the next day. However, because April 16 is a DC holiday (Emancipation Day), we have until midnight April 17 to get our returns postmarked.
Many of the traditional thresholds were raised. The deductable mileage rates that the IRS allows for business use of a vehicle, driving for medical reasons, and for moving, all were raised on July 1.
If you are self-employed and qualify to deduct the business use of your vehicle, in lieu of deducting actual expenses on your Schedule-C, you can deduct 51 cents per business mile driven up until June 30, and 55.5 cents from July 1 to the end of the year. Medical and moving mileage rates also were bumped up from 19 cents to 23.5 cents on July 1. Make sure you allocate your mileage accordingly.
As they do every year, the standard deduction amounts also increased. The standard deduction represents a dollar amount you can subtract from the amount of income you will be taxed on. The 2011 1040 provides the new standard deduction amounts. The amount you can deduct per each exemption was also bumped up, by $50, to $3,700 per exemption.
Along those lines, the IRS raised the dreaded Alternative Minimum Tax exemption amount to $74,450 if married filing jointly and $48,480 if you are filing separate. If your Adjusted Gross Income falls under these amounts, you will not have to worry about whether AMT will kick in.
Here are a few of the other changes I came across:
- Schedule SE used to have a line item to deduct amounts paid for your self-employed health insurance. That has been done away with, although you can still claim it on line 29 of your 1040.- The First-Time Homebuyer Credit has been slowly phasing out. For 2011, only certain military personnel may qualify to claim it.
- The Making Work Pay Credit, which reduced payroll taxes, was eliminated. Most taxpayers saw an additional $400 to $800 credit applied on their previous year's return. Although this credit is gone, Congress did apportion a temporary reduction in the payroll tax that should offset losing this credit.
- The total amount you can receive for the Earned Income Tax Credit increased from $5,666 to $5,751.
One thing didn't change - the tax brackets. The percentages remain the same. Low income taxpayers remain in the 10 percent category and high income individuals will still pay 35 percent. At least for this year, married couples will also pay the same amount filing together as they would if they chose to file separate.
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