Tax Preparation: 2010 is the last year for certain tax breaks
Tax experts recommend taking note of these particular credits now - long before you sit down to prepare your 2010 taxes - because they may influence your financial and life decisions for the rest of the year. Jessi Dolmage, spokeswoman for 2nd Story Software, Inc., the makers of TaxACT, breaks down a few of these credits.
The Making Work Pay credit replaced the 2008 federal stimulus checks. Like 2009, the credit is already being distributed in paychecks through reduced federal withholding and is worth 6.2 percent of your earned income, up to $400 for individuals and $800 for joint filers.
In 2009, some joint filers with two incomes, individuals with multiple incomes, pensioners and dependents discovered they had too little withheld and owed a small amount of tax because of the credit. Those groups, as well as those who owed federal taxes or received large refunds in 2009, should reassess their withholding for 2010.
Unlike last year, there won't be economic recovery payments and the Government Retiree Credit to subtract from the Making Work Pay credit amounts. Those two tax breaks have expired.
Taxpayers receiving less than the full amount of the child tax credit can claim the Additional Child Tax Credit again for 2010. The refundable credit is equal to 15 percent of earned income in excess of $3,000 (the limit was $8,500 in 2008). Families with three or more children can elect the alternative formula under which the credit equals the amount the taxpayer's Social Security taxes exceed the taxpayer's earned income credit.
Families with three or more qualifying children may also benefit from the expanded Earned Income Credit, created to help working taxpayers with modest incomes. The credit amount depends on income and number of qualifying children (taxpayers without children also qualify). For 2009 and 2010, the credit for families with three or more children increased 5 percent, up to $5,657, but phases out at a MAGI of $48,279 for joint filers.
Homeowners can claim 30 percent of the costs for qualifying improvements to a primary residence, up to $1,500 for 2009 and 2010 combined (the limit was previously 10 percent). The credit must be claimed on the tax return for the year the improvements are made. Improvements must meet higher efficiency standards and include insulation; exterior windows, skylights and doors; electric heat pumps; central air conditioners; natural gas, propane or oil water heaters; biomass stoves; furnaces and boilers.
College students and their families can take advantage of the American Opportunity Credit again in 2010. The refundable credit is equal to 100 percent of the first $2,000 and 25 percent of the next $2,000 (totaling up to $2,500 per student) for tuition, related fees and required course materials. It only applies to the first four years of post-secondary education and phases out at MAGIs of $80,000 for individuals and $160,000 for joint filers.
It's likely that additional tax breaks for 2010 will be passed by lawmakers, so Dolmage recommends getting a head start on your federal tax return as soon as you can. TaxACT Online 2010 will be available for use starting in early October, Starting early allows users to start entering their federal data and walk through the latest tax law changes. Taxpayers can then take that information to make smart year-end plans to further minimize their taxes.
For information about 2010 tax law changes, visit www.IRS.gov. Learn more about TaxACT at www.TaxACT.com.
Courtesy of ARAcontent.
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