Tidbits For The Very Taxing Tax Season

Tuesday Tips is a series of articles from local experts to help you save money, make better decisions and plan for a better future. Quite frankly, we forgot to run it this week. So now you get Thursday Tips. Hurray!

Think you know everything you need to know about taxes to get yours done? Good for you! But, if you’re not some know-it-all, we’ve put together this list of things you should definitely know as we plod into tax season. Even if you’re handing off your records to an accountant, you should be aware of all the information below so you ensure everything’s in order.

Due Date of Your Tax Return

: The Emancipation Day holiday in the District of Columbia has emancipated the entire country by extending the due date of your tax return from April 15 to April 18.

Limits on Personal Exemptions and Overall Itemized Deductions

: If you have had part of your personal exemption and itemized deductions shaved over the past several years, you’ll be happy to learn that this provision has now expired, and you can utilize all of these benefits.

First-Time Homebuyer Credit

: The credit cannot be claimed for a home bought after 4/30/10 unless you entered into a written and binding contract before 5/1/10 to buy the home before 7/1/10, and actually purchased the home before 10/1/10.

Standard Mileage Rates

: The 2010 Standard Mileage Rates for operating your car are: for Business, $.50/mile; for Medical or Moving, $.165/mile; for Charity, $.14/mile.

Personal Casualty and Theft Loss Limit

: For 2010 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). Remaining, however, is the deductible of 10% of your Adjusted Gross Income to the net loss.

Divorced or Separated Parents

: A custodial parent who has revoked their previous release of a claim to a child’s exemption must include a copy of the revocation with their tax return.

Expired Tax Benefits

(and therefore not available for 2010):

o    Increased standard deduction for real estate taxes (sorry seniors),

o    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),

o    The exclusion from income of up to $2,400 in unemployment compensation.

Extended Tax Benefits & Changes

o    Deduction of State and Local Sales Tax Deduction on schedule A. (NY State change: Not allowed.)

o    Higher Education Tuition and Fees Deduction

o    Educator Expenses

o    Maximum number of children for EITC is 3 with the maximum income increasing to $49,078

o    The American Opportunity Tax credit – a partially refundable credit worth up to $2,500 per student per year.

Preparer E-File Mandate

: Most paid preparers must now e-file your return, and at no additional charge. (For NY State, you may still opt out of e-filing, but the preparer may charge you $25 for this option.)

Flexible Spending Accounts

: As of January 1, the cost of an over-the-counter medicine or drug cannot be reimbursed from Flexible Spending Arrangements or health reimbursement arrangements unless a prescription is obtained. The change does not affect insulin, even if purchased without a prescription, or other health care expenses such as medical devices, eye glasses, contact lenses, co-pays and deductibles. The new standard applies only to purchases made on or after January 1, so claims for medicines or drugs purchased without a prescription in 2010 can still be reimbursed in 2011, if allowed by the employer’s plan.

Economic Recovery Payment

: Any Economic Recovery Payment ($250) you received in 2010 is not taxable.

First Time Home Buyer’s Credit Payback

: Oh, and one more thing – it’s payback time for the worst tax credit/loan ever. For those of you who bought your homes between April 8, 2008 and December 31,2008 and took advantage of the refundable credit of 10% of the purchase price up to a maximum of $7,500, this is the first year (of 15) of the repayment. If you claimed the full credit of $7,500, you will have to add a $500 repayment to this year’s return. And if you sell your house, or stop using it as your personal residence, the full amount of remaining credit has to be paid (with exceptions, of course). (If you change tax preparers, don’t forget to inform them.)

The other First Time Home Buyer’s Credit Payback:

Oh, and one one more thing – if you took advantage of any of the ‘First Time Home Buyer’ credits, including the $8,000 and $6,500 credits, these must be repaid if the residence ceases to be your principal residence during the first 36 months (except for death of the taxpayer, or divorce settlement, to name two.)

This list does not cover everything; just the main points you definitely need to be aware of this tax season.

Joseph Reisman, of Joseph S. Reisman & Associates, has been serving tax prep and business accounting expertise from his Coney Island Avenue office for more than 25 years. Check out the firm’s website.