Changes that affect tax returns
The passing of The Independent a few weeks ago prompted me to go back and review those initial articles I wrote for The Rockford Squire.
It’s a little known trivia fact, but I wrote my first Tax Attic on October 3, 1996, replacing a business column written by Hal Babcock. Interestingly enough, The Independent also published its first edition the week of October 3, 1996. Roger Allen and I wrote columns for the Squire for virtually every week of the existence of The Independent, and we both are continuing to write columns today. I believe that’s called perseverance and longevity.
This year, the Squire is celebrating its 140th year of publishing a weekly newspaper. I can’t vouch for exactly how many of those 140 years Roger has been penning his column, but I’m celebrating my 15th year of writing the Tax Attic. Congratulations to both of us and hopefully we can keep up the good work for many more years!
I wanted to re-read a few of those 1996 articles to see what in the world of taxation I was writing about back then. My intent then, as it is now, was to write an article that would educate the public about taxes but also entertain those readers while reading an article about taxes. I have always felt it couldn’t hurt to mix in a little humor with a pretty dry subject. Have you ever heard the statement: “There’s nothing new under the sun”? It definitely applies to taxes.
In those first few articles I wrote about the 1996 Tax Freedom Day and our federal tax burden. That’s still a pretty popular subject. If all of our pay went to taxes, on what day would we get to keep some of our own money? In 1996, Tax Freedom Day was May 7. In 2011, Tax Freedom Day was April 12. On the face of it, we gained quite a number of days. However, the Tax Foundation makes an important clarification when comparing 2011 and 1996.
In 1996, there was a budget surplus, so when they declared May 7 as Tax Freedom Day, they meant May 7. In 2011, however, there is a budget deficit in the amount of a few trillion dollars. If that deficit was counted into their computation, the Tax Foundation calculates Tax Freedom Day would really be May 23, 2011. In reality, we gained that number of days by the use of smoke and mirrors. May 23 is the more important date. Congress had its own definition of reality in 1996; that hasn’t changed in the intervening 15 years, and it probably won’t change into the foreseeable future.
I also wrote about the politicians of the day—1996 was a presidential election year and two of the Republican candidates, Bob Dole and Jack Kemp, were in favor of simplifying our tax system, so I wrote about tax simplification. In reality, there were three major tax bills passed in 1996. I’m not saying those three bills made our tax system all that much more complicated, but I think they probably helped all tax professionals like me pay the bills that year.
Tax simplification was and is just cheap talk. It didn’t happen then, it’s not happening now, and it wouldn’t happen even if Herman Cain was elected president.
Since I’m a deer hunter, I wrote about the 1996 deer season. I seem to sneak in an article on deer hunting every year. In fact, I go hunting with the same guys now. They were better shots than me then and still are, but I’m luckier. I seem to get a deer to stop and pose relatively close to me every year. One of the big differences I can see is we shot more bucks then and more does now. Another difference is today we aren’t quite so fast to walk through the swamps to get the deer moving and when we do walk those swamps, we aren’t so fast at getting through them. I’m not saying we are getting old, but most of us do seem to be slowing down just a bit.
All in all, I have enjoyed writing the Tax Attic for these 15 years. Hopefully, I have been successful at entertaining you, getting you to read the articles, and also passing on some valuable information about our tax system.
We are down to the wire on making changes that will affect the 2011 tax return. As of the stroke of midnight on December 31, most of the moves we can make are finished. However, by legislative grace, we are allowed to do a few select things after December 31 and still save tax money on the 2011 tax return.
The most common thing to do is make a contribution to a traditional Individual Retirement Account (IRA). Taxpayers can make contributions to Roth IRAs as well, but Roth contributions do not affect the tax return. The maximum contribution is $5,000 for taxpayers under the age of 50 and $1,000 additional or $6,000 total for taxpayers age 50 or more. Taxpayers have until April 17, 2012 to make the 2011 contribution.
Another tax move available is to make a contribution to a Health Savings Account (HSA). The maximum 2011 contribution is $3,050 for singles and $6,150 for joint filers. Those taxpayers age 55 or older can make an additional $1,000 contribution.
Note the IRA age to make the additional age-related contribution is 50 while it is 55 for the HSA. As with most of these differences, there is no logical explanation for one being 50 and the other 55. Don’t even waste your time attempting to figure it out. It just is.
This is Jerry Coon signing off. I got a kick out of reading those old articles, but rest assured I write a fresh one every week. I’m wishing each of you a Happy New Year! May the 2012 year be a great year for all of us!
Jerry Coon is an Enrolled Agent. He owns Action Tax Service on Northland Drive in Rockford. Contact Jerry at www.actiontaxservice.com.