With tax law changes passed in 2010 set to expire after 2012, it can be important for individual income taxpayers to understand just what changes are taking place and when.
After 2012, many provisions in the tax law revert back to what they were before 2001. Several even expired in 2011.
Tax rates on both pay and investment will be set to spike, especially for those at the bottom rungs of the tax ladder, and the estate tax exemptions will drop dramatically unless new laws are passed before the old ones expire.
Taxes on investments
Rates continue at historic lows for both long-term capital gains and dividends. For taxpayers in the 15 percent income tax bracket and below—tax brackets are based on income—the rate is zero. For those in the 25 percent bracket and above, the rate is 15 percent.
If Congress makes no changes by the end of 2012, the long-term capital gains tax for those in the 15 percent bracket goes from zero to 10 percent and the 28 percent and 39.6 percent brackets rises from 15 percent to 20 percent.
Short-term capital gains would also rise across the board.
Estate and gift taxes
The system has been overhauled, with a top rate of 35 percent and one exemption of $5 million per individual for estate, gift and generation-skipping taxes alike. For those who can stand to part with assets, it's now possible to shift large amounts of wealth.
If Congress makes no changes by the end of 2012, the estate tax will revert back to the 2001 rule, which is a $1 million exclusion and a 55 percent top rate.
The annual exclusion for tax-free gifts remains at $13,000 per donor. A giver may give an unlimited number of $13,000 gifts, as long as they are to different individuals. Gifts of tuition and payments for medical care are also exempt.
Payroll taxes
One of the most significant changes in 2011 was a temporary 2 percent cut in the employee's share of Social Security taxes, saving a maximum of $2,136 per worker. For someone making $50,000, this amounted to approximately $1,000 during the course of the year. This item was scheduled to expire at the end of 2011; however, Congress has granted a two-month extension that will expire at the end of February unless it is extended again.
Alternative Minimum Tax (AMT)
The "patch" enacted by Congress sets the AMT exemption at $47,450 for single filers and $74,450 for married couples.
The AMT expired at the end of 2011. However, Congress has traditionally and consistently extended it each tax year and will most likely extend it for tax year 2012 in December 2013.
ROTH IRA conversion
The income limit for conversions has been permanently removed, so in 2011 all taxpayers may still convert ordinary IRAs into Roth IRAs. But taxpayers who converted Roth IRAs in 2011 no longer have the option of deferring conversion income into later years, as was true for 2010 conversions. Those who converted in 2010 had until October 17, 2011, to decide whether to use this deferral.
Energy tax credits for homeowners
Lawmakers extended the credit for energy-efficient improvements from 2010, but tweaked it. The amount of the credit has shrunk to a maximum of $500 per taxpayer per lifetime, so those who took 2010's $1,500 credit don't qualify. The current version of this credit expired at the end of 2011.
Other changes
The $250 deduction for teacher classroom expenses, a deduction for state sales taxes in lieu of state income tax deduction, and the tax-free donation of IRA proceeds to charity expired at the end of 2011.
Where to get free tax preparation services
Services through the Williamson County Financial Stability Coalition
No appointments necessary. Returns are filed electronically.
Taxpayers must bring:
- Valid driver's license or photo ID
- All W-2s and 1099 Forms (if any)
- Social Security cards for taxpayers and all dependents
- Birthdates for all dependents
- Day care receipts and provider ID number
- Education receipts (if any)
- Your spouse, if filing a joint return
- Interest and dividend statements from your bank/savings
- Mortgage property taxes or interest (if any)
- Bank account number and routing number for direct deposit (a voided check is best)
Volunteer Income Tax Assistance sites
For those who made less than $50,000 in 2011
Georgetown
- Georgetown Community Resource Center
- 805 W. University Ave. Through April 16
- Wed. 4:30–8:30 p.m.; Sat. 9 a.m.–3 p.m.
Leander
- Leander Library, 1011 S. Bagdad Road Through April 16
- Mon. and Thu. 4:30–8:30 p.m.; Sat. 9 a.m.–3 p.m. (closed Feb. 20)
Taylor
- Taylor City Hall, 400 Porter St. Through April 16
- Mon. and Wed. 4:30–8:30 p.m.; Sat. 9 a.m.–3 p.m.
Round Rock
- Round Rock Library, 216 E Main St. Through April 16
- Mon. and Thu. 4:30–8:30 p.m.; Sat. 9:30 a.m.–5:30 p.m.; Sun. 1:30–5:30 p.m.; Wed. 4:30–8:30 during February only; library closed Feb. 20–21, March 12–18 and April 8
AARP Tax-Aide sites No age or income restrictions
Cedar Park
- Cedar Park Library, 550 Discovery Blvd. Through April 11
- Wed. noon–4 p.m.
Georgetown
- Georgetown Community Resource Center
- 805 W. University Ave. Through April 11
- Wed. noon–4 p.m.
- Sun City Cowan Creek Amenity Center
- 1433 Cool Spring Way Through April 12
- Tue. and Thu. noon–4 p.m.
Leander
- Leander Library, 1011 S. Bagdad Road Through April 12
- Thu. noon–4 p.m.
Round Rock
- Baca Senior Center, 301 W Bagdad Ave. Through April 16
- Mon. and Wed. 10 a.m.–2 p.m.
Taylor
- Taylor Library, 801 Vance St.
- Through Feb. 28 — Mon.–Wed. noon–4 p.m.
- Feb. 28–April 11 — Wed. noon–4 p.m.
For additional information on the Williamson County Financial Stability Coalition, visit www.wilcofreetaxprep.org, email [email protected] or call 255-6799
Other services
Pflugerville
- Through April 13
- Pflugerville Public Library, 102 10th St.
- Taxpayers can get free help with their tax returns at the Pflugerville Public Library on a first-come, first-serve basis starting at 10 a.m. daily.
