Tax Relief Act of 2010 Will Delay Some Filings
By Rafique S. M. Ahmed
The IRS has announced a delay in the start of tax season for some individual taxpayers as a result of the last minute bipartisan tax agreement (Tax Relief Act of 2010) which was signed into law just before the year-end without giving the IRS enough time to make necessary changes to their computer programming. The delay affects taxpayers who itemize deductions, claim tuition and fees deduction, or claim educator expense deduction. A few other taxpayers will also have to wait to file due to recent changes included in the Small Business Jobs Act of 2010.
“The majority of taxpayers will be able to fill out their tax returns and file them as they normally do,” IRS Commissioner Doug Shulman said. “We will do everything we can to minimize the impact of recent tax law changes on other taxpayers. The IRS will work through the holidays and into the new year to get our systems reprogrammed and ensure taxpayers have a smooth tax season.”
The delay affects both paper-filed and e-file returns. The IRS is anticipating delay until mid-to late February, 2011 and asking tax preparers not to e-file all affected tax returns prior to the IRS prescribed start date. Returns submitted on paper will be “shelved” and processed after the start date.
The following are the significant changes that may affect your 2010 tax returns:
• First-time home buyer credit of $8,000 extended through April 30, 2010 with a price limit of $800,000. No credit is available if the purchase price of the property exceeds $800,000 or the property is purchased after April 30, 2010.
• 50% bonus depreciation in addition to the regular depreciation on business property in the first year extended until December 31, 2010.
• The Making Work Pay credit up to a maximum of $400 for single filers and $800 for married filing jointly is available through the end of 2010.
• Start-up expense deduction for the first year of a new business increased from $5,000 to $10,000 and is limited to a phase-out threshold of $60,000. Any amount in excess of $60,000 will be subtracted from $10,000.
• In order to spur the economy, the maximum Section 179 expense deduction has doubled from $250,000 to $500,000 for years 2010 and 2011. The limit of new equipment purchases increased from $800,000 to $2 million. In addition to new equipment purchases, the new definition of “qualifying property” also includes qualified real property consisting of qualified leasehold improvement property, qualified restaurant property and qualified retail improvement property.
• The high income phase-outs for itemized deductions and personal exemptions have been eliminated for 2010 but are scheduled to resume in 2011.
• Credit for energy-saving home improvements increased to 30% and is applicable to insulation, skylights, central air conditioners, biomass fuel stoves, exterior windows, exterior doors, natural gas, oil or propane furnaces and certain metal roofs.
• American Opportunity Credit provides undergraduates a dollar for dollar reduction of taxes, up to $2,500 of the first $4,000 of qualifying educational expenses including tuition, books, supplies and equipment needed for a course. The credit can be used for all four college years and is refundable up to $1,000. The credit is phased out if modified adjusted gross income exceeds $80,000 for single filers or $160,000 for married couples filing jointly.
• You can now deduct credit card fees for tax payments as a Miscellaneous Itemized Deduction on Schedule A.
• Individuals can convert a traditional IRA to a Roth IRA and will not be subject to the 10% early withdrawal penalty. However, income recognized from the conversion will be taxable and can be averaged over two years.
• Self-employed individuals may deduct the cost of health insurance premiums paid for the taxpayer and his or her immediate family as an expense when computing self-employment taxes.
• Employers are offered a new incentive to hire new employees by combining forgiveness for employer paid Social Security taxes together with an additional tax credit if the new employee stays on the payroll for at least 52 weeks.
• The tax rate on capital gains and dividends stays the same at zero for 2010. In order to qualify for the zero rate, taxpayer must have owned the assets over a year and be in the 10% or 15% tax brackets.
• The Treasury Department is encouraging taxpayers with anticipated refund to purchase U.S. Series I Savings Bonds and is also offering a new option of “direct deposit” for this purpose. Since U.S. Series I Bonds are purchased in multiple of $50, any remaining excess of refund will have to be deposited in your designated bank account.
• Personal casualty and theft loss limit decreased from $500 to $100. This is in addition to the 10% of Adjusted Gross Income limit that generally applies to the net loss.
• If you claimed the first-time homebuyer credit for a home you purchased in 2008, you must begin repaying the credit on your 2010 tax returns.
• The maximum Adjusted Gross Income you can have and still get the Earned Income Credit has increased. The Earned Income Credit amounts have also increased for 2010.
• The maximum investment income taxpayers have and still get the Earned Income Credit is still $3,100 for 2010.
• Standard deduction for certain taxpayers has increased.
• The amount you can deduct for each personal exemption for 2010 is the same like 2009.
• The maximum amount of wages subject to the Social Security tax and Medicare tax remains unchanged from 2009.
• The standard mileage rates for business use and medical or move-related use of your vehicle have decreased for 2010. The standard rate for charitable use remains the same like 2009.
• Foreign Earned Income exclusion increased to $91,500 for 2010.
• The IRS will start accepting electronic filing of 2010 tax returns from January 14, 2011.
(Rafique S.M. Ahmed is a professional Tax Accountant and has been providing accounting and tax services in California for more than thirty-five years. He is also an Authorized IRS Electronic Filing Provider, located at 1109 Via Verde, San Dimas, California 91773 and can be reached at (909) 599-1412 or 1414.)