I'm trying to verify and check what's really going on with the tax changes. The internet's pretty handy, come to find out.
Amyway, here's a few links and some quotes (although you must read the whole articles to get the whole information) :
Top 5 Changes to you Taxes
"The countdown is on for the expiration of the 2001 and 2003 tax cuts enacted by President Bush: If Congress does nothing before the end of the year, tax rates will climb back to 2000 levels. While a complete overhaul of the tax code is unlikely this year, lawmakers are likely to make incremental shifts toward higher taxes for high earners. If your income is below $200,000 ($250,000 for married couples), you are unlikely to feel any pain in your wallet. "
"1. Higher Income Taxes for High Earners
◦The change: Reinstate top rates of 36 and 39.6 percent
◦Who gets hit: High earners
◦Likelihood of passing: Extremely high
2. Steeper Taxes on Investment Gains
◦The change: 20 percent rate for capital gains and dividends
◦Who gets hit: High-income investors
◦Likelihood of passing: Another likely done deal
For the past several years investors have been enjoying a 15 percent maximum rate on long-term capital gains and qualified dividends. If Congress does nothing, capital gains would be taxed at 20 percent, and dividends would be treated as ordinary income, with rates as high as 39.6 percent. The most likely fix is a hike to 20 percent, but only for investors in the top two brackets (see above for estimated income cut-offs). Come 2013, that 20 percent tax will effectively rise to 23.8 percent for high earners, as the new excise tax that’s part of health care kicks in.
While Republicans won’t be thrilled by a 20 percent cap gains rate, the GOP is expected to go along in exchange for locking in that same rate on dividends. For tax payers in the top brackets, that’s a lot better than a return to taxing dividends as income.
3. Return of the Estate Tax
◦The change: Reinstatement of the federal estate tax
◦Who gets hit: Estates over $3.5 million ($7 million for married couples)
◦Likelihood of passing: High
4. Fewer Write-Offs for High-Income Earners
◦The change: A return to pre-2001 limits on personal exemptions and itemized deductions, and a cap on the rate for deductions at 28 percent
◦Who gets hit: Taxpayers in the two highest tax brackets
◦Likelihood of passing: Toss-up
5. Another AMT Band-Aid
◦The change: A one-year “patch,” then exemptions indexed to inflation
◦Who’s hit: Plenty of middle-class taxpayers
◦Likelihood of passing: High (hey, they pass a patch every year)
Every year the Alternative Minimum Tax, a tax designed to ensure that rich taxpayers didn’t skirt taxes, hits middle-class taxpayers because the tax was never indexed for inflation. Every year Congress passes a one-year “patch” to spare some of those taxpayers (essentially, they raise the AMT exemption). Count on a one-year patch for 2010 and then possibly a permanent fix for 2011 — an automatic annual inflation adjustment to the exemption. Though the AMT is the poster child for the absurdity of the tax code, it’s also a big-time revenue source (an estimated $875 billion from 2009 to 2019, assuming inflation indexing). It’s not going away."
Lengthy answer, please just read it.
"•Earned Income Tax Credit:
Filers with three or more children who are in the highest income levels will see temporary increases repealed.
•Child Tax Credit:
In 2011, the child tax credit will return to $500 from the current $1,000. Taxpayers must earn more than $12,550 in order for the child tax credit to be refundable.
•Mortgage insurance premiums:
After December 31, 2010, the special itemized deduction allowable for mortgage insurance premiums will expire. "
"These are just a few of the changes we are likely to see in the year 2011. Knowing in advance what type of changes are on the horizon makes it possible for the individuals who will be most affected by these changes to prepare in advance. For those in the two highest tax brackets, many of these changes could have a major impact, therefore consulting with a tax professional as to how you can mitigate the damage may be a wise move. While there is not much we can do about these changes in the tax law, the opportunity to develop a strategy to deal with changes is available since we are aware of changes that will take place after the new year."
"Changes With Income Tax Credits – Generally, a tax credit is a direct reduction in tax liabilities, and is usually put into place in order to encourage a certain behavior. Sometimes tax credits can even result in a refund. This is different from a tax deduction which only lowers your taxable income. Below are a few tax credit changes we will see in 2011 and a few weird ones that already went into effect:
•Child Tax Credit Reduced – In 2011, the child tax credit will be cut in half to $500 per child and may not even be applicable to all taxpayers. For those filing jointly, the tax credit begins to phase out at $110,000 (AGI) and for taxpayers completing a single tax return at $75,000. While President Obama has mentioned the possibility of increasing this tax credit for families that fall under the middle class, no action has thus far been taken.
