What's New for your 2010 Income Tax Return

Due Date
Even though April 15 falls on a Friday this year, the deadline for your 2010 Form 1040 is Monday April 18. Emancipation Day is a District of Columbia holiday that falls on April 15 so the tax filing deadline for the whole nation is deferred to April 18 . If your return won't be ready by then, you can extend the deadline all the way out to October 17 by filing Form 4868 on or before April 18.

Personal exemption: $3,650 ($3,800 in 2012, $3,700 in 2011)

Standard deduction:
MFJ/QW $11,400 ($11,900 in 2012, $11,600 in 2011)
HH $8,400 ($8,700 in 2012, $8,500 in 2011, $8,350 in 2009)
Single / MFS $5,700 ($5,950 in 2012, $5,800 in 2011)

Maximum Earned Income Credit
$5,666 if 3 or more qualifying children ($5,891 in 2012, $5,751 in 2011, $5,657 in 2009)
$5,036 if 2 qualifying children (from $5,028 in 2009)
$3,050 if 1 qualifying child (from $3,043 in 2009)
$457 if no qualifying child (same)

Income Limits for Earned Income Credit

• Three or more qualifying children and earn less than $43,352 ($48,362 if MFJ)
• Two qualifying children and earn less than $40,363 ($45,373 if MFJ)
• One qualifying child and earn less than $35,535 ($40,545 if MFJ)
• No qualifying child and earn less than $13,460 ($18,470 if MFJ)

Wages Limit
The maximum amount of wages subject to social security tax is $106,800 (same as 2009).

2010 Limits for Retirement Plans

401(k) Plans
Elective deferral limit is $16,500 (same as 2009)
If age 50 or older on December 31, 2010, the limit is $22,000 (same as 2009)

IRA Contribution and Deduction Limit
Contribution limit for a traditional IRA and Roth IRA remains the lesser of $5,000 or taxable compensation.
If the taxpayer is 50 years of age or older the limit remains the lesser of $6,000 or taxable compensation.

Modified AGI Limit for Traditional IRAs
If a taxpayer is covered by a retirement plan at work, the deduction will be phased out if the modified AGI is between:

• $89,000 - $109,000 for Married Filing Joint (MFJ) or Qualifying Widower (QW) - same as 2009
• $56,000 - $66,000 for Single or Head of Household (HH) or Married Filing Separately and did not live with spouse at any time during the year - $55,000 to $65,000 in 2009
• $0 - $10,000 for Married Filing Separately (MFS) who lived with spouse at any time during 2010

Modified AGI Limit for Traditional IRAs
The limit for the spouse of a covered employee is:

• $167,000 - $177,000 for MFJ (up from $166,000 - $176,000)
• $0 - $10,000 for MFS (same as 2009)

Roth IRA Contribution Limits
The Roth phase out range increases to:

• $167,000 - $177,000 (up from $166,000 - $176,000) for MFJ & QW
• $105,000 - $120,000 (same) for single, HH and MFS not living with spouse during the year
• $0 - $10,000 (same) for MFS who lived with spouse at any time during 2010

Four days left to make your IRA Charitable Rollover

When President Obama made official on December 17, 2010, the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010, he reinstated the Individual Retirement Account (IRA) Charitable Rollover through 2011. This allows individuals aged 70 ½ and over to donate funds up to $100,000 from their IRAs to public charities without being mandated to report it as taxable income.

The new law has a special rule for 2010, taxpayers can make retroactive IRA charitable donations in January 2011 and have them count toward 2010. Only four days remaining to make this donation.

To qualify:

• You must be at least 70 ½ years old.
• You must be subject to Required Minimum Distribution from your IRA.
• Money is transferred directly from your traditional IRA to approved charities. Rollovers from 403(b) plans, 401(k) plans, pension plans, and other retirement plans do not qualify.
• Annual donations cannot exceed more than $100,000 per individual. Amounts more than $100,000 will be added to taxable income.
• The rollover for 2010 must be completed before January 31, 2011. The rollover for 2011 must be completed between January 1, 2011 and December 31, 2011.

Who could benefit?

2010 Ohio Individual Income Tax Rates

The following rate table applies to the 2010 tax year.

