Article; Tax Changes to Watch for on Your 2010 Return

Tax Changes to Watch for on Your 2010 Return Andrea Coombes Thursday, February 17, 2011 Share retweet provided by Market Watch Many familiar provisions remain, but tricky differences lurk Your 2010 return is less complicated than it might have been, thanks to the Tax Relief Act in December, but there are changes that could trip you up. Lawmakers' agreement to extend the Bush-era tax cuts means many of the tax provisions you've come to know and love are still in place — and the Form 1040 is similar to last year. But there's bad news for some taxpayers. For instance, in 2009 unemployed workers could exclude up to $2,400 of unemployment benefits from income; that provision did not get extended for 2010, said Steve Henley, national tax practice leader with CBIZ MHM, in Atlanta. "For some reason, they decided not to extend that," he said. "That's probably a little bit of a surprise for some taxpayers." Other tax breaks are gone, too, such as the three extra standard deductions — for real-estate taxes, taxes on a new-car purchase and disaster losses — that non-itemizers could use to lower their bill in 2009. Still, other than the disappearance of Line 40b to claim those extra standard deductions, Form 1040 is essentially the same as last year. "Because Congress acted at the end of the year to extend a whole bunch of stuff that was ready to expire, [the changes are] not quite as bad this year as in past years," said Mark Luscombe, principal tax analyst with CCH Inc., a Riverwoods, Ill.-based tax publisher and unit of Wolters Kluwer. The Tax Relief Act, among other perks, resuscitated the deduction for state and local sales taxes — a boon to taxpayers in income-tax-free states — and the above-the-line deductions both for student tuition and fees, up to $4,000, and for teachers' classroom expenses up to $250. And, for high-income filers, the new law extends through 2012 the Bush-era provision repealing the income limits on itemized deductions and personal exemptions. Before, taxpayers above certain income levels lost part or all of their exemptions and itemized deductions. Those limits were slowly phased out; 2010 is the first year they're gone completely (separate income limits still apply on some deductions). Plus, Congress extended the alternative-minimum-tax patch, preventing millions of taxpayers from losing access to a number of tax breaks under that parallel system. The AMT exemption amount in 2010 for single filers is $47,450 and for married-filing-jointly filers it's $72,450. A big perk, for eligible families: The adoption credit is now refundable, and worth up to $13,170 in 2010 and 2011. In 2012, it drops down to $12,170 and won't be refundable, according to CCH. Confused? Another change this year is that you get an extra weekend to sort it all out. The tax deadline is April 18, thanks to a holiday in Washington on April 15. Your IRA Also thanks to the new law, people 70 1/2 or older can donate up to $100,000 to an eligible charity directly from their IRA, count it as a required minimum distribution, yet still avoid an income-tax hit on that money (but they can't deduct it as a charitable donation). And they get until Jan. 31 this year to make such a contribution for 2010. The tax break is also available in 2011. See this IRS page for more on what qualifies as an eligible charity. Meanwhile, if in 2010 you took advantage of the ability to roll money from a traditional IRA to a Roth IRA — income limits on such transfers no longer exist — you can choose to pay the income tax on that conversion over two years, half in 2011 and half in 2012. Or, you can include that income on your 2010 return. If you want to pay the tax now — maybe you're in a lower tax bracket in 2010 than you expect to be this year — be sure to check the appropriate box on Form 8606. "Probably most people, now that [income-tax] rates are basically the same for 2011 and 2012 will elect to defer those payments," Luscombe said, "but taxpayers should look at that and make sure it's the right decision for their circumstances." "If they were unemployed in 2010, had low income and anticipate they might be in a higher tax bracket in 2011 and 2012, it might make sense for them to pay the tax in 2010," he said. Homeowner Tax Breaks Are you eligible to claim the home-buyer tax credit on your 2010 return? You won't be able to e-file. The IRS wants you to snail-mail information with your return. The credit is worth up to $8,000 for first-time home buyers and $6,500 for long-time homeowners who lived in their home for more than five years. Read the rules for the first-time home buyer tax credit on IRS.gov. If you claimed the credit in 2008, you are among the unfortunate group that must pay the credit back over the next 15 years — and 2010 is the year your first bill comes due. Also, if you claimed the home-buyer credit in 2008 or 2009 and then moved out of the house, you may have to pay back the credit. Check out Form 5405 for the details. (Did you know that doing a Google search of "Form 5405" — plug in any IRS form number — will get you the IRS page you need?) If you've had a problem with so-called "corrosive drywall" in your home, the IRS may let you treat that as a casualty loss. See this IRS page for more. But, bad news for homeowners who didn't jump on the tax credit for energy-efficient home improvements, such as new doors and windows: That tax break got trimmed for 2011. Still you can take it for 2010 if you made the eligible energy-efficient upgrades by the end of the year. Andrea Coombes is MarketWatch's personal finance editor, based in San Francisco.