•Making Work Pay Tax Credit Gone – This year workers are able to get a tax credit for 6.2% of their earned income with a maximum credit of $400 for single filers and $800 for married couples. In 2011, this tax credit will be eliminated unless Congress acts as Obama’s proposal seeks to extend this credit in 2011.
•Earned Income Tax Credit Reduced for Some – This is a tax credit for low-income working families with earned income less than or equal to $48,362. The income limits on this credit vary by your filing status and by the number of children you claim as dependents. In 2011, the EITC is expected to decrease for families with three or more children with higher income phase outs eliminated.
•Hope Tax Credit Changed – This tax credit goes back to being only applicable for the first 2 years of college and the limit goes from being $2500 to $1800. Of course there are income limits as well with this credit. Obama has stated he wants to make the changes with this tax credit in 2010 permanent but nothing is set in stone yet.
•Energy-Saving Credits Gone – The current 2010 credit for principal residence homes making changes to housing insulation, windows, doors, HVAC equipment, water heaters and more will expire next year. This tax credit allowed up to 30% ($1.5k max limit) back with applicable energy efficiency improvements.
•HomeBuyer Tax Credit for Veterans – If you or your spouse are part of the Armed Forces, Military Intelligence or Foreign service and have been engaged in activity duty for at least 90 days outside of the United States you have until Aprill 30th, 2011 to sign a real estate contract and close by at least June 30th, 2011. Be sure to make note of this date if you intend on purchasing a house and claiming this credit."
"Changes With Tax Deductions – A tax deduction is not a tax credit. Instead, a tax deduction lowers a taxpayer’s gross income or tax base in exchange for a certain behavior or action. Therefore, it normally reduces indirectly by lowering the amount the taxpayer pays.
•Mortgage Insurance Premium Deduction Gone – Beginning January 1, 2011, taxpayers will no longer be allowed to deduct mortgage insurance premiums from their tax returns. Previously, homeowners who were paying insurance premiums for mortgage contracts that were signed after December 31, 2006 were able to take this deduction assuming they fell within the income cap of $100,000 for families.
•179 Business Expense Deduction Lowered – For 2011 there are several business taxes that will be affected. The section 179 expense deduction that pertains to small companies and firms emerges as a prime example. Here, the maximum expenses deduction will see a significant decrease from $250,000. Of course, as with all tax deductions, other limitations apply.
•Student Loan Interest Deduction Limit Changes – For 2011, individuals or married couples can only deduct interest from the first 60 months of the repayment term. Moreover, the phase out income limits for claiming the deduction for both single filers and married couples will come down."
•Coverdell ESA and 529 Plan Alterations – Previously, under a 529 Plan, taxpayers with children were encouraged to invest after-tax money into an account that increased with tax free withdrawals assuming the money was being used to contribute towards educational plans. However, in 2011, 529 Plan withdrawals will not be tax free when paying for the cost of computers or internet access. Coverdell ESA Plan will see changes as well. This plan is similar to the 529 Plan but is directed towards elementary and secondary educational costs. In 2011, the maximum contribution limit per year on this plan will drop dramatically from $2,000 to $500 unless Congress moves quickly.
•HSAs, HRAs, and FSAs Cannot Be Used for Over The Counter Medicine - Americans will not longer be able to use Health Savings Accounts (HSAs), Flexible Spending Accounts (FSAs) and Health Reimbursement Accounts (HRAs) to purchase over the counter medicine if it is not insulin.
•Economic Substance Doctrine – This sounds confusing but basically is a new IRS provision that gives the IRS more power. If the Internal Revenue Service deems perfectly legal tax deductions as not having “economic substance” because the underlying transactions were enacted to avoid taxes, your business could face penalties. (Weakonomist note: this is very interesting.)"
*(the most disturbing to me is the last paragraph above)*
i'm trying to find the on-line calculator link i used a few months ago to compare the differences in what i can expect between the "what ifs". there were 3 options of the what ifs and you just plugged in your income level and answered a few simple questions and voila, you'd get a basic idea of how your taxes would be affected once the tax changes take effect in 2011. in the link, it compared if they all were let go, or if one vs. another were enacted (proposals). it was pretty enlightening. when i plugged in my numbers, the differences were quite low, even at the worst possible scenario, there was only a few hundred dollars difference for the year. once i find that, i'll post the link so you can play with it yourself.