NEWS AND RESOURCES

Tip of the Month for February, 2011

rss feed

Tip: What’s New on Form 1040

After months of uncertainty regarding possible tax cut extensions, we now know which breaks have been extended and which ones have hit the deck. Here’s how the major changes stack up.

Health Insurance Premium Deductions for Self-Employed Taxpayers

In the past, eligible self-employed taxpayers could deduct their health insurance premiums from their federal tax bill. For 2010 only, health insurance premiums also may be deducted from self-employment taxes using Schedule SE. This tax break is not slated to continue beyond 2010 unless Congress chooses to extend it.

No Phase-Outs for Itemized Deductions and Exemptions
For 2010 filings, Bush-era tax cuts repealed phase-outs for itemized deductions and exemptions, and recent legislation extended the repeal through 2012. This extension ruling means that higher-income taxpayers will not have itemized deductions – such as mortgage interest, state and local income and property taxes, and charitable contributions – subject to a phase-out ruling. Likewise, a similar phase-out ruling covering personal and dependent exemption deductions was repealed for 2011 and 2012 as well.

Adoption Credit Maximum Increased
The maximum adoption credit was increased to $13,170 for 2010, from $12,150 in 2009. The credit – previously regarded as nonrefundable – was made 100 percent refundable for the 2010 tax year. The refund will be applied to your federal income tax bill, and you will receive a check for the difference (if any remains) after your taxes are paid. In order to claim this credit, you must fill out Form 8839 (Qualified Adoption Expenses) and enter the credit amount on line 71 of Form 1040.

Home Purchase Credit Repayment Requirements
Homebuyers might have to repay some or all of the credit claimed for a home purchase made during 2008 or 2009 through their Form 1040 for 2010. For the most part, only those who purchased homes during 2008 will be subject to this ruling. These individuals will be required to repay 1/15th of the credit on the 2010 Form 1040.

Real Estate Deduction for Non-Itemizers Has Expired
Unmarried individuals who did not itemize were allowed to write off up to $500 of state and local real estate taxes by claiming an increased standard deduction for 2008 and 2009. Married joint-filers were allowed to write off $1,000. This provision expired at the end of 2009 and was not extended into 2010.

Tax Break for Unemployment Benefits is Not Extended
Previously, the first $2,400 of unemployment benefits was not subject to federal income taxes. Now, all unemployment benefits received during 2010 must be reported as income on Form 1040.

No More Tax Breaks for New Vehicle Purchases
Stimulus Act tax breaks aimed at spurring purchases of new vehicles lapsed at the end of 2009, and they were not reinstated for the 2010 tax year. Previously, non-itemizers who paid state and local sales taxes on new vehicles purchased between February 17, 2009, and December 31, 2009, were granted a temporary write-off. Eligible purchasers were granted an additional standard deduction write-off, and itemizers were also allowed to claim an extra itemized deduction for these taxes.

April 18 is Tax Deadline Day for 2011
Because April 15 falls on a Friday and that Friday happens to be Emancipation Day (a District of Columbia State holiday), the deadline for tax returns is Monday, April 18.  If you wish to extend the deadline to October 17, 2011, your Form 4868 must be filed by April 18.

The summary above provides general comments only. Your professional tax advisor can provide more detailed information and advice tailored to your specific needs.

Disclaimer 
 
 

Contact Us for More Information

OUR KNOWLEDGE IS YOUR ASSET

Copyright (c) 2003.Tidewater Accounting and Business Services. All rights reserved.