Tax Laws

THE TAX ATTIC with Jerry Coon

January 6, 2011 // 0 Comments

Congress passes late tax law Welcome to the 2011 tax season. It’s going to be a season with some challenges. First, our Congress passed a very late tax law. They waited until December 16 to pass the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010. Predominantly, the law extends the Bush Tax Cuts and various other provisions to the 2011 and 2012 tax years. Everyone likes stability; especially tax professionals who are diligently doing tax planning with their clients. They have to be pleased to know, with a great amount of certainty, that at least the laws in effect right now will still be in effect for the next two years. Granted, Congress may pass new laws along the way, but the ones passed on December 16 will most likely stand as they are printed. Congress has provided stability by keeping the 2010 tax rates the same for the next two years. Those rates will be 10%, 15%, 25%, 28%, 33% and 35%. In addition, the capital gains rates and rules will be the same for the next two years. Long-term capital gains will be taxed at a maximum of 15%. For taxpayers in the 10% and 15% tax brackets, a special tax rate of 0% will continue to apply for the next two years. The Alternative Minimum Tax has been fixed through December 31, 2012. The favorable education tax credits and deductions that were modified by the American Opportunity Tax Credit are now available through 2012. The increased Child Tax Credit and Additional Child Tax Credits were extended. In total, there are over two pages of provisions that were extended through 2012. It’s not the 2011 and 2012 provisions that will cause problems for this tax season. The problem arises because Congress did a very unusual thing. They retroactively brought back several provisions that had expired on December 31, 2009. Before the advent of electronic filing, Congress could make changes with very little repercussion right up until December 31. Since returns were completed by hand, the Internal Revenue Service just adjusted the form and issued new written instructions telling taxpayers, tax professionals, and their own employees how to implement the changes. It’s quite a bit more difficult to deal with late […]