Last December, President Obama signed the
Tax Relief, Unemployment Insurance Reauthorization, and Job
Creation Act of 2010
into law. This legislation included a provision
extending the tax credit you can claim for energy efficient
improvements made to your home through 2011.
This tax credit was first implemented back in 2005. For
the following two years, you could claim a tax credit equal to
the lesser of $500 or 10% of the amount you spent for energy
doors, insulation, and other specific items. After
taking the next year off, the credit increased to 30% of the amount
spent on qualifying purchases during 2009 and 2010, up to
$1,500, during the two year period. We wrote about this tax
break in our
Just as the tax credit was about to expire last December, Congress decided to extend this tax credit for one more
year through 2011. They did scale back the credit
from the 2009 - 2010 rules, however, and chose to use the rules that
were in place for 2006 and 2007, as follows:
Credit is once
again equal to 10% of qualifying energy efficient purchases
placed in service prior to 12/31/11. For 2009 and 2010, the
credit equaled 30% of the amount spent.
The maximum credit
for 2011 is $500 per dwelling, down from $1,500 allowed
during the past two years. And for 2011, you must
reduce the $500 maximum by the credit you claimed in any year since 2006.
The 2011 rules
reinstate a cap of $50 to $300 on items such as
circulating fans, furnaces, hot water boilers, heat pumps,
water heaters, and central air conditioning.
These new rules
also reinstate the $200 cap on the portion of the tax credit
applicable to the installation of energy efficient windows.
The $200 maximum is reduced by any credit you claimed for
energy efficient windows since 2006.
great place to find more information on this extended tax credit
www.energystar.gov. The site points out,
"Please note, not all ENERGY STAR qualified products qualify for
a tax credit. ENERGY STAR distinguishes energy efficient
products which, although they may cost more to purchase than
standard models, will pay you back in lower energy bills within
a reasonable amount of time, without a tax credit."
According to the IRS in their News Release
from last month:
April 7, 2011
WASHINGTON –– Hiding income in
offshore accounts, identity theft, return preparer fraud, and filing false or
misleading tax forms top the annual list of “dirty dozen” tax scams in 2011, the
Internal Revenue Service announced today.
“The Dirty Dozen represents the
worst of the worst tax scams,” IRS Commissioner Doug Shulman said. “Don’t fall
prey to these tax scams. They may look tempting, but these fraudulent deals end
up hurting people who participate in them.”
The IRS works with the Justice
Department to pursue and shut down perpetrators of these and other illegal
scams. Promoters frequently end up facing heavy fines and imprisonment.
Meanwhile, taxpayers who wittingly or unwittingly get involved with these
schemes must repay all taxes due plus interest and penalties.
what I observed upon reviewing his returns:
reported gross income of just under $1.8 million. While $400k came
from his salary as President, the bulk of the remaining income came from his
book royalties. (Page 1 of the pdf)
President appears to be just as concerned about minimizing his tax burden and saving for his retirement
as most taxpayers.
Take a look at his Form 1040, Line 28, and you'll see that he contributed
the maximum of $49k into a "defined-contribution" self-employed retirement
plan based on his net royalty income. (Page 1)
total tax liability reflected on this tax return is $453,770 - or just over
25% of his gross income of $1,795,614. This might seem low, but as
you'll see in the next bullet, he claimed substantial itemized deductions,
including donations to charities. He also saved taxes by taking a
$22k credit for Foreign Taxes paid in connection with his book royalties.
Without these two tax breaks, his total federal tax liability would have
been approximately $560k, or 31% of his gross income. (Page 2)
claimed itemized deductions of $373k on their Schedule A, including $245k in
charitable donations, $50k in mortgage interest, $26k in real estate taxes,
and $52k in state income taxes. Please note that the mortgage interest deduction is limited
to interest paid on the first $1.1 million of mortgage debt. By
claiming $50k of interest, it appears the Obamas did not overstate their allowable
mortgage interest deduction. (Page 6)
tax return includes a schedule of each donation made during 2010.
While donating $245k is very generous, I find it interesting that he did not
make a donation towards the US Debt (as we wrote about in our
March 2011 newsletter.)
Or, perhaps he did make a donation towards the debt but decided not to
deduct that payment. (Page 37)
his royalty income reported on his Schedule C, Obama was very conservative
with the business expenses he claimed against that income. His
expenses were limited to $184.5k for commissions and fees (presumably
paid to his agent) and less than $1k for office expenses. Apparently, he decided not to claim any other expenses, including the home office
or automobile mileage, that many self-employed individuals claim on their
Schedule C each year. (Page 9)
President has a sizeable capital loss carryover reported on his
Schedule D. Take a look at line 14 of his Schedule D and you'll see
that he went into 2010 with a capital loss carryover of $122.5k. There
were no additional stock trades reported for 2010, so he was able to use $3k of this
capital loss carryover to offset his wages and royalty income. His
returns don't indicate when or how these losses arose, but it appears he made the
right choice when deciding not to become a stockbroker or an investment
manager. (Page 10)
Finally, the Obamas were NOT hit by the Alternative Minimum Tax
last year. As we wrote in our
October 2010 newsletter,
married couples who earn substantial income are less likely to pay this
secondary tax than couples who earn between $150k and $650k. Depending on his 2011 book royalties, he might find
himself paying the AMT this year. Take a look at Vice
President Biden's tax return, and you'll see that he paid $7,669 of Alt
The Moral of This
did we learn by reviewing President Obama's tax returns? He made a
lot of money and paid a decent amount of taxes. Frankly, besides claiming
$245k in charitable donations and earning $1.8 million in royalty income, the
Obamas' 2010 Form 1040 is pretty standard stuff.
For 2010, the standard deduction for a single individual is $5,700 and
for a married couple is $11,400. A person will benefit by itemizing once
allowable deductions exceed the applicable standard deduction. Itemized
deductions include state and local income taxes (or sales taxes), real estate
taxes, mortgage interest, charitable contributions, and unreimbursed employee
For 2010, the personal exemption is $3,650.
Individuals will claim a personal deduction for themselves, their spouse, and
The maximum earnings subject tosocial security taxes is $106,800
for 2010 and 2011.
The standard mileage rateis $.51 per business mile as of
January 1, 2011, up from $.50 per mile for 2010.
The maximum annual contribution into a 401(k) plan or a
403(b) plan is $16,500 in 2010 and 2011. And if you'll be 50 or
older by December 31st, you can contribute an extra $5,500 into your 401(k) or
403(b) account that year.
The maximum annual contribution to your IRA is $5,000 for 2011. And if you turn 50 by December 31st, you can contribute an extra
$1,000 that year. You have until April 15, 2012 to make your 2011 IRA
In a shocking development, the IRS recently
announced that they will be honoring the FICA tax refunds submitted by
residency programs and individual doctors. The catch is that only FICA
taxes paid prior to 4/1/05 qualify.