Well, not really. But halfway through the year can be a good time to get a handle on what recent tax law changes might mean for your 2011 tax situation. So, while you’re sipping that lemonade poolside, take some time to review the tax rules.
Pass the chips and salsa! Individual income-tax rates are treading water for the next couple of years. Tax rates for 2011 and 2012 are the same as they were last year, starting at 10% and ranging up to 35% for high income taxpayers.
And there’s good news for joint filers. Marriage penalty relief remains in place through 2012. So married couples filing a joint return won’t pay more income taxes than they would have if they were single and filed single returns.
Everybody in the pool! Generally, if you’ve sold or are planning to sell appreciated stock this year, favorable rates still apply to long-term capital gains — typically, the difference between the original cost of the stock and its sale price. Gains on most assets held longer than one year are taxed at a maximum rate of 15% in 2011 and 2012. And, for gains that would be taxed at 10% or 15% income-tax rates had they been ordinary income, the long-term capital gains rate remains at 0% through 2012.
Dividend tax rates have been thrown a lifeline as well. Qualified dividends keep their favorable tax rates of 15% and 0%, based on your tax bracket.
Good news regarding your little swimmers. You may be able to claim a child tax credit of up to $1,000 for each qualifying child under age 17. An income-tax credit reduces your tax liability dollar for dollar and in some cases is refundable.
Income limits apply, so the amount of the child tax credit is gradually reduced once your adjusted gross income (AGI) exceeds a threshold amount.
Weekends by the pool are great, but if you have to work on Monday, you may need to pay somebody to care for your children. The dependent care credit allows you to claim a portion of the costs of daycare or other qualifying child care. A dependent child must be under age 13 for you to be eligible for the credit.
You may also be able to claim the credit for costs related to a dependent or spouse who is incapable of self care and lives with you for more than half the tax year.
You or another member of your family may be eligible for a number of education-related tax benefits.
American Opportunity Tax Credit — a credit of up to $2,500 annually (for 2011 and 2012) per student for paying qualifying post-secondary education expenses.
Coverdell Education Savings Account — permits contributions of up to $2,000 annually per beneficiary for 2011 and 2012.
Qualified Tuition Deduction — an “above-the-line” deduction of up to $4,000 for qualified post-secondary education tuition and expenses.
Student Loan Interest Deduction — a deduction of up to $2,500 annually (through 2012) for student loan interest.
Various restrictions apply to all these education breaks.
You can elect to claim an itemized deduction for state and local sales taxes instead of a deduction for state and local income taxes in 2011. This may be helpful if you live in a state with no or low income tax or you purchased a big-ticket item.
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