Last Update: Thursday,March 06, 2014
|Sweeteners Added to Recession-battling Tax Breaks|
|Written by CAROLE FELDMAN|
|Thursday, 03 February 2011 06:10|
This year's tax season will look a lot like last year's, with a few sweeteners added.
Among them: the Making Work Pay tax credit, which put a little extra money in the hands of 95 percent of U.S. taxpayers. Homebuyers and those who installed energy-efficient furnaces, windows and other items in their homes also could benefit, along with college students or their parents, schoolteachers and adoptive parents.
"There's really not much from a change perspective," said Greg Rosica, a tax partner at the Ernst & Young accounting firm.
But new sweeteners include elimination of the phase-out of itemized deductions and personal exemptions for higherincome taxpayers.
Low-income taxpayers benefit from a raise in income limits for the earned income tax credit. Congress in December also approved a patch for the alternative minimum tax that will protect about 20 million middleincome families from an additional tax bill of $3,900 or so.
The late action by Congress on the AMT and other provisions means that taxpayers who itemize deductions, teachers seeking a deduction for out-of-pocket expenses, and those filing for the tuition and fees deduction will have to wait until the Internal Revenue Service updates its systems before filing their returns. Terry Lemons, the IRS' senior spokesman, estimates the delay could last until mid-February.
"We have to be very careful to make sure we have it right," he said.
Tax experts said the delay shouldn't affect taxpayers too much. "The rush of the tax filing season isn't until mid-February to begin with because people don't get all their information together to begin filing,'' Rosica said.
Taxpayers also will have a few extra days to file. Returns aren't due until April 18 because of Emancipation Day, celebrated April 15 in the District of Columbia.
Mark Steber, chief tax officer for Jackson Hewitt, said taxpayers will have to be more vigilant this year because of the lateness of the changes.
As a result, this year, more than ever, is a good time to file electronically, Lemons said. "You're going to get a more accurate return," he said. "You're going to get the latest tax information."
For the 2010 tax year, "economic factors might point to a slightly higher refund percentage," said Bob Meighan, vice president at TurboTax, which makes tax preparation software. He cited continued high unemployment.
Though the jobless rate remains close to 10 percent, the unemployed lost a key tax break. "All unemployment insurance is taxable this year," said Mark Luscombe, principal analyst at CCH, a tax preparation service. For the 2009 tax year, the first $2,400 of unemployment benefits had been excluded.
Another recession-battling tax break not renewed was the deduction for sales and excise taxes on the purchase of a new car. However, Congress did extend the state and local sales tax deduction, which primarily benefits those in areas without state and local income taxes. Deductions reduce the income on which you are taxed. Credits reduce the amount of tax owed and generally are considered more advantageous to the taxpayer.
If you seek professional help on your return, make sure your tax preparer has registered as required with the IRS. Later this year, most tax preparers will have to pass an exam certifying their skills. Certified public accountants and some others are exempt.
"It's setting a standard of excellence for the industry," said Kathy Pickering of the Tax Institute at H&R Block.
All taxpayers can claim a $3,650 per person exemption for themselves, their spouse and each qualified dependent. That's unchanged from last year, as is the standard deduction for married couples filing jointly ($11,400) or singles ($5,700). The standard deduction for heads of households increased slightly, to $8,400.
The capital gains rate remains at a maximum of 15 percent. For those taxed overall at the 10 percent or 15 percent rate, the capital gains rate is 0.
Tax experts urge people to take advantage of all the deductions they are due.
For charitable deductions, people are pretty good at keeping track of cash but not as good when it comes to goods, Luscombe said. They often forget out-of-pocket expenses, including travel or transportation.
Taxpayers who are at least 701/2 years old could make a donation to a charity direct from their individual retirement accounts without paying taxes on the amount. But there's no double-dipping. They cannot also claim the amount as a charitable donation.
And in another change affecting retirement accounts, people could convert their traditional IRAs to Roth retirement accounts regardless of income. Taxpayers had the option of counting the amount of the conversion as taxable income in 2010 or deferring it over two years, 2011 and 2012.
During 2010, the vast majority of taxpayers benefited from the Making Work Pay tax credit, aimed at combating the recession. There were income limits, however, and taxpayers will have to file Schedule M to claim the credit, which is up to $400 for singles or $800 for married couples filing jointly. Since payroll withholding was adjusted so you could get the immediate benefit of the credit, you could find yourself owing money if both spouses worked or if you have more than one job.
The homebuyers' credit also continued - for part of the year. If you were a first-time homebuyer and bought your home before May 1, 2010, you may qualify for a maximum $8,000 credit. There's a separate credit, too, for long-time homeowners, up to $6,500. These, too, phase out at higher income levels, and the price of the home may not be over $800,000. You also must have used the home as your primary residence for at least three years, or you'll have to repay the money.
Again this year, there's added documentation required, such as the HUD-1 settlement statement. As a result, people claiming the credit will not be able to file electronically.
Those who bought homes in 2008 and claimed the credit owe the government some money. That credit actually was an interest-free loan and must be paid back over 15 years. Those who took the maximum credit, $7,500, will have to add $500 to their taxes due. "It might catch people unaware,'' said Barbara Weltman, author of tax books for J.K. Lasser.
You'll also have to file a paper return if you claim the expanded adoption credit. The maximum is $13,170 for each child, up from $12,150 in 2009.
College students or their parents may qualify for the American Opportunity Credit, worth $2,500 toward tuition and other qualified higher education costs. Students must be attending school at least halftime. Congress also extended the higher education tuition and fees deduction.
And a final word of advice: If you're waiting for forms to arrive in the mail, don't. The IRS decided not to mail them this year, a cost-saving measure that reflects the reality that increasing numbers of people who are filing electronically. Finances THURSDAY, FEBRUARY 3, 2011 San Fernando Valley Sun 18 Sweeteners Added to Recession-battling Tax Breaks