The tax code can really get complicated for the average taxpayer. The code is composed of a document of 4,500 pages in length and besides the code itself, there are further IRS rules and guidelines contained in a 16,000 page document that provides further rules for taxation. Furthermore, every year, Congress and the IRS add more rules and changes, thus making taxes even more complex. Tax professionals are always keeping themselves updated with these changes to ensure that their clients remain compliant to the ever changing tax codes and take advantage of all opportunities provided by them.
2011 is no exception to these tax code complexities. Tax professionals are already foreseeing various complications in the returns owing to the changes that have been introduced for this year. There are also various other taxes that continue to be a challenge to many taxpayers. Therefore, as the 2011 returns season gets closer, taxpayers ought to be familiarized with these tricky taxes. Some of these tax items are explained below:
- 2011 New Rules- There are various taxes that have changed or that have been introduced into the tax code starting in 2011 and you will need to check out these new rules. There are various changes, for example, that have been added to the energy efficiency reliefs. The caps on reliefs on insulated windows and energy-saving home installations have come down starting in 2011. The electric-car also has a relief that goes up as for those who install home-charging equipment for use of the vehicle.
- Lapsed Taxes from 2011 – Some rules also lapsed in 2010 and will no longer be available in 2011. You also need to check out these phased-out taxes when filing your returns.
- The Alternative Minimum Tax (ATM) – The ATM was introduced to ensure that high income earners paid some taxes, even after taking their reliefs. This is yet another complex tax, as those who may qualify for an exemption but who have high incomes will need to fill IRS Form 6251 – This form has 54 steps!
- Taxation of Social Security – The determination of the amount of tax on Social Security that a senior citizen ought to pay can be quite complex. The IRS has a worksheet that has about 20 steps to help taxpayers know the amount of Social Security to be taxed and the rate to apply. This is another intricate part of the tax code.
- The Kiddie Tax – The Kiddie Tax was introduced to prevent parents from placing investments under their children so as to pay taxes on the earnings from them at a lower rate (the child’s rates). Children with an earned income of $950.00 and above or a combined income (earned and unearned) of $950.00 and with $300.00 in unearned income are required to file a return. The details as to when the child pays taxes and when the parent gets to pay can be confusing and worth careful consideration.
- Home-Buyers Tax Credit Repayment – The taxpayers who claimed the First Time Home-owners Credit in 2008 will continue repaying the credit they took in installments of $500.00 for 15 years starting 2010. This home-owners tax credit brought a lot of confusion in the 2010 tax year and therefore, worth giving a second glance.
- Earned Income Tax Credit – This credit was introduced into the tax code in 2004 with the intention to give relief to low-income earners. However, according to many tax and government watchdog institutions, the complexities of this credit have continued to cause errors and confusion to taxpayers. The IRS has placed a service on their website to help taxpayers know if they qualify and how much to claim. This is a good resource that you can use to ensure that you claim the credit correctly.