Like it or not, it’s tax time.
If you’re trying to make sense of what’s new for this filing season, fear not. We’ve already done it for you.
Due date of return
This year, taxpayers have until April 18, instead of April 15, to file their tax returns.
Taxpayers get extra time because of the Emancipation Day holiday in the District of Columbia — even if they do not live in the District of Columbia.
Taxpayers requesting an extension will have until Oct. 17 to file their 2010 tax returns.
The Internal Revenue Service advises taxpayers impacted by the recent tax law changes that using e-file is the best way to ensure accurate tax returns and get faster refunds.
Who must wait to file
For most taxpayers, the 2011 tax filing season starts on schedule. However, due to recent tax law changes, some people — including those who itemize deductions on Form 1040 Schedule A — will need to wait until mid- to late February to file their tax returns in order to give the IRS time to reprogram its processing systems. Those who need to wait to file their tax return include:
— Taxpayers claiming itemized deductions on Schedule A.
— Taxpayers claiming the higher education tuition and fees deduction.
— Taxpayers claiming the educator expense deduction.
The IRS will announce a specific date in the near future when it can start processing tax returns impacted by the recent tax law changes.
In the interim, taxpayers affected by these tax law changes can start working on their tax returns, but they should not submit their returns until IRS systems are ready to process the new tax law changes.
For taxpayers who must wait before filing, the delay affects both paper filers and electronic filers. The IRS urges taxpayers to use e-file instead of paper tax forms to minimize confusion over the recent tax law changes and ensure accurate tax returns.
Exemptions, itemized deductions no longer phased out
Overall income limits for personal and dependency exemptions and itemized deductions do not apply.
Before 2010, taxpayers whose incomes were above certain levels lost part or all of their exemptions and part of their itemized deductions.
For taxpayers at all income levels, limitations continue to apply to particular itemized deductions, such as medical and dental expenses, certain miscellaneous itemized deductions and casualty and theft losses.
Itemized deduction
The limit on itemized deductions expired in 2010.
Education savings bond exclusion
An individual who redeems qualified U.S. savings bonds to pay for higher education expenses may be able to exclude interest income from gross income.
For 2010, the amount of your interest exclusion is phased out (gradually reduced) if your filing status is married filing jointly or qualifying widow(er) and your modified adjusted gross income is between $105,100 and $135,100. You cannot take the exclusion if your modified AGI is $135,100 or more.
For all other filing statuses, your interest exclusion is phased out if your modified AGI is between $70,100 and $85,100.
You cannot take the exclusion if your modified AGI is $85,100 or more.
For more information, see chapter 10 in Publication 970, Tax Benefits for Education.
Hope, American opportunity credits for 2010
For tax year 2010, the following changes have been made to the Hope and American opportunity credits:
— The Hope credit is not available for 2010.
— The American opportunity credit is available for 2010 and is unchanged from 2009.
Expanded definition of qualified expenses for qualified tuition programs
The definition of qualified higher education expenses for tax-free distributions from a qualified tuition program is expanded to include amounts paid in 2009 or 2010 for the purchase of computer software, any computer or related peripheral equipment, fiber optic cable related to computer use, and Internet access (including related services) that are to be used by the beneficiary and the beneficiary’s family during any of the years the beneficiary is enrolled at an eligible educational institution.
Expired tax benefits
The following tax benefits have expired:
— Increased standard deduction for real estate taxes or a net disaster loss from a disaster occurring after 2009.
— Itemized deduction or increased standard deduction for state or local sales or excise taxes on the purchase of a new motor vehicle (unless you bought the vehicle in 2009 after February 16 and paid the tax in 2010).
— The exclusion from income of up to $2,400 in unemployment compensation. All unemployment compensation you received in 2010 is generally taxable.
— Government retiree credit.
— Alternative motor vehicle credit for qualified hybrid motor vehicles bought after 2009, except cars and light trucks with a gross vehicle weight rating of 8,500 pounds or less.
— Extra $3,000 IRA deduction for employees of bankrupt companies.
— Credit to holders of clean renewable energy bonds issued after 2009.
— Decreased estimated tax payments for certain small businesses.
— Certain tax benefits for Midwestern disaster areas, including the additional exemption amount if you provided housing for a person displaced by the Midwestern storms, tornadoes, or flooding.
You may benefit from filing form 1040A or 1040 for 2010
Due to the following tax law changes for 2010, you may benefit from filing Form 1040A or 1040, even if you normally file Form 1040EZ:
Earned income credit. You may be able to take the EIC if:
— You earned less than $13,460 ($18,470 if married filing jointly),
— Three or more children lived with you and you earned less than $43,352 ($48,362 if married filing jointly),
— Two children lived with you and you earned less than $40,363 ($45,373 if married filing jointly), or
— One child lived with you and you earned less than $35,535 ($40,545 if married filing jointly).