Boston.Com Article; IRA distributions and taxable Social Security benefits

 IRA distributions and taxable Social Security benefits

Posted by Andrew Chan
February 9, 2011 03:00 PM
Is the income I receive from my IRA distribution included in the calculation to determine how much of my social security benefits will be taxed?

Generally, yes! If the IRA distribution you receive is taxable and not a return of your previous non-deductible contributions, it will be included as part of your Adjusted Gross Income (AGI) on your tax return. The amount of your social security benefits that is taxable is determined by calculating your "combined income". Your "combined income" equals your AGI + your nontaxable interest + 50% of your social security benefits.

If your IRA distribution is taxable (as described above), it should be included in your AGI and thus your "combined income" for purposes of determining what portion of your social security benefits are taxable.

If you know your federal tax filing status and your "combined income", you can use the following guidelines from the Social Security Administration to see how much of your benefits are taxable:

If you file a federal tax return as an "individual" and your "combined income" is:
- between $25,000 and $34,000, you may have to pay income tax on up to 50 percent of your benefits.
- more than $34,000, up to 85 percent of your benefits may be taxable.

If file a joint return, and you and your spouse have a "combined income" that is:
- between $32,000 and $44,000, you may have to pay income tax on up to 50 percent of your benefits.
- more than $44,000, up to 85 percent of your benefits may be taxable.

If you are married and file a separate tax return, you probably will pay taxes on your benefits.

For more information about calculating your "combined income" or the taxation of social security benefits visit the Social Security Administration's web site at www.ssa.gov.