Ohio Taxable  Income	Tax Calculation
0 – $5,050	0.618% of Ohio taxable income
$5,050 – $10,100	$31.21 + 1.236% of excess of $5,050
$10,100 – $15,150	$93.63 + 2.473% of excess over $10,100
$15,150 – $20,200	$218.52 + 3.091% of excess over $15,150
$20,200 – $40,350	$374.62 + 3.708% of excess over $20,200
$40,350 – $80,700	$1,121.78 + 4.327% of excess over $40,350
$80,700 – $100,900	$2,867.72 + 4.945% of excess over $80,700
$100,900 – $201,800	$3,866.61 + 5.741% of excess over $100,900
More than $201,800	$9,659.28 + 6.24% of excess over $201,800

Where to File Paper Tax Returns

Tax Professionals - Where to File Individual Returns for Your Clients
Addresses by state for Forms 1040, 1040A, 1040EZ, 1040ES, 1040V, amended returns, and extensions (also addresses for taxpayers in foreign countries, U.S. possessions, or with other international filing characteristics)

Individual Taxpayers - Where to File Your Own Individual Return
Addresses by state for Forms 1040, 1040A, 1040EZ, 1040ES, 1040V, amended returns, and extensions (also addresses for taxpayers in foreign countries, U.S. possessions, or with other international filing characteristics)

Where to File - All Types of Tax Returns (By Form Number)
Mailing addresses for all types of returns: individual, corporation, partnership, and many others (search for address based on form number)

Out in the Cold

Congratulations to our Liberty Tax waver Randy Cato for making the local news. Those eight-foot Liberty costumes can be pretty warm on days like today.

Are you eligible for Earned Income Credit?

Earned Income Credit (EIC) is a tax credit for taxpayers who work and have earned income less than the following limits:

• Three or more qualifying children: $43,352 ($48,362 if MFJ)
• Two qualifying children: $40,363 ($45,373 if MFJ)
• One qualifying child: $35,535 ($40,545 if MFJ)
• No qualifying children: $13,460 ($18,470 if MFJ)

A qualifying child under Earned Income Credit must meet the following requirements.

• Relationship – must be a son, daughter, stepchild, foster child or descendant of any of them.
  Note: child does not have to be your dependent
• Residency – child must live with you in the United States for more than half the year. Special circumstances such as school and business do not count against this requirement.
• Age – must be either (1) under age 19 years old at the end of the year; (2) under age 24 and a full-time student; or (3) totally and permanently disabled at any time during the year.

What to bring to your tax interview

Make sure you bring the following items to your interview:

Personal Information for each family member:

• Date of Birth
• Social Security Card (SSN) or Individual Tax ID Number (ITIN) card
• Last Year's Tax Return
• Valid Driver's License or State ID
• Proof of Bank routing and account numbers for Direct Deposit any refunds

Income and Tax Information

• W-2's
• Interest (1099-INT or substitute)
• Dividend Slips (1099-DIV or substitute)
• Stock Sales (1099-B or Broker Statement) - don't forget to bring the receipt detailing what you paid for the stock.
• Self-Employment Income and Expenses

Can I deduct my medicare premiums?

Generally, medical insurance premiums including certain Medicare premiums are deductible on your Federal Income Tax if you are itemizing your deductions using Schedule A, Form 1040.

There is a limitation placed on deductible medical expenses. You can only deduct the amount of your qualified medical expenses that exceeds 7.5% of your adjusted gross income for the year.

Here is an example. You have an adjusted gross income for the year of $47,000, 7.5% of that is $3525. If you have $4000 of qualified medical expenses, $475 of that amount would be the medical expense deduction.

IRS Publication 502 is the publication that covers the rules about medical and dental expense deductions.

Here is what it has to say about Medicare Premiums:

Tax filing deadline extended to April 18

The IRS extended the 2010 federal income tax filing deadline to April 18, 2011 because Emancipation Day, a District of Columbia holiday, falls on Friday, April 15. Taxpayers requesting an extension have until Oct. 17 to file their 2010 tax returns.

Get organized

The sooner you get organized, the sooner you may receive your refund. Take time today to gather all of your receipts, credit card and bank statements and anything you have spent money out of pocket. Put these documents in a folder or box so you can keep track for tax purposes. You can organize your files in the following categories:

• Income – pay stubs, bank and investment statements
• Medical – expenses and out of pocket premiums
• Donations – cash and non-cash
• Real Estate – Mortgage statements, property tax payments, settlement statement if you're a first-time home buyer in 2010 and have not yet claimed the credit.
  
• Child Care – receipts, provider's address and EIN
• Tax Correspondences – Ohio and Local Estimated statements
• Student Loans – tracks loan interest
• Payments – receipts for tax deductions
• Mileage Log - needed if you use your personal vehicle for work

During January you will receive the following documents in the mail and you'll be able to file these into their respective categories:

• W-2's
• 1099's
• Mortgage interest statements
• Bank interest statements
• Real estate tax statements
• Investment statements
• Receipts for charitable donations

Taking time now will have it easier to prepare this year's return. Here are the IRS record keeping guidelines.

Today is the first day to e-file

The Internal Revenue Service will begin accepting 2010 electronically filed tax returns today. Taxpayers who wish to apply for Refund Anticipation Loans can receive a check as early as Monday January 17.

If you're ready to make an appointment, make sure you bring the following items to your interview:

• Valid photo ID
• Social Security Number (SSN) or Individual Tax ID Number (ITIN) cards for everyone shown on the tax return including dependents.
• Birth dates of all dependents
• Bank information to Direct Deposit any refunds
• Any tax-related papers: W-2's, 1099's, mortgage interest statements (Form 1098), bank interest statements, real estate tax statements, investment statements, and receipts for charitable donations and child care
  

How to file your taxes while a divorce is pending

You can either file with your spouse (Married Filing Joint) or by yourself (Married Filing Separate).

