Tax deal goodies for the middle class
Provisions on Coverdell accounts, capital gains, IRA gifts to charity and other extensions benefit those who are not rich.
In December, President Obama and congressional Republicans reached a deal to preserve tax breaks created in the Bush adminstration. But the agreement isn’t all about tax cuts for the rich and unemployment bennies for the unfortunate. There are some sweet provisions in there for the vast middle, too. Dig deeper than the headline-grabbing rates (.PDF download), and you’ll find provisions that can help savers and investors, as long as they know how to make the most of them.
You’ve probably seen the big-picture provisions already (find them all in this Reuters factbox).
Here are some details you may have missed, and what to do about them:
- Coverdell accounts live another day. These college savings funds are actually better for most families than the most widely publicized 529 plans. They allow you to put away $2,000 a year per child in a plan you can usually direct yourself (without the additional fees of a state-run 529 plan). And you can use the money for elementary and high school expenses as well as college. That pre-college break was slated to sunset at the end of this year and contribution limits were scheduled to fall to $500 in 2011. The newest version of the tax bill extends Coverdells for two more years. That means you don’t have to rush to spend down your Coverdell or transfer it into a 529. You can keep building now and worry about spending it down in 2012, when Washington will have this fight again.
- Two more years of a zero percent rate on some capital gains. It was originally seen as a one-year anomaly: The capital gains tax rate for folks in the 10% and 15% income tax brackets was zero for 2010. This bill extends that for two additional years, which means some serious planning opportunities for families. Families who support low-bracket relatives (they can be elderly parents or young adult kids over the age of 18; over 24 if they are students) can give them winning shares of stock instead of cash. The low-bracketers can sell the shares and pay nothing in gains taxes through 2012. It’s an economical way to help the starving grad students in the family.
- Charity will pay off for older taxpayers. In 2009, taxpayers over 70 1/2 were allowed to send money directly from their Individual Retirement Accounts to charities without having to pay taxes on the amount they transferred. This was a big help to people who were required to take (and pay taxes on) mandatory distributions from their IRAs but didn’t have enough deductions to justify itemizing those charitable gifts. The new bill actually allows them to make that direct gift through Jan. 31, 2011, and have it cover their 2010 mandatory distribution. What if you’ve already taken your distribution? Call the company that holds your IRA; there’s got to be a paperwork-heavy way to fix that.
- Other goodies have been extended. Some other favorite provisions will be extended through 2012. They include a $1,000 child tax credit, the generous American Opportunity $2,500-a-year tax credit for four years of college and a liberal deduction for interest on student loans. The moral of the story? Send your kids to school with a hug and a kiss. They’re saving you money.
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I know someone who earned 15k last year , paid 1k in federal taxes and is getting a 9k income tax refund. All due to earned income tax credits, and having 3 children that she cant afford. To me its not a refund unless you paid it in the first place or its welfare. So thank all the idiots like me who pay who paid 35k in taxes to subsidize all of the system beaters like her.
Single parents have it even better. My wife works with ladies that have numerous children from numerous men, and they get the gov't goodies, plus child support from those different men. Why do my wife and I have to support this?
ahhhhhhhh...nothing like a country that doesn't have the money to support its own government/people but let something happen somewhere else and POW there it is...help rebuild, help with medical, support the homeless and on and on FREE to them...AND WHAT ABOUT YOUR HOME COUNTRY...uhhh we don't have it right now but we can increase your taxes to pay for it...
And as far as problems in other countries (Iran, etc) and our prison population costs to support them. Let's take all the deah row inmates, drop them off in the foreign countries that have all the little vigilanty/terrorist goups...you take it - you got it, it's yours.
The USA needs to do just that...worry about US in America (taxpaying american citizens) and let the other countries deal with their own problems...
My personal purposed solution...
When I can fully retire and cut my ties...move to another country. Have actually done a lot of research on some and there are a lot of nice places - WITH MEDICAL & ALL...
"The moral of the story? Send your kids to school with a hug and a kiss. They’re saving you money."
Ignorant statement! That makes about as much sense as my wife saying she saved me $5 at the clothing store, because she had a coupon to save $5 when you spend $50. I'm out $45 so saving money certainly didn't happen here.
I am "sick and tired" of these so-called tax credits. I am a single female, middle class, mid 40's chose not to have children, and I pay over 33% in taxes with no tax break for being a responsible adult. Nothing good here...
And Fed Waste you summed up the truth.. Oh yeah, raise the retirement age, no problem if I a congress person, retire on full pay and full paid benefits.. try working for a living...
So, Tax Breaks, what a joke! We currently are paying taxes to prolong the incompetence of the federal government. The waste, the do nothing except collect a paycheck federal workers, the non representation of the American people, and the representation of big business and lobbyists with their own agenda. Wake up America, we are talking about being penny wise and pound foolish here. What difference does a few cents off of a stale and moldy $100.00 loaf of bread make. We need to make some serious high level changes here.
For a couple in their 60's with a modest income and no college age children, this is worthless. How about no taxes on social security income or modest pensions. Most people are struggling to get by so these "breaks" are just smoke and mirrors and insult to the intelligence of the people. Taxes went up this year on my husband's very modest pension which is less than $12,000/yr after 40 years of employment.
How delightfully, convenient that you can transfer charity deductions directly from your IRA !! How do I qualify as a charity??
Capital gains tax breaks - sure I'll be first in line. What a lot of worthless "tax deal goodies". Wake me up when you have something important to say that has a real impact on the majority of the American people, until then, just keep quiet.
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