Tax Interview Sheet

Article; Understanding the Schedule A

Schedule A: box-by-box Bankrate.com The easiest way to reduce your tax bill is to reduce your taxable income. You don't have to take a pay cut to do this. You can use tax deductions. The Internal Revenue Service allows each taxpayer a standard deduction amount based on filing status. Some individuals, however, find that they get a better tax break if they itemize their deductions. This means keeping track of your expenses, meeting some income thresholds and deductibility limits and filing Schedule A. You must file the long 1040 tax return to use Schedule A. This combination means that filing your taxes will take a while. But it also could mean more money in your pocket, instead of Uncle Sam's, when you're through. Schedule A generally allows you to subtract from your income the amounts you spent on medical care, other taxes, some interest payments, charitable gifts, casualty losses and even several miscellaneous expenses. Let's see what you can itemize. Be sure to enter your name, and your spouse's if you're filing jointly, at the top of the form. As for the Social Security number sought by the IRS, enter the one of the main taxpayer. Now, to the numbers. Schedule A is divided into sections for the various deductions you're allowed. First, medical and dental expenses. Medical and dental This is a popular section of the Schedule A. Most of us spend a lot at the doctor's office or corner drugstore, and we look forward to letting the government help out at tax time with these costs. Unfortunately, Uncle Sam has limited just how helpful he will be. You can deduct medical and dental expenses that exceed 7.5 percent of your adjusted gross income. With an AGI of $40,000 your medical deduction threshold is $3,000. That means of your $5,000 total medical expenses, you can deduct only $2,000, the amount that exceeds 7.5 percent of your income. Don't be discouraged. There are some medical costs that are often overlooked, such as mileage to the hospital, the costs of special medical equipment or even a portion of long-term care premiums you pay. And don't forget to count the medical care of your spouse and dependents. Add all these up and enter the amount on line 1. On line 2, enter your AGI from line 35 of your 1040. The 7.5 percent test is taken on line 3, where you figure your deductibility threshold. Then you subtract line 3 from your total medical costs on line 1 and enter the amount on line 4. This is what you can deduct. If you don't meet the test, enter zero here. Taxes At federal tax time, some other taxes do come in handy. You can deduct many of them in this next section of Schedule A. If you live in a state that collects state or local income taxes, the amount you paid goes on line 5. That includes any that were withheld from your paycheck (and shown on your W-2), as well as tax payments made directly to your local tax collector. Mandatory contributions you made to the California, New Jersey or New York Non-occupational Disability Benefit Fund, Rhode Island Temporary Disability Benefit Fund or Washington State Supplemental Workmen's Compensation Fund also can be counted on line 5. Property owners can deduct real estate taxes they paid. Enter the amount on line 6. These taxes are what you get each year, usually from a county tax assessor. If they are paid by your mortgage company with escrowed funds, remember that you can only deduct the actual amount of taxes paid in the tax year, not the full amount of escrow payments you sent in to your lender. Some states, counties and cities levy personal property taxes. The most common of this type of collection is on autos. This is not your license plate tag fee. It is a tax based on the value of your vehicle. Car taxes, as well as other personal property tax bills, can be deducted on line 7. Line 8 gives you the chance to deduct what the IRS calls "any deductible tax" not listed earlier. A common entry here is a deduction for foreign taxes paid in connection with investments funds. When you make an entry here, be sure to write out on the dotted line precisely what other tax you are deducting. Add the amounts from 5 through 8. There is no limit or minimum to meet for this section. Enter the full amount of nonfederal taxes you paid on line 9. Interest The next section, interest you paid, is for the almost exclusive benefit of homeowners. While interest paid on personal loans won't help you at tax time, interest on home loans -- both your primary residence and a second home -- is deductible. On line 10, enter home mortgage interest you paid. Generally, this amount is reported to you on a Form 1098 you get from your lender by the end each January. If you bought your home last year and paid points for the loan, those points (each point is 1 percent of your loan amount) will be listed on the 1098, too, and should be included on line 10. If you paid mortgage interest not reported on your 1098, put it on line 11. This might be the case if you sent in an extra house payment late in the year and your lender didn't properly credit the additional money. And if you paid interest to the person from whom you bought the home, it also goes on line 11, along with the seller's name, address and tax ID number. Any points not listed on your 1098 might be found on your settlement statement. Also, if you took out a home improvement loan secured by your house and used part of that loan money to improve your residence, you may be able to deduct some of the points. These non-1098 point amounts go on line 12. Interest paid on money borrowed to buy investment property, such as stocks and bonds, can be deducted on line 13. You may have to complete Form 4952, Investment Interest Expense Deduction, to claim this interest. Now add lines 10 through 13. There is no limit here either. This total amount of interest paid goes on line 14. Charitable gifts The IRS allows you to deduct your donations to approved philanthropic groups. This next section is where you detail your gifts. On line 15, enter all the monetary gifts (cash or check) that you made to qualified charities. This includes contributions to religious groups (churches, synagogues, mosques); nonprofit organizations (Salvation Army, Red Cross, Goodwill Industries, United Way); veterans' associations; not-for-profit schools; and public park and recreational facilities. If a gift was $250 or more, you must have a receipt from the recipient. Gifts of property are reported on line 16. Here you count the value of the used clothing, household goods or vehicles that you donated. Keep itemized lists of what you've donated and its fair market value -- the price at which the property would change hands between a willing buyer and a willing seller -- for your own records. Do not include these lists with your return. However, if the amount of any single noncash contribution is greater than $500, you also must complete and attach Form 8283, Noncash Charitable Contributions. And if your deduction is more than $5,000, the IRS may require you to get appraisals of the donated property. You also can deduct your travel costs to do charitable work, as well