Tax Law Changes For Tax Year 2010

Tax Law Changes for Tax Year 2010

Standard Deduction Amount
. Single    -    $5,700
. Married Filing Jointly and Qualifying Widow   -   $11,400
. Married Filing Separately   -   $5,700                                                 
. Head of Household   -   $8,400

If the taxpayer is 65 or older and/or blind, the basic amount will increase.

 

Earned Income Credit Amount

Number of Children                Maximum Credit                   Earned Income/AGI Each Less Than
            0                                           $457                                       $13,460 ($18,470 if MFJ)
             1                                           $3050                                       $35,535 ($40,545 if MFJ)
             2                                           $5036                                       $40,363 ($45,373 if MFJ)
             3+                                         $5666                                       $43,352 ($48,362 if MFJ)

 The Fostering Connections to Success and Increasing Adoptions Act of 2008 changed the uniform definition of a child. Now, a "qualifying child" must:

Be younger than the taxpayer claiming that child unless the child is disabled and

  • Not have filed a joint return except to claim a refund

It also added a new Parent AGI rule. If the same child is a qualifying child of a parent and another relative, the person who is not the parent can claim the child only if their AGI is higher than the AGI of any parent of the child.

*The American Recovery and Reinvestment Act (ARRA) provides a temporary increase in EITC and expands the credit for workers with three or more qualifying children. These changes are temporary and apply to 2009 and 2010 tax years.

Investment income must be $3,100 or less for the year.

 

Standard Mileage Rates
. Business Miles - .50 cents/mile
. Charitable Services - .14 cents/mile
. Medical Miles - .16.5 cents/mile
. Moving Expense Miles - .16.5 cents/mile


 

 

Additional Changes for 2010

Due Date of Return. 
File Form 1040 by April 18, 2011.  The due date is April 18 because of the Emancipation Day holiday in the District of Columbia - even if you do not live in the District of Columbia.

Limits on personal exemptions and overall itemized deductions ended.
For 2010, you will no longer lose part of your deduction for personal exemptions and itemized deductions, regardless of the amount of your adjusted gross income (AGI).

Self-employed health insurance deduction.
Effective March 30, 2010,  if you were self-employed and paid for health insurance, you may be able to include in your self-employed health insurance deduction any premiums you paid to cover your child who was under 27 at the end of 2010, even if the child was not your dependent.

Standard deduction increased.
The standard deduction for some taxpayers who do ot itemize their deductions on Schedule A of Form 1040 is higher in 2010 than it was in 2009.  The amount depends on your filing status.  In addition to the annual increase for some taxpayers due to inflation adjustments, your 2010 standard deduction is also increased by:

* And state or local sales or excise taxes you paid in 2010 on the purchase of a new motor vehicle after
   February 16, 2009, and before January 1, 2010, and

* And net disaster loss you had in 2010 because of a disaster that was declared a federald disaster after
   2007 and that occurred before 2010.

Adoption Credit.
The adoption credit is now refundable.  Also, to claim the credit, you must include and adoption order or decree or certain other documents with your return.

First-time Homebuyer 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.

Repayment of First-time Homebuyer Credit.
If you claimed the first-time homebuyer 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.

Roth IRAs.
Beginning in 2010, you can make a qualified rollover contribution to a Roth IRA regardless of the amount of your modified AGI.  Also, half of any income that results from a rollover or conversion to a Roth IRA from another retirement plan in 2010 is included in income in 2011, and in the other half in 2012, unless you elect to include all of it in 2010.

Corrosive drywall.
You may be able to claim a caualty loss deduction for amounts you paid to repair damage to your home and household appliances that resulted from corrosive drywall.  The deduction is limited if you have a pending claim for reimbursement (or intend to pursue reimbursement) through property insurance, litigation, or other means.

Personal casualty and theft loss limit.
Each personal casualty or theft loss is limited to the excess of the loss over $100 (instead of the $500 limit that applied for 2009).  In addition, the 10%-of-AGI limit generally continues to apply to the net loss.

Divorced or separated parents.
A custodial parent who has revoked his or her previous release of a claim to a child's exemption must include a copy of the revocation with his or her return.

Better limits on deductions for property damage or loss due to theft.
For damaged or stolen property to be deductible, the loss amount must now only exceed $100, compared with $500 in 2009.  The "10% of AGI" rule still generally applies though.

Remember, AGI is the sum of all your income - such as wages, interest and alimony received - minus certain adjustments, such as IRA contributions, student loan interest you've paid and moving expenses.

Deduction for taxes and fees on New Motor Vehicle Purchases.
Did you buy a new car, light truck, motor home or motorcycle between February 17 and December 31, 2009?  If so, in 2010 you can deduct state, local, and excise taxes related to the purchase.  If your state has no sales tax, you can instead deduct other taxes or fees the purchase generated.  A neat feature of this deduction is you can use it to increase your standard deduction or take it as a regular itemized deduction, whichever works out best for you.

There are a couple of limitations to know about.  First, the deduction is only good on up to $49,500 or the purchase price.  Second, it's phased out at certain levels of modified adjusted gross income (MAGI) - between $250,000 and $260,000 for joint filers and from $125,000 to $135,000 for other taxpayers.  MAGI is your AGI plus certain deductions such as those for student loans, IRA contributions and higher education costs.

Bigger deductions for Long-Term Care (LTC) Insurance Premiums.
IRS rules allow LTC insurance policy owners to deduct more of their premiums in 2010 than in 2009.  For example, those ages 51 to 60 can claim up to $1,230 in LTC insurance premiums this year, compared with $1,190 last year.  Similar increases have been approved for other age groups as well:  40 and under, 41-50, 61-70 and 71 or over.  At $330, the deduction is smallest for the 40-and-under age group.  It rises progressively to a maximum of $4,110 for those ages 71 or over.

Education
The new American Opportunity Credit modifies the Hope Credit by making it available to more taxpayers.  The credit now covers the cost of required course materials, and extends the time a student can claim it from two years to four years.  The credit will allow up to $2,500 of the cost of college tuition and related expenses.

You may be able to claim the lifetime learning credit    of up to $2,000 for qualified tuition and related expenses paid for a qualified individual at an eligible educational institution.

For each child under 18, you may be eligible to contribute up to $2,000 a year to a Coverdell Education Savings Account (ESA).  The contribution is not deductible, but the money grows tax free.

Interest on certain U.S. Savings Bonds cashed to finance higher education may be tax-free.

Taxpayers paying off student loans can deduct up to $2,500 of student loan interest as an adjustment to income.

Conversion to Roth IRA
Starting in 2010, there is no income limit on converting a traditional IRA to a Roth IRA.  A taxpayer can convert a traditional IRA to a Roth IRA in 2010 and pay the tax on the amount that would be included in income on the conversion in equal amounts in 2011 and 2012.  The taxpayer can choose to include the entire amount in income in 2010.