Taxes (Photo credit: Tax Credits)

But what about our non clients? And what about your previous years?

Well, since the filing deadline is already past us, they (and you) might think that the proverbial “fat lady” has sung on 2011 returns (and 2010 and 2009). Not so.

Because according to the most recent report on the matter, issued by the General Accounting Office, taxpayers overpay the IRS almost $1 billion every year due to incorrect itemization and preparation.

What’s worse is that those who prepared their own taxes (with a software, or on their own) are the most vulnerable, according to the report. But did you also know that taxpayers who used one of the “big chain” preparers are almost as bad off?

An excerpt from an additional report from the GAO: In a Limited Study, Chain Preparers Made Serious Errors

In GAO (United States Government Accountability Office) visits to chain preparers, paid preparers often prepared returns that were incorrect, with tax consequences that were sometimes significant. Some of the most serious problems involved these preparers…

1.  Not reporting business income in 10 of 19 cases;
2.  Failing to take the most advantageous post-secondary education tax benefit in 3 out of the 9 applicable cases; and
3. Failing to itemize deductions at all or failing to claim all available deductions in 7 out of the 9 applicable cases.

So what can your friends do about this? And what could YOU do about it, if you didn’t have us handle your taxes in prior years? Simple: file an “Amended” Return.

Many tax businesses don’t provide this service, but even though we’ve completed our clients’ returns, we WILL review any of our non clients’ returns–at no charge.

First of all, the new tax changes will give some stability in tax planning.  The 2010 Tax Relief Act extends the Bush-era individual and capital gains/dividend tax cuts for all taxpayers for 2011 and 2012. But be careful,  the provisions are temporary and the new law places the ultimate fate of the Bush-era tax cuts to 2012, a presidential year.

Here are some details:

Individual income tax rates that are presently in place will be extended for 2011 and 2012 with the maximum tax rate at 35% versus 39.6%. In addition, the amount withheld  from paychecks for social security will drop to 4.2% from the present 6.2%. This is only for the 2011 year. What that means is that an individual earning $50,000 in 2011 will see an approximate tax savings of $1,890 in combined income tax and payroll tax rate reductions. This information courtesy of   Commerce Clearing House, publisher of tax resources.

Other individual income tax areas will stay the same. For example,  capital gains/dividends will still be taxes at 15%.  There will be relief in the itemized deduction limitation, marriage penalty , child tax credit, earned income tax credit, adoption credit, dependent care credit, mortgage insurance premiums, educational assistance exclusion, student loan interest deduction,  and the alternative minimum tax.

Estate Tax

The estate tax is reinstated in 2011 but at a much higher rate. Basically with some estate planning, up to $10 million can be excluded by a husband and wife. $5 million for an individual.  There are some options for those who died in 2010.

Business

Business has been given some tax incentives over the next two years.  100 Percent Bonus depreciation is available for certain periods over the next two years along Section 179 expensing.  Research Tax Credits, Small Business Stock incentives and other credits.

Bottom Line

We have only scratched the surface of this new tax changes. You need to sit down with a tax professional to see how this impacts you. There is only a two year period to take advantage of these opportunities. I am sure that in two years,  the tone of the political  and economic environment will be different and the opportunities we have before us will be gone.

We offer free first time consultations to review your situation. Check us out. You have nothing to lose.

Related articles

• What does the tax deal mean to you? (usatoday.com)
• So, what does this tax bill stuff really mean for you? (capitolhillblue.com)

Medical Expenses

Typically, you may not qualify for medical deductions on your tax return.  Reason:   You’re entitled to a deduction only to the extent your unreimbursed medical and dental expenses for the year exceed 7.5% of your AGI.

Year-end strategy: If you are near the 7.5% mark—or already over it—schedule nonemergency medical and dental visits before year-end.  For instance, you might have an eye examination and end up ordering new glasses.  The additional expenses can help you qualify for a medical deduction in 2009 or increase your existing deduction.  You may be closer to qualifying for a medical expense deduction than you think.  If you’re like most employees, you must contribute an ever-escalating amount to the company health insurance and/or dental plan.  When you add in the other expenses, co-payments and deductibles, you might qualify for a deduction in 2009, especially if your family has incurred other sizeable expenses this year.

Tip:  Conversely, if you definitely will not exceed the 7.5% mark for 2009, you may as well postpone nonemergency expenses to 2010.  The basic idea is to bunch together medical and dental expenses in the year they will benefit you the most.

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