Your Tax Question – 057

Dear John, Is it true that I need to wait until after February 15^th to do my taxes this year? Sincerely, Jules
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Hi Jules,

Because congress did not get things wrapped up until mid-December of 2010, the IRS has been scrambling to get their systems changed. For that reason the IRS had informed preparers that beginning Feb. 14, the IRS will start processing both paper and e-filed returns claiming itemized deductions on Schedule A, the higher education tuition and fees deduction on Form 8917, and the educator expenses deduction. So Jules, if you are not one of these effected people you are free to submit your return at any time.

With that said, I also suggest that my clients wait until after February 15^th to do their taxes if they have any dealings with brokerage firms as these firms are not required to have 1099-INT’s to their clients until that time anyway.

I hope this helps,
John

Your Tax Question - 051

Dear John, What can be expected for the future of taxation? I mean, will the president follow through on his promise to soak the rich people who earn $250,000 a year? Just wondering, Mike

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Hi Mike,

Good question, in 2011 the Marginal Tax Rate (the tax paid on the last dollar of income) will be increased across the board. Without further legislation the lowest tax rates are set to expire in 2010 and then 2011 will see in increase of taxes on just about everyone.

In 2011 the 10% bracket for the lowest wage earners will revert to a higher 15%. What that means is that a single person with an AGI under $8,350 will owe $1,252.50 instead of $835.00 - an increase of 50%. For an individual earning from $8351.00 to $34,000 there is really no change of tax owed at 15%, but for the few taxpayers who have an AGI of $34,001 to $34,500. they will see a 40% reduction in their marginal tax rate: 25% to 15%.

The next rate will be a 12% increase on individuals who have an AGI of $34,500 to $83,600, then an increase of 10.7% on AGIs between $83,601 to $174,400, from there an increase of 9.1% on AGIs between $174,401 to $379,150, and finally for those AGIs over $379,150 and increase of 13.1%.

While I will admit that a 9.1% increase on $174,000 winds up being a heap more significant than a 50% increase on $34,500 it seems to me that taxpayers with the lesser AGIs have less wiggle room in their monthly budgets and they are the ones who really wind up getting "soaked". It's sort of like the Widow's Mite - giving out of one's poverty is more impressive than giving out of one's wealth.

I'm sorry Mike if I showed my political hand in this answer. But when all is said and done those are the numbers that are scheduled for 2011 unless Congress acts.

Best,

John

Your Tax Question - 045 (Part C)

(Continued from Your Tax Question - 045 (Part B))

Proposed changes in the tax law for 2011

* W-2 Forms Must Include Health Insurance Costs - Many people mat think that this is for the purpose of taxing workers on this non-taxable benefit but the official word is so that workers may know exactly how much it actually costs to insure them.

* Over-The-Counter Medication No Longer Allowed For No-Tax Health Reimbursement Plans - All those plans that you were putting pre-tax dollars into to pay for health stuff. In 2011 you will no longer be reimbursed for medications that do not have a prescription. Oh, and in case you try the next change is for you.

* Increased Penalty Tax on Non-Qualifying HSA & Archer MSA Distributions - For HSA, the penalty is currently 10% but is raised to 20% and for Archer MSA the current penalty is 15% but is increased to 20%.

* Annual Fee on Drug Manufacturers & Importers - Ever wonder how Medicare Part B is going to be funded? Well, partly it will be funded by this tax on Branded Drug Manufacturers & Importers.

* Small Employers May Establish Cafeteria Plans - For small employers, there will be a 2 year moratorium from the nondiscrimination requirements and be allowed to establish a cafeteria style plan for its employees. For this allowance, an employer must have less than 101 employees average on either of the prior two years.

OK Byron, I think I have sufficiently beat this dead horse sufficiently. I could continue on about 2012, 2013, 2014, and on to 2018 with the proposed changes. However, after Congress regroups for the year who knows what may happen and when. Suffice it to say that this Health Care changes a lot of what we knew about the tax law and if not tempered will do so for years and years to come. For more information you can read about it at the IRS website.

I hope this information clarifies,

John