December 2010 Archives
Important Tax Law Changes for 2010
· Due date to file is April 18, 2011
· Health Care Professionals who received canceled debt notices for education loan repayment or forgiveness programs will not need to include that canceled debt as income if due to programs intended to increase availability of health care services in underserved areas or health professional shortage areas. To learn if you are eligible consult your loan program office. This change is part of the Affordable Care Act of 2010 and is retroactive to 2009. You will need to file a form 1040X if in 2009 your canceled debt is now considered an eligible loan repayment or forgiveness.
· $1,900 is the limit of taxable investment income children can have without it being subject to the parent's tax rate.
· For households who do not have enough expenses to itemize their deductions, the following are standard-deduction amounts based on IRS defined filing status:
o $11,400 Married Filing Jointly or Qualifying Widow(er)
o $8,400 Head of Household
o $5,700 Single or Married Filing Separately
· Personal and Dependent Exemptions remain at $3,650 each.
· Making work pay credit of up to $400 again available this year. Certain households who did not receive the $250 economic recovery payment in 2009 but got it in 2010 will reduce their Making Work Pay Credit by that amount.
· Earned Income Tax Credit - Maximum income amounts and credit available
o $13,460 ($18,470 MFJ- Married Filing Jointly) no qualifying child - credit $457
o $35,535 ($40,545 MFJ) one qualifying child - credit $3,050
o $40,363 ($45,373MFJ) two qualifying children - credit $5,036
o $43,352 ($48,362MFJ) three or more qualifying children - credit $5,666
· 2010 is the last year employees could opt to receive up to $1,830 of their earned income tax credit with their paychecks. The IRS is dropping this program because so few workers used it.
· Additional Child Tax Credit - eligible households could receive this refundable credit if they earned at least $3,000 and had an eligible child.
· In addition to splitting your refund into up to three separate accounts, you can also purchase up to three U.S. Series I Savings Bonds and receive the balance of your refund as a check or direct deposit to a bank account.
· Medicare Part D recipients who received a $250 rebate to assist with the "donut hole" drug plan coverage gap do not need to report this income nor pay taxes on it.
· Standard Mileage Rates:
o Business Related mileage 50 cents/mile
o Medical/Moving related mileage 16.5 cents/mile
o Charitable purposes mileage is 14 cents/mile
· First Time Homebuyer Credit
o If you took advantage of the credit in 2008 you must begin the 15 year repayment of that credit
o For first time homebuyer's in 2010 to qualify for the credit of 10% of the purchase price up to an $8,000 credit, you had to meet the September 30, 2010 settlement deadline. This refundable credit will not require repayment.
· Up to $13,170 in adoption qualified expenses can be claimed toward the Adoption Tax Credit which is part of the Affordable Care Act of 2010.
· All unemployment compensation received in 2010 is subject to taxation. For 2009 up to $2,400 could have been excluded from income.
Next month I'll share information about the recently passed tax legislation included in the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010.
The early bird doesn't always get the worm. Moreover, said a consumer-finance expert in Penn State's College of Agricultural Sciences, being in a hurry to file your federal income tax forms in pursuit of a quick refund isn't always the best idea.
Tax-filers eager to receive their federal income tax refund can use the services of commercial, for-profit tax preparers as early as December and thus get a jump on receiving their refunds. Robin Kuleck, consumer-finance educator and director of Penn State Cooperative Extension in Elk County, points out that using this method can have some drawbacks.
"Commercial preparers can complete your income tax return early because they use the data recorded on your last paystub of the year," Kuleck said. "However, this data may be incomplete because your paycheck doesn't show your family's entire financial picture.
In fact, companies that issue certain 1099-MISC forms -- as well as brokers, brokerage firms, and mutual fund companies that issue Forms 1099-B -- have until February 15 to issue these forms, which are required to accurately complete your various tax returns, Kuleck noted.
"As you rush to be the early bird, what may happen is that you'll pay for return preparation and you also may decide to accept a refund anticipation loan, which carries an additional fee," she said. "By late February you then may receive additional information necessary for an accurate tax return. You will be required to file an amended return that includes this new information, and -- you guessed it -- pay yet another fee."
So, how do you go about filing an accurate return while avoiding or minimizing preparation fees? Kuleck said it starts with developing a good recordkeeping system, and knowing what is important to keep. IRS Publication #552, "Recordkeeping for Individuals" answers many common questions.
Families earning less than $49,000 per year are eligible for free income tax assistance through such IRS-sponsored programs as the Volunteer Income Tax Assistance (or VITA) program and the AARP Tax Counseling for the Elderly program. You can locate local VITA sites by visiting the IRS website at http://www.irs.gov (key word "VITA") or by calling (800) 906-9887. Computer-savvy taxpayers can complete their own taxes using free online software.
"Pennsylvania has arranged with some software companies to provide free or low-cost state and federal income tax return preparation to individuals who meet certain requirements," Kuleck said. "There's more information about e-filing at the Pennsylvania Department of Revenue web site (www.revenue.state.pa.us); click on the "individual" link. Always save a paper copy of your tax returns and supporting documents in your permanent home files -- an important element of your home record keeping system."
More tips and strategies for making the most of your federal and state tax returns are available at the Penn State Cooperative Extension "Your Money Your Taxes" web site (http://extension.psu.edu/income-tax).