The maximum adjusted gross income you can have and still get the credit also has increased. You may be able to take the credit if your AGI is less than the amount in the above list that applies to you. The maximum investment income you can have and still get the credit is $3,100.
First-time home buyer credit. You generally cannot claim the credit for a home you bought after April 30, 2010.
However, you may be able to claim the credit if you entered into a written binding contract before May 1, 2010, to buy the home before July 1, 2010, and actually bought the home before October 1, 2010. Also, certain members of the armed forces and certain other taxpayers have additional time to buy a home and take the credit.
Adoption credit. The maximum adoption credit has increased to $13,170. The credit is now refundable and is claimed on Form 1040.
IRAs
IRA deduction expanded. You may be able to take an Individual Retirement Account deduction if you were covered by a retirement plan and your 2010 modified AGI is less than $66,000 ($109,000 if married filing jointly or qualifying widow(er)). If your spouse was covered by a retirement plan, but you were not, you may be able to take an IRA deduction if your 2010 modified AGI is less than $177,000.
More people qualify for Roth IRA conversions. Income limits no longer apply to rollovers or conversions to Roth IRAs from other retirement plans. In the past, only taxpayers with modified adjusted gross income of $100,000 or less were eligible, and a married person filing a separate return who lived with his or her spouse at any time during the year was barred from Roth IRA rollovers or conversions, regardless of income.
For 2010 rollovers and conversions only, half of the resulting income must be included in income in tax year 2011 and the other half in 2012, unless the taxpayer chooses to include all of it in income in 2010. In all situations, taxpayers must report any 2010 conversion on Form 8606 for tax year 2010. These rules do not apply to rollovers from another Roth IRA or from a designated Roth account.
Alternative minimum tax exemption amount increased
The Alternative Minimum Tax exemption amount has increased to $47,450 ($72,450 if married filing jointly or a qualified widow(er); $36,225 if married filing separately.)
Repayment of first-time home buyer credit
If you claimed the first-time home buyer credit for a home you bought in 2008, you generally must begin repaying it on your 2010 return. In addition, you generally must repay any credit you claimed for 2008 or 2009 if you sold your home in 2010 or the home stopped being your main home in 2010.
Uniformed or foreign service members, Peace Corps, employees of the intelligence community
If you or your spouse is an employee, enrolled volunteer, or volunteer leader of the Peace Corps and you sell your main home, you may be able to exclude the gain from income even if you did not live in it for two years during the five-year period ending on the date of sale. Generally, you can elect to have the five-year test period for ownership and use suspended for up to 10 years during any period you or your spouse serve outside the U.S. (on qualified official extended duty if an employee). Similar benefits apply to members of the Uniformed Services, Foreign Service or employees of the intelligence community.
Special limitation period for retroactively excluding military retirement pay
If you retire from the armed services based on years of service and are later given a retroactive service-connected disability rating by the Veteran Affairs, your retirement pay for the retroactive period is excluded from income up to the amount of VA disability benefits you would have been entitled to receive.
Death of a taxpayer
If a taxpayer died before filing a return for 2010, the taxpayer’s spouse or personal representative may have to file and sign a return for that taxpayer. A personal representative can be an executor, administrator or anyone who is in charge of the deceased taxpayer’s property.
If the deceased taxpayer did not have to file a return but had tax withheld, a return must be filed to get a refund. The person who files the return must enter “deceased,” the deceased taxpayer’s name and the date of death across the top of the return. If this information is not provided, the processing of the return may be delayed.
If your spouse died in 2010 and you did not remarry in 2010, or if your spouse died in 2011 before filing a return for 2010, you can file a joint return. A joint return should show your spouse’s 2010 income before death and your income for all of 2010. Enter “filing as surviving spouse” in the area where you sign the return. If someone else is the personal representative, he or she also must sign.
The surviving spouse or personal representative should promptly notify all payers of income, including financial institutions, of the taxpayer’s death.
This will ensure the proper reporting of income earned by the taxpayer’s estate or heirs. A deceased taxpayer’s Social Security number should not be used for tax years after the year of death, except for estate tax return purposes.
Claiming refund for deceased taxpayer
If you are filing a joint return as a surviving spouse, you only need to file the tax return to claim the refund. If you are a court-appointed representative, file the return and include a copy of the certificate that shows your appointment.
All other filers requesting the deceased taxpayer’s refund must file the return and attach Form 1310.
Name, Social Security number on tax forms must agree with Social Security card
If not, your exemption(s) and any making work pay credit and earned income credit may be disallowed, your refund may be delayed and you may not receive credit for your Social Security earnings.
If your Form W-2 shows an incorrect name or Social Security number, notify your employer or the form-issuing agent as soon as possible to make sure your earnings are credited to your social security record.
If the name or Social Security number on your social security card is incorrect, call the Social Security Administration at civ. 001-800-772-1213.
