Tax season has begun and many taxpayers are searching for positive changes for filing taxes in 2010. Specifically, changes that will increase their refund or reduce taxes owed. In addition to the changes is the availability to electronically file a tax return versus paper filing while taking advantage of the credit and/or deductions. Early filers planning to file electronically should first review the changes before filing their return. There are many changes, below is a brief summary on some of the most common changes taxpayers can expect to see when filing taxes in 2010.
The standard deduction has increased to $5,700 for taxpayers single or married filing separately, $11,500 for taxpayers married filing joint or qualified widow(er), and $8,350 for taxpayers head of household. This means, the standard amount is deducted from gross income before taxes due, if any, are calculated. However, if you itemize you cannot use the standard deduction. It is recommended to calculate which method, standard deduction or itemizing would benefit you the best on your tax return. Refer to the IRS publication 17 for more information.
Earned Income credit (EIC) for 2010 has increased to $3,050 for one qualifying child, $5,036 for two qualifying children, $5,666 for three or more qualifying children or $457 if you do not have a qualifying child. In addition to the EIC increase the maximum amount of income the taxpayer can earn to receive the EIC credit has increase. See publication 596, Earned Income Credit for more details.
*Unemployment compensation received during 2009
Taxpayers who received unemployment compensation during 2009 can exclude up to $2,400 of the amount received from their gross income. This means, the excluded amount of up $2,400 will not be tax on the taxpayers return.
First-Time home buyer credit was extended to April 30, 2010; so long as the buyer initiates a binding contract by April 30, 2010 and purchase is settled by June 30, 2010. The maximum credit amount remains the same 8,000, for first time homebuyers. For qualifying purchases, taxpayers may elect to claim the credit on either their 2009 or 2010 tax returns.
*Long term resident or existing home owners
In addition, some long-term resident homeowners may also qualify for a tax credit. With the new law longtime residents could qualify for a credit up 6,500, so long as they own the home and it is used as their primary residents for at least five consecutive years within an eight year period ending on the date of purchase of the home. For both first time home buyers and existing long-term homeowners must meet the modified adjusted gross income (MAGI) limits to take advantage of the full credit.
Both new home buyers and long time resident must complete form 5405 to take advantage of the credit. However, electronic filing is not available for taxpayers wanting to use the credit on their 2009 tax return; therefore, be prepared to file a paper return.
*Residential energy efficient property credit
Homeowners who spent $5,000 on energy saving improvements during 2009 and before December 31, 2009, may be eligible to a 1,500 credit on their 2009 tax returns. Energy saving improvements includes heating and air conditioning systems, water heaters, energy efficient windows and doors; however, the cost of labor is not included. Besides saving money on home energy bills and unlike a tax deduction the $1,500 credit could increase the taxpayers refund or decrease the amount of tax due. In addition the taxpayers do not have to itemize their deductions to take advantage of the credit. Taxpayers need only to file form 5695, Residential Energy credits to calculate their credits.
The standard mileage rates have decreased for business miles driven to .50 cents per mile and 16.5 cents per mile for medical or moving purposes. To receive credit for non-reimbursed business miles the taxpayer will need to file form 2106 as well as opting to itemizing their deductions. Miles driving for charitable organizations remains unchanged at 14 cents per mile.
*Deduction for Sales and excise Taxes on new purchase motor vehicles
If you purchase a qualified motor vehicle after February 16, 2009, and before January 1, 2010, you may qualify for a tax deduction. There are stipulations to qualify for the deduction; specifically the motor vehicle must be a passenger automobile, motorcycle, or light truck with a gross weight of 8,500 pounds or less. The deduction is also dependent on the taxpayers (MAGI). In addition to passenger vehicles, motor homes may also qualify for the deduction. The deduction is helpful in increasing the amount of your standard deduction or used as an itemized deduction; ultimately, decreasing any tax owed.
Tax breaks for parents and college students. The new American opportunity credit provides that tax free college savings plans can be used to buy computer equipment and services. Of course there are limits and guidelines that must be followed. The Hope credit now includes tax breaks on books used for credit related education. The credit is available to taxpayers who pay $4,000 or more on qualified student expenses. See IRS Publication for (MAGI).
There are many changes for filing taxes in 2010. Most importantly, changes that may help increase the taxpayers refund or decrease the amount taxes owed. Moreover, some of the changes may prevent taxpayers from filing electronically. It is expected that additional tax changes will be announced by the Internal Revenue Service (IRS). Early tax filers should consult with a professional tax preparer or review the IRS website for tax changes before filing.