10 Things You Should Know About Your 2011 Taxes
From the tax benefits of living with family members to fast refunds, here's your guide to tax season
With the Bush-era tax cuts set to expire at the end of this year and
1. You're probably in for a refund.
Let's start with the good news: About 3 in 4 Americans receive tax refunds each year, and the average refund is around
2. Refunds arrive faster for those who file electronically.
While most people opt to file electronically, about 3 in 10 Americans still stick with the old-school paper method, and that can cost them time. Electronic filers receive their refunds faster, usually in less than 10 days, and they can opt for direct deposit into their bank account for even faster access to their money. And thanks to an alliance between tax software companies and the
3. Major life changes can mean major tax changes.
Anyone who got married, had a baby, got divorced, or experienced any other major lifestyle shake-up that affects the number of people in their household will need to update their taxes accordingly, says Steber, because those types of changes have a major impact on one's tax status. In fact, choosing the wrong tax status can have a major impact on one's tax refund (or liability), and it's not always as easy as it sounds. For example, new parents sometimes make the mistake of forgetting to add their latest addition as a dependent, or married couples living separately might not realize they can still file jointly.
4. If you're supporting a family member, you might be eligible for a tax break.
"If you're taking care of a dependent parent and providing more than one-half of their support, then they may qualify as a dependent, like with a new child," says Steber. As baby boomers age, that situation will likely become increasingly common, he adds. Specific costs, such as medical expenses or home renovations to make room for a live-in parent, could qualify as deductions, too. Parents welcoming home adult children could find themselves in a similar situation; Steber suggests getting customized advice from a tax professional to check on any potential tax benefits.
5. Independent income often means you can deduct business expenses.
Steber notes that many Americans, particularly those who experienced layoffs, have launched their own small businesses. "Tax law is favorable to that," he says, and often miles driven, meals, and other expenses related to the business can be deducted from one's income. Of course, anyone claiming those expenses needs to keep track of receipts.
6. A new tax year means different numbers.
When it comes to income limits for certain tax breaks, exemptions, and tax brackets, the numbers are constantly changing, which means you can't just copy new income numbers into last year's return.
Weltman adds that because eligibility for various types of tax-advantaged accounts, such as the Roth IRA, depends on a income level that is indexed to inflation, people may qualify to make a Roth IRA contribution this year when they haven't in the past, particularly if their income didn't increase (or they lost their job). "Look at all the breaks available to you and don't assume you can't [make contributions] this year," she suggests.
7. Reporting requirements have been ratcheted up a few notches.
8. Taxes are due for 2010 Roth conversions.
In 2010, many taxpayers converted their traditional individual retirement accounts into Roth IRAs, which allows money to grow tax-free. That's because in 2010, high earners (anyone earning over
9. It's time to pay up for that 2008 homebuyer's credit, too.
Weltman points out that anyone who took advantage of the first-time homebuyer's credit in 2008 must pay back part of that credit, which was essentially an interest-free loan, now. (Taxpayers who picked up the credit in 2009 or 2010 are not required to repay it.) The
10. We should all prepare for a big shake-up.
In retrospect, filing 2011 taxes might seem like a piece of cake compared to what's in store for taxpayers. The upcoming Congressional debates over how to balance the budget, the presidential election, and the expiration of the Bush tax cuts along with dozens of other provisions that are set to expire this year, suggest many changes are on the horizon. Says Steber: "2013 will be a crazy time for taxes."
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Personal Finance - 10 Things You Should Know About Your 2011 Taxes
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