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2011 Federal Income Tax

The United States Tax Code is constantly changing, and each year brings a new set of rules, credits and exemptions for federal income tax filers. 2011 is no different, and there are several changes that people filing federal income taxes should know about. Here are the main changes for 2011:

Income Tax Rates

The income tax rates for 2011 have remained the same since 2010, however the tax brackets have shifted slightly to adjust for inflation. You can check your tax rate in the 2011 Tax Table [PDF] on the IRS website.

Alternative Minimum Tax

The Alternative Minimum Tax (AMT) seeks to ensure that all taxpayers pay a minimum amount of taxes each year. If a taxpayer reduces the amount of their regular tax past a certain point using deductions and credits, the AMT kicks in and establishes the minimum amount that the taxpayer must pay.

The AMT imposes a flat tax rate on all taxable income above a certain threshold (also known as an exemption). For 2011, the exemption amount is $47,450 for single filers, $74,450 for married couples. This represents a slight increase from the exemption for 2010. In practice, this means that a person must pay the AMT if the AMT on the amount of their income exceeding $47,450 is more than the amount of regular tax that they must pay.

If this sounds confusing, thats because it is. Fortunately, the IRS has created an Alternative Minimum Tax Assistant for individuals that can help individuals determine whether or not they owe any AMT and, if so, how much.

Energy Tax Credits

If you own your own home, Congress has extended a tax credit if you made any energy-efficient improvements to your home in 2011. The credit, known as 25(C), allows homeowners to reduce their total tax liability by $500 over the course of their lifetimes. Unfortunately, that means that if a homeowner took advantage of the $1,500 25(C) credit that was offered for improvements in 2010, then they cant claim the credit for improvements made in 2011.

Roth IRA Conversion

Congress removed the income limits for Roth IRA conversions for 2011, which means that taxpayers of any income level can convert their ordinary IRA into a Roth IRA. Unlike before, however, taxpayers converting their IRAs in 2011 can no longer defer income earned as a result of the conversion to other tax years, as they could before.

In addition, taxpayers can also make tax-free donations of IRA proceeds to charity.

State Sales Taxes

Taxpayers can now opt to take deduct the amount of state sales taxes paid instead of deducting the amount of state income taxes paid. This makes sense if a taxpayer paid more sales tax than income tax in a state, or if they live in a state that doesnt have an income tax.

American Opportunity Tax Credit

If you are in school or you are paying for someone else to go to school, youll be happy to hear that the American Opportunity Tax Credit was extended for 2011. This credit covers up to $2,500 for qualified educational expenses.

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Next Steps

Contact a qualified tax attorney to help you navigate your federal and/or state tax issues.

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