With the introduction of tax relief act 2010, you will get more flexibility while planning and preparing for federal income taxes. The full name of the act is Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010. According to the tax relief act, you will find no change in Personal income tax rates for next two years. In case, the tax bill has had not been passed, your individual tax rate would have been increased up to15, 28, 31, 36 and 39.6 percent. However, as per tax relief act, the levels of increment would be 10, 15, 25, 28, 33 and 35 for 2011 and 2012.
Another thing that would remain same is maximum dividend tax rates and they will remain same for two years. Maximum rate would be 15 percent rather than ordinary income taxes. Maximum capital gains tax rates also remain unchanged for next two years. If you fall into the category of 10 to 15 percent tax brackets, the maximum tax rate would be zero. However, if you fall into the category of 15 percent tax bracket, it will not increase to 20 percent and tax rate will be 10 percent. If you have been availing child tax credit of $1000, for 2011 and 2012, you can enjoy same tax credit instead of returning to $500 per qualifying child.
Do you own a business? No! Are you working under some employer? Yes! Your employer can provide educational assistance to their employees up to $5250. This amount will remain same for next two years and employer doesn’t need to pay tax on the educational assistance. If your expenses include fees and other costs related to higher education you can avail the American Opportunity Tax Credit until 2011 and 2012. With the tax credit, you can offset qualified higher education expenses.
Ta relief act also include numerous tax breaks that had already been expired on December 31, 2009. The expired tax breaks have extended till 2011 and 2012. Some these tax breaks are: higher education expense deduction, teacher’s classroom expense deduction and local/state sales tax deduction. If you have deducted mortgage insurance premiums for 2010 tax return, you can avail the same deduction for 2011 and 2012. Same thing will happen with dependent child care expenses i.e., for the next two years amount, qualifications and eligibilities will remain same. Best thing has happened for people who are surviving on the money that they get from their social security. Now you would be paying two percent less taxes than what you paid in 2010. The reduction of two percent is applicable to self-employed as well as employees. Negative aspect of the bill is that all these provisions are temporary.