tions without the income restrictions of past years. This allowance of full deductions regardless of income level will run through 2012. The 0-percent tax rate for long- term capital gains for those in the 10- and 15-percent tax brackets con- tinues through 2012. Do you live in a state with no in- come tax? You may use your state and local sales taxes as a deduction for the last time in 2011. If you live in a state with both income taxes and sales taxes, you may choose to deduct one or the other. If you’re retired from the military, find out the situation within your state regarding the taxation of retirement income to help decide which to deduct. Also consider whether you made many large purchases over the year. These factors could determine which de- duction gives you the greater benefit.
3. Retirement accounts Did you convert a traditional IRA to a Roth IRA in 2010? Did you delay your tax bill on the conversion until 2011 and 2012? If so, get ready to pay your first half of the bill this year, and remind yourself the other half is due next year.
The provision for people age 701/2 and older that allowed a direct distri- bution of up to $100,000 from your IRA to a charity without a taxable event expired Dec. 31, 2011. If you took advantage of this, you won’t get a charitable donation deduction, but you also won’t have to declare the distribution as income, and you won’t pay the tax on the donated amount. Want to contribute to your Roth
IRA but are prohibited because your income is above $122,000 (for single filers; $179,000 for married filing jointly)? You can contribute to a traditional IRA regardless of your income level. If you make more than $66,000 (as a single filer; $110,000 if you’re married filing jointly) and are covered by a retirement plan at work, you aren’t allowed to deduct a traditional IRA, so your contribution will be taxed money in a typically untaxed account. You then can take the taxed (non-deducted) contribu- tion in your traditional IRA and roll it into a Roth IRA without a taxable event — it’s taxed money moved to another taxed money account. The $100,000 income restriction that used to prevent this form of rollover has been eliminated.
Tax Rates for 2011 SINGLE FILERS
Taxable Income $8,500 or less
Over $8,500 to $34,500 Over $34,500 to $83,600
Over $379,150 $17,000 or less Over $17,000 to $69,000 on Taxable Income 10%
$850 plus 15% above $8,500 $4,750 plus 25% above $34,500
Over $83,600 to $174,400 $17,025 plus 28% above $83,600 Over $174,400 to $379,150 $42,449 plus 33% above $174,400
$110,017 plus 35% above $379,150
MARRIED FILING JOINTLY 10%
$1,700 plus 15% above $17,000
Over $69,000 to $139,350 $9,500 plus 25% above $69,000 Over $139,350 to $212,300 $27,087 plus 28% above $139,350 Over $212,300 to $379,150 $47,513 plus 33% above $212,300 Over $379,150
64 MILITARY OFFICER FEBRUARY 2012 Amount of Tax
For those still serving or employed in a second career and contributing to a 401(k) or Thrift Savings Plan (TSP) account, the regular compensation contribution limit of $16,500 a year in 2011 goes up to $17,000 for 2012. The age 50-plus catch-up contribution stays at $5,500 for 2012. However, if you use your tax-exempt combat- zone pay for contributions, you can go up to a maximum of $50,000 a year starting in 2012. Your tax-exempt contributions will remain tax-exempt, even when withdrawing the money in retirement, but your gains are taxable. If you’re leaving the service, before
you roll over your TSP account to an IRA, make sure your IRA accepts/ acknowledges your tax-exempted pay contributions. If not, you will pay taxes on future withdrawals of the tax-exempt amounts. See “Rollover Chart,” facing page, to learn where you can consolidate other retirement accounts.
4. Homebuyer credits Did you take advantage of the first- time homebuyer tax credit in 2008, 2009, or 2010? You should receive a letter from the IRS explaining your tax requirements each year. You might get it even if you owe nothing. Those who purchased in 2008
$102,574 plus 35% above $379,150
are paying back a $7,500 tax credit at $500 a year over 15 years. If you purchased a home in 2009 or 2010, you don’t have to pay back the credit but will receive a letter reminding you of your tax requirements if you sell your home or it stops being your primary residence. To get and keep the tax credit, you have to maintain the home as your primary residence for three years. Uniformed service- members do not have to pay back any tax credit if they are ordered to a new duty station more than 50 miles from the home purchased with the tax credit. Whether you owe back the tax credit or not, if you have a status
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