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New Year Brings With It Significant Tax Law Changes

January 31, 2011

Mary Hoyt, CPA

With the new year now here and the focus soon turning to the upcoming tax season, there are a number of significant changes to state and federal tax laws of which people should be aware. Knowledge of these important changes could prove beneficial as state residents soon prepare to begin their 2010 tax returns.

These changes include the following, each of which is discussed in-depth within this article:

  • Filing deadline of April 18th
  • Tax rates for individuals will remain at their 2010 levels
  • Personal exemptions and itemized deductions no longer phased out
  • Tax credit for educators extended
  • Homeowners energy credit extended
  • American Opportunity Tax Credit extended

First and foremost, individuals should be aware of the filing deadline for state and federal tax returns – Monday, April 18th of this year. This is due to the fact that Washington D.C. will celebrate Emancipation Day on Friday, April 15th and, as a result, tax returns filed by the April 18th deadline will be considered timely filings. The extra three days could prove to be helpful to many filers.

Perhaps the most important piece of information for people to know is an item that dominated news coverage around the new year – the enactment on December 17 of the "Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010." This tax cut package extended the 2010 personal income tax rates for all filers for the next two years, rather than reverting to scheduled higher rates per the 2001 act. The capital gain and qualified dividend tax rates will not increase through 2012 either. This will mean tax savings for individuals this year that had not been anticipated, which indeed could come as welcome news for them.

Another major benefit this year comes in the area of itemized deductions and personal exemptions. Starting in 2010, these items are no longer being phased out. This will continue in 2011 and 2012. The personal exemption amount for 2010 is $3,650, and the inflation-adjusted rate for 2011 is expected to rise to $3,700.

There is more good news with the extension of a number of tax credits for the coming year, including a tax credit of up to $250 for teachers who spend their own money on classroom expenses. Additionally, the Residential Energy Property Credit has been extended through 2011, although at a lower level. This credit, for home energy conservation upgrades, will reduce from $1,500 in 2010 to $500 in 2011.

Finally, the American Opportunity Tax Credit (a temporary replacement of the HOPE education credit) has been extended for two more years through 2012. This is a higher education tax credit that can be claimed for all four years of post-secondary education, whereas the old HOPE credit was only available for the first two years of post-secondary education. A portion of this credit is refundable. Even if you owe no tax, eligible tax payers could receive a refund of up to $1,000. The income limitations on this credit have also been extended, with a phase-out that begins at $80,000 of Adjusted Gross Income (AGI) for singles and $160,000 for married couples filing jointly, and ends at a modified AGI of $90,000 for singles and $180,000 for married couples.

These extended credits and benefits could indeed prove beneficial for individuals during this year's upcoming tax season, and filers should certainly inquire about them when preparing their 2010 returns.


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