CREDITS Incentives for family and children Extension of child tax credit Marriage Penalty relief : I hate the marriage penalty. The marriage penalty relief is extended for the standard deduction, the 15 percent bracket,for an additional two years, through 2012. Temporarily extend the expanded dependent care credit : The dependent care credit allows a taxpayer a credit for an applicable percentage of child care expenses for children under 13 and disabled dependents. This deal extends the amount of eligible expenses from $2,400 for one child and $4,800 for two or more children to $3,000 and $6,000, respectively. Temporarily extend the increased adoption tax credit and the adoption assistance programs exclusion: Taxpayers that adopt children can receive a tax credit for qualified adoption expenses. This tax credit will stay at $10,000 until 2012. Any help from an employer assistance program will be excluded from the income up to $10,000. Temporarily extend third-child EITC : Families with 3 or more children will continue to receive the increased earned income tax credit of 45% of the family’s first $12,570 of earned income. The increased beginning point of the phase-out range for all married couples filing a joint return (regardless of the number of children) will also stay put until 2012. Education Incentives Temporarily extend expanded Coverdell accounts: The annual contribution limit until 2012 is $2,000 and the money can be used to pay for elementary and secondary school expenses as well. Temporarily extend the expanded exclusion for employer provided education assistance : Up to $5,250 provided by the employer as part of the education assistance program is exempt from income and employment taxes. Temporarily extend the expanded student loan interest deduction Temporarily extend the exclusion from income of amounts received under certain scholarship programs. Temporarily extend the American Opportunity Tax Credit : The tax credit of up to $2,500 of the cost of qualified tuition and related expenses including course material is extended until 2012. Above the line deductions for qualified education expenses : The ability to use above the line deductions for qualified tuition and related expenses is extended through 2011. Energy Tax Credits This is one area where the 2010 energy tax credits are superior to the 2011 ones. Energy tax credit is 10% of the expenses up to $500 (it was $1500 in 2010) Credit for Energy star windows capped at $200 Heating system will have a maximum $300 credit and now comes with much stringent rules. For detailed information on the new energy tax credits, check out my 2011 Energy Tax Credits post. Estate Tax Temporary Estate Tax Relief : $5 million per person and $10 million per couple is exempt from estate taxes. Reduced Estate tax rate : The top tax rate will be 35% for the estate, gift, and generation skipping transfer taxes over 5 million for two years, through 2012 Portability of unused exemption : Unused exemption of a deceased spouse will transfer over to the surviving spouse. Reunification : The estate and gift taxes are unified. Other Temporary Individual Alternate Minimum Tax(AMT) Relief : The AMT is patched every single year and this year is not an exception. The exemption amounts for 2010 are $47,450 (individuals) and $72,450 (married filing jointly) and for 2011, $48,450 (individuals) and $74,450 (married filing jointly). Extension of unemployment insurance : The long term unemployment insurance is extended for another 13 months. Payroll holiday : Currently employees pay 6.2% and employers pay 6.2% social security taxes on wages up to $106,800. Self-employed individuals pay the entire 12.4%. With this new law the employee portion of the social security tax with be cut 2%. So the employees with pay 4.2%, employers 6.2%. The self employed individuals pay 10.4% in social security taxes. Above the line deductions for school teachers : Elementary and Secondary school teachers can take up to $250 above the line deductions for professional expenses incurred, like books, office supplies, computer, etc. Tax free IRA distributions for charitable purposes : Individuals can make tax free distributions to charity up to $100,000 per taxpayer directly from their Individual Retirement Accounts (IRA).
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