What’s New for 2011 Tax Returns?

2011 was an average year in terms of changes to the tax law. Check out some changes below which either started or continued throughout 2011 that may affect some individuals.

Increased Exemption Amount

The amount you can deduct for each exemption has increased to $3,700 from $3,650.

No More Making Work Pay Credit

The Making Work Pay Credit expired at the end of 2010. It cannot be claimed on your 2011 return.

Health Savings Accounts/Archer MSA Limitations

The additional tax penalty for withdrawing funds for non-qualified use has increased to 20%. In addition, beginning in 2011, only prescription drugs or insulin are considered qualifying medical expenses for purpose of distributions from HSAs/Archer MSA.

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. The maximum rate most people will pay on long-term capital gains is 15%

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

The partial credit for payroll taxes has been extended until February 29, 2012. Employees will continue to have a 2% reduction in payroll withholdings until that date.

Tax Credit for College Tuition

The American Opportunity Tax Credit remains in effect through 2012. Certain individuals may qualify for up to a $2,500 tax credit.

Earned Income Tax Credit (EITC)

The amount of Earned Income Tax Credit for taxpayers has increased through 2012. Filers can claim up to three (3) children and earn higher levels of income before phasing out of the credit.

Mortgage Insurance Premiums

The special itemized deduction for mortgage insurance premiums paid on mortgages taken out after 2006 expires on Dec. 31, 2010. Therefore, mortgage insurance premiums can no longer be deducted.

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.

401k-Retirement Accounts You can contribute more in your 401K-retirement account and your IRA account before having to pay tax on it.

Sources: IRS Publication 15 (Dated November 30 2011)

Summary of Federal Tax Law Changes for 2010-2017, Turbotax.intuit.com

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