If a married taxpayer is not filing with their spouse, then the following requirements must be met in order to be considered unmarried and qualify for Head of Household filing status:

1. Taxpayer paid over half the cost of keeping up the home
2. Taxpayer's spouse did not live in the house at any time during the last six months of the tax year
3. Taxpayer's home must be the main home for more than six months of the taxpayer's dependent child (includes children whom the taxpayer signed a Form 8332 allowing the noncustodial parent to claim the exemption). Note: the only persons who qualify are a child, stepchild, or eligible foster child.

Got married in 2010, here's how to file your taxes

Filing status determines your standard deduction and tax rate. It depends on your marital status.

The IRS defines marriage as a legal union between a man and a woman as husband and wife. You are considered married for the whole year if you are married on the last day of the tax year.

State law governs whether you are married or legally separated under a divorce or separate maintenance decree. If you are divorced by the last day of the year, you are considered unmarried for the whole year.

If your spouse died during the year, you are considered married for the whole year.

Married couples can either file jointly (MFJ) or separately (MFS). You should figure your tax liability both ways and choose the filing status that has the lowest tax. Filing together or separately on the Form 1040 means you need to use the same filing status on the Ohio return (does not matter on a local tax return). Many tax benefits on the Form 1040 are not available for MFS.

You can change your filing status between MFJ and MFS from year to year. On Form 1040X, you can also amend your tax return and change your filing status from MFS to MFJ within three years of the original due date of the returns. If you file MFJ, once the original due date of the return passes, you can not amend and change to MFS.

Debt relief = Taxable Income

Have you negotiated with a creditor to pay less than you owe on a debt such as a credit card? The IRS considers forgiven or canceled debt as taxable income.

You hear the commercials all the time: Companies that negotiate on behalf of consumers with debt collectors to pay off a portion of their outstanding debts. Several months later, these consumers receive a Form 1099-C. Creditors who accept at least $600 less than the original balance are required by law to issue this form to the debtor and the IRS.

If you're negotiating with a collector to settle a debt, clarify if a Form 1099-C will be issued and the exact amount that will be reported to the IRS. Make sure you bring the Form 1099-C along with W-2s and other forms when you visit your tax preparer. If the 1099-C is incorrect, contact the debt collector immediately and ask for a corrected 1099-C form.

In most cases, Form 1099-C is reported on line 21 of the Form 1040 long form and is included as ordinary income.

So what did happen to my Capital Gains Tax Cuts?

Investors who enjoyed a huge increase in their portfolio in 2010 will see some relief at income tax time.

Due to the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 that became law on December 17, 2010, several of the Bush era tax cuts were extended two more years including the Capital Gains Tax cuts.

For tax years 2010-2012 the rate on capital gains is 0% on capital gains if you find yourself in the 10% or 15% tax bracket. This will allow you sell assets for a profit tax-free. Your 2010 taxable income – gross income minus exemptions and deductions – can't exceed $34,000 for individuals or $68,000 for married couples filing jointly.

If your taxable income is above these amounts, your capital gains tax rate is 15%. The tax rate is figured after including the capital gains in your income. The tax rate on capital gains and the tax rate on other ordinary income is figured separately.

H&R Block loses Refund Anticipation Loans

America's biggest tax preparation firm will no longer offer refund anticipation loans (RALs) to their clients forcing millions of customers elsewhere or having to wait longer to receive their federal income tax refund.

H&R Block's banking partner, HSBC, was told to quit underwriting these controversial loans by the Office of the Comptroller of the Currency.

RALs are short-term loans backed by the taxpayer’s expected refund. Typically low-income customers who file their taxes early in the season apply for the loans. RALs have been controversial for several years due to their huge bank fees, financing fees and sometimes triple-digit interest rates.

Bank lenders have been exiting the RAL business in recent years due to the credit crisis and a change by the Internal Revenue Service eliminating a code that lets tax preparers know if customers will receive their entire refund or if the dollars will be used to pay down back taxes or unpaid child support.

Taxpayers who elect not to apply for RALs can still receive their full refund directly from the IRS via direct deposit in as little as eight days.

The announcement is another blow to Block's reputation which in the last couple of years has seen:

• H&R Block overstated their own earnings in 2003 & 2004 by $91 million
• Sued by New York state for deceptive marketing of its Express IRA retirement accounts
• Mailing free copies of its software to its customers … with their social security number on the package
• Two preparers filing fraudulent tax returns and stealing more than $100,000 from its clients

H&R Block will still offer refund anticipation checks (RAC) which is the taxpayer's actual disbursed refund which is loaded onto a payment card after the IRS processes the taxpayer's return.