as out-of-pocket expenses related to a charitable endeavor, such as stamps for a group's mailing. These amounts would be included on line 16. But if your philanthropic efforts and gifts are motivated primarily by potential tax deductions, be aware that the IRS does set some limits here. Annual cash contributions can't exceed 50 percent of your adjusted gross income. Annual gifts of property -- such as stocks, bonds and artwork -- can't exceed 30 percent of your AGI. If you give more than those limits, you can carry over the amount that you're unable to deduct. You have five years to deduct it on future tax returns. If you have a carryover from last tax year, enter the allowable amount (again, within the percentage guidelines) on line 17. Add lines 15 through 17. This amount represents your deductible gifts to charity and goes on line 18. Casualty and theft losses There is never anything good when you're the victim of a casualty or theft. The IRS understands that, and allows you to recover some of your losses on your taxes. Most taxpayers think they can deduct casualty losses only if they suffer catastrophic damages. It's true that victims here get special tax options. But you don't have to live through a fire, flood, hurricane, tornado or earthquake to file a casualty deduction. Losses from theft and vandalism are eligible losses, as are any damages from an automobile accident as long as it wasn't the result of driver negligence. You don't, however, get to deduct the full amout of your unexpected loss. You'll have to complete Form 4684 to determine how much you can enter on line 19. Job and miscellaneous expenses The next portion of Schedule A lets you take into account money you spent in connection with your job, as well as a variety of miscellaneous expenses. This catchall section, however, has a threshold you must meet before these expenses can be deducted. The total here must exceed 2 percent of your AGI. For our taxpayer making $40,000 that would mean these costs must go over $800 before they can be deducted. On line 20, enter the total of all your job-related expenses for which you weren't reimbursed. Since you've got a percentage target you must meet, be thorough here. Some of the items you can count are professional memberships and journal subscriptions, uniforms you buy and the cost of keeping them clean, as well as expenses of looking for another job in the same field. You also might have to file and attach Form 2106, Employee Business Expenses, especially if you claim any travel, transportation, meal or entertainment expenses. Even the IRS realizes how complicated tax filing can be, so it allows you to count what you paid a tax preparer or adviser as a miscellaneous deduction. You can also deduct the cost of tax-preparation software programs and any fee you paid for electronic filing. These amounts go on line 21. Line 22 is for other expenses, such as charges you incur in managing your investments. This includes custodial and trust administration fees, accounting charges, safe deposit box rentals if you keep investment-related material in it, subscriptions to financial publications and any fees reported in box 5 of a Form 1099-DIV. List the type and amount of each expense on the dotted lines next to line 22. If you need more space, attach a separate sheet with the details. Add your work-related and miscellaneous expenses shown on lines 20 through 22 and enter the total on line 23. Now you must calculate if you have enough to deduct. On line 24 enter your AGI from line 35 of your 1040 form. Multiply that income by 2 percent (.02) and enter the result on line 25. This is the threshold your expenses must exceed. Subtract this line 25 percentage from line 23's expenses total and enter the difference on line 26. This is your allowable deduction amount. If your threshold amount is larger than your total expenses here, you don't get to deduct any of them. Enter zero on line 26. Other miscellaneous deductions The expenses you detailed on the lines above were limited by your income. But the IRS removes that restriction on expenses in seven specific areas. One of the most common deductions listed here by individual taxpayers is gambling losses. Enter your gambling losses on line 27. Remember, however, that while your gambling losses aren't restricted by a percentage of your income, they are limited by your good luck. You can only deduct those losses up to how much you won. That is, if you won $1,000 and had losses of $1,700 you can only deduct $1,000. And don't forget to include your winnings on line 21 of your 1040. Other miscellaneous deductions allowed on line 27 are casualty and theft losses from income-producing property, federal estate tax on some inherited income, amortizable bond premium on some bonds, deduction for repayment of amounts under a claim of right, certain unrecovered investment in a pension and impairment-related work expenses of a disabled person. For more details, see IRS Publication 529, Miscellaneous Deductions. List the type and amount of each expense on the dotted lines next to line 27. Again, if you need more space, attach a separate statement. Total itemized deductions Now you get to see just how much your Schedule A entries can help you cut your taxes. Add the amounts on lines 4 (medical), 9 (taxes), 14 (interest), 18 (charity), 19 (casualty and theft), 26 (job and most miscellaneous) and 27 (other miscellaneous) and enter the total on line 28. But write the amount in pencil. The IRS takes one last shot at limiting your total deduction amount based on your income. That means you might have to make some changes to your itemized total depending on how you answer the boxes under line 28. If your AGI is less than $139,500 and you file as single, married filing jointly, qualifying widow or widower or head of household, your amount is safe. (The income limit is $69,750 for married filing separately taxpayers.) Check the "No" box, write your total deduction amount in pen on line 28 and also enter it on line 38 of your 1040. But if you check the "Yes" box, you'll have to use the worksheet on page A-6 of the instructions for Schedule A. There, you're done. It took a while, but now you can check the numbers. If the itemized deduction amount is more than your standard deduction, your tax bill should be lower.

2011 Tax Season

2011 Tax Season
Tax season is upon us, and I am sending out this notification reminding prior clients & informing new clients of my expertise in preparing tax returns. With over 7 years in the field, I can comfortably tout my experience, having been employed by various financial institutions including tax specialists; H & R Block and Back Bay Tax & Accounting.

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General tax returns, Fed & State E-filed, start at $50.00 and depending on the complexity of the return could impact the price. In light of the challenging economic times I also offer special pricing available for referrals, returning clients, students & seniors.


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Please contact me with any questions


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