Filing Basics
In a time of sweeping change and continuing economic uncertainty, finding ways to minimize your tax liability and bolster your financial position can be a challenge. In 2011, tax law changes affected areas ranging from family finances to home ownership. However, what remains constant is the need for in-depth knowledge and insight when preparing your income taxes.
Tax Saving Strategies for the 2012 Filing Season provides an overview of key tax law provisions that may affect your return, as well as practical strategies for minimizing your tax bill. Information is current as of Dec. 12, 2011.
Should you have any questions or concerns as you prepare your 2011 tax return, consult with a CPA. He or she can assist you with analyzing current tax incentives as well as planning for next year. By combining unrivaled education, expertise and experience with expert insights into your financial situation, a CPA can recommend sound strategies to help make your goals a reality.
Filing Status
You can file as single, married filing jointly, married filing separately, head of household or qualifying widow(er)/surviving spouse.
If you are married, you can generally take advantage of the most tax breaks if you file "jointly." However, there are a few situations where you may benefit more by filing "married filing separately." Keep in mind that this is a filing status and does not mean that you are legally separated or going through a divorce. It merely means for tax purposes, you are filing separately.
Unmarried taxpayers may file as single or, if they qualify, as head of household or surviving spouse, which have more favorable tax rates. In most cases, you can file as a head of household if you pay more than 50% of the household costs for a dependent child or relative who lives with you, or for a dependent parent who may or may not live with you.
Generally, you can file as a qualifying widow(er)/surviving spouse if: (1) your spouse has passed away in 2009 or 2010, and (2) in 2011, you are financially responsible for more than 50% of the household costs for you and your dependent child.
If more than one filing status applies to you, choose the one that results in the lowest tax obligation.
Tax Rates
Tax rates for 2011 remain the same as 2010. The six tax brackets are 10%, 15%, 25%, 28%, 33%, and 35%. Legislation enacted on Dec. 17, 2010, extended these tax rates through 2012.
Exemptions
YOu may generally claim a personal exemption for yourself, your spouse and each of your dependents. A dependent child includes children born to your family, stepchildren, eligible foster children and adopted children. A dependent child can also include qualifying grandchildren, brothers, sisters, stepsiblings and children of siblings. However, eligibility-test criteria for qualifying children must be met.
Each exemption reduces your taxable income by $3,700 in 2011. The full $3,700 deduction is available for each personal exemption regardless of income because there is no phaseout for 2011.
2011 Personal Exemption Value
| Top Tax Bracket |
Exemption Value |
| 10% |
$370 |
| 15% |
$555 |
| 25% |
$925 |
| 28% |
$1,036 |
| 33% |
$1,221 |
| 35% |
$1,295 |
Alternative Minimum Tax
In addition to the regular income tax, more and more taxpayers are finding themselves subject to the Alternative Minimum Tax (AMT). The AMT applies to both higher income taxpayers and lower income taxpayers with a large number of exemptions or other tax adjustments.
Since the AMT is not indexed for inflation, taxpayers are increasingly finding themselves affected by it. Congress has attempted to limit the impact, however, by increasing the amount of income exempt from the AMT.
For 2011, the exemption amounts are $48,450 for single filers and heads of households, $74,450 for married taxpayers filing jointly or a qualifying widow(er), and $37,225 for marrried taxpayers filing separately. However, 25% of the exemption amount is phased out for each dollar of AMT income exceeding $112,500 if single or head of household, $150,000 if married filing jointly or qualifying widow(er) and $75,000 if married filing separately.
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Information is current as of Monday, Dec. 12, 2011.
This article was provided by the American Institute of Certified Public Accountants (AICPA).
