By Deanna Parmenter

Tax time.  That dreaded time of year when you anxiously await all those confusing tax forms in the mail and try to figure out how much you owe.  Yep.  It’s that time of year again.  Seems like it never really goes away, especially if you file an extension.

I can hear it now.  Is it a tax credit or a tax deduction?  Can I claim child care expenses this year?  What changed with the earned income tax credit?  And don’t even ask me to figure out the alternative minimum tax, whatever that is!  Even if you hire someone to prepare your taxes, you still need to know what the IRS will allow so you can provide receipts to your tax preparer.

The good news is that the IRS is making it easier every year for you to file your return electronically.  If your income is less than $57,000, then you can file for free using one of the pre-approved sites.  Even if you can’t file for free, you can still file electronically.  The IRS web site explains how to do this.

My husband tells me I am weird.  This is because I actually enjoy doing my taxes – not paying them mind you, just filling out the forms.  I still use the paper form and a sharp pencil and calculator.  I haven’t been able to file electronically yet because of certain forms I’ve filed, but even if I could I’d still use pencil and paper first and then copy the numbers to the screen.  I even prepare taxes for some soldiers just for the fun of it.

Regardless of whether you file electronically or the old fashioned way, or whether you do your own taxes or pay someone else to do them, you’ll still need to arm yourself with some basic knowledge.  Here are some of the more relevant changes this year so you can be prepared:

Payroll Tax Holiday.  Congress continued the payroll tax holiday into 2011, which gives you a tax break of 2% in your paychecks during the year.  This break is tied to Social Security payroll taxes, which means the benefit ends when you hit the Social Security cap during the year, which is $106,800 for 2011. Taxpayers who don't pay into the Social Security system during the year will not receive a benefit.

Standard Deductions.  If you are not itemizing your deductions and claim the standard deduction rates, you would claim $5,800 for single taxpayers or those married taxpayers filing separately, $11,600 for married taxpayers filing jointly and $8,500 for taxpayers filing as head of household.  The additional standard deduction allowed for senior citizens and taxpayers who are legally blind is $1,150 for married taxpayers filing jointly and $1,450 for single taxpayers.

Personal Exemptions. The personal exemption amount for 2011 is $3,700, an increase from $3,650 in 2010.

Income tax rates. Tax rates for 2011 remain relatively close to those for 2010.  

• Alternative Minimum Tax (AMT). The AMT exemption for 2011 is $74,450 for taxpayers filing jointly, $48,450 for single taxpayers and those filing as head of households, and $37,225 for married couples filing separately.  Most tax preparation software will check the AMT rules and, if you are unfortunate enough to fall under the rules, will make the necessary adjustments to your tax forms.  I wouldn’t worry too much about this one.
  
  Capital Gains and Dividends. Lower rates for capital gains and dividends are extended through 2011.  There are new reporting requirements for capital gains and dividends so be sure to check the instructions regarding Form 8949.
  
  Flexible Spending Accounts (FSAs). In 2011, over the counter (OTC) medications are generally no longer eligible as FSA expenses unless a doctor writes a prescription for the medications (insulin is a significant exception to this rule).  The new rule also affects health reimbursement accounts, health savings accounts and Archer medical savings account plans.
  
  Health Care Benefits Reporting.  As part of the new health care law, beginning in 2011, employers must report health care benefits for employees.  This amount will appear on your form W-2 in 2012 as a report, but it will not affect your taxable income.
  
  Mileage Rates.  The IRS changed the rates for 2011 effective July 1. 

• Making Work Pay Credit.  This credit is no longer available.
  
  First Time Home Buyer’s Credit.  This is one that a lot of people will miss.  If you qualified for this credit in 2010 or earlier, you have to begin paying back that credit.  Beginning in 2011 you may be able to repay the credit without attaching a separate form.
  
  Now that you’ve filed your return and possibly written a big fat check to Uncle Sam, have you ever been curious where all that money goes that the government receives in tax revenue?  The federal government has a tool available at whitehouse.gov.  You have to enter the amounts you paid for Social Security, Medicare and federal income taxes.  It’s a pretty amazing tool.  Kiplinger Magazine also has an article called How Uncle Sam Spends Your Tax Dollars that will provide you with even more information about where your money actually goes.