Keep track of deductions and credits. Now is the time to prepare for filing your 2010 tax return. Because 2011 tax rates are expected to revert to pre-2001 rates, William Perez, an enrolled agent with Perez Tax Associates in San Francisco, advises planning this year’s taxes with an eye toward what may be higher tax rates in 2011. “You may want to accelerate income into 2010 to lock in a known tax rate now,” he says. “Similarly, you may want to defer any tax deductions until 2011, so they will offset next year’s income at presumably higher rates.” As this is likely the last year for energy-related tax credits, consider buying, if needed, energy-efficient appliances, or upgrading windows and doors, or making other energy saving moves, he advises. Life changes like getting married or having a baby can affect your taxes as well. Business owners or freelancers should also take into account any business-related expenses they can deduct.
Pay attention to changes in tax law. If you’ve been preparing your own taxes you might want some help this year and next. “Some states are increasing tax rates for 2010 or reducing deductions,” says Perez, citing New York, New Jersey, Connecticut, and California. Many federal tax breaks and credits will expire this year. The top marginal income tax rate (for those with incomes above $200,000, or for married couples earning more than $250,000) is expected to revert from 35% to 39.6%; the top capital gains rate returns to 20% (affecting those same high earners); federal estate tax rates of up to 55% will return for net estates exceeding $1 million; and those in the 10% income bracket may go in to the 15%. More married couples may be affected by the so-called marriage penalty, in which some married taxpayers who file jointly may pay more in taxes than they would if they were single. Under the pre-2001 tax law, the penalty affected about 42% of couples, requiring them to pay an average of nearly $1,400 in additional taxes; however, about 51% received a tax bonus or a decrease in their tax bill, by an average of about $1,300.
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