Tax Tips
Tax Breaks: Something Old, Something New
You’ll find lots of familiar deductions and credits when you prepare your 2010 tax return. But some popular tax breaks have disappeared.
By Mary Beth Franklin, Senior Editor, Kiplinger's Personal Finance
February 11, 2011
- Comments
- Email This Article
- Print This Article
- Order a Reprint
Advertisement
Last year was a busy one for tax-law changes. Several pieces of legislation were passed that affect the 2010 income-tax returns that individuals and small businesses will file this spring.
Sign up for Tax Tips in your e-mail throughout the filing season
The flurry of legislative activity included new laws governing job creation, health-care reform, small businesses and assistance for home buyers -- and each of the laws included changes in tax rules. The busy year culminated with the passage in late December of the Tax Relief Act, which extended the Bush-era tax rates on income and investments through 2012.
The last-minute tax bill also raised the exemption level for the alternative minimum tax, protecting about 20 million middle-income taxpayers from being snagged by a stealth tax that disallows most deductions you are able to claim under regular tax rules. It also increased exemption levels for the federal estate tax, allowing married couples to shield up to $10 million of assets from what critics call the death tax.
December’s major tax-law passage also extended some popular tax breaks for 2010, including:
•allowing taxpayers to choose between deducting state income taxes and deducting state and local sales taxes on their federal returns;
•a deduction of up to $4,000 for college fees and tuition, whether or not you itemize (although this deduction is less valuable than the American Opportunity Tax Credit, it can help taxpayers such as graduate students, who don’t qualify for that credit because it’s limited to the first four years of college);
•a deduction for teachers’ classroom expenses up to $250, whether or not you itemize; and
•allowing taxpayers who are age 70 1/2 or older to make contributions of up to $100,000 from an IRA directly to a charity.
But some popular tax breaks did not make the cut. For example, homeowners who pay property taxes but who don’t itemize their deductions -- often the case with retirees who have paid off their mortgage -- will not be able to claim an additional standard deduction of up to $1,000 for married couples or $500 for individuals, as they did on their 2009 returns.
The one-time ability to write-off state and local sales taxes or fees on the purchase of a new vehicle is also history. (However, if you itemize, you can choose to deduct all of your state sales taxes if that would result in a bigger write-off than your state income taxes or if you live in a state that does not impose an income tax).
And the unemployed will have to pay federal income taxes on all of the jobless benefits they received in 2010. The exclusion of up to $2,400 of unemployment benefits that was permitted in 2009 was not extended for 2010.
First-time home buyers who took advantage of the initial credit that was available in 2008 will have to start repaying what was essentially an interest-free loan. For those who claimed the maximum credit of $7,500 in 2008, their first repayment of $500 is due with their 2010 return. Home buyers who took advantage of the revised credit in 2009 and 2010 do not have to repay it.
High-income taxpayers get a big break on their 2010 return: There’s no limit on the itemized deductions or personal-exemption amounts they can claim to reduce their taxable income. Over the past 20 years, the wealthiest Americans have had to forfeit some or all of their personal exemptions, and up to 80% of their itemized deductions, when their income topped certain thresholds. But for 2010 -- and through 2012 -- top earners can enjoy the full benefit of their itemized deductions and personal exemptions, worth $3,650 for each taxpayer, spouse and dependent.
And if you converted some or all of your traditional IRA to a Roth IRA in 2010, it’s time to decide when to pay the tax: all at once when you file your 2010 tax return, or half on your 2011 tax return and the balance on your 2012 return. Now that Congress has extended current income-tax rates through 2012, you can easily estimate how much your conversion will cost under each scenario.
- Comments
- RSS
Permission to post your comment is assumed when you submit it. The name you provide will be used to identify your post, and NOT your e-mail address. We reserve the right to excerpt or edit any posted comments for clarity, appropriateness, civility, and relevance to the topic.
View our full privacy policy
Reader Comments (36)
Posted by: cheryl byrd at 01/21/2010 09:41:06 AM
We bought an energy star front loader washing machine in Jan.2010. Can we claim a tax credit on our 2010 taxes that we file in 2011? Thank-you, Cheryl
Posted by: danielamartin at 01/21/2010 09:59:01 AM
Tax breaks are great in any form, but even though the Democrats' socialist leanings and anti-business thinking have been bludgeoned by their loss in Massachusetts, they will continue to opt for small, meaningless tax cuts that will do little to spur recovery, while co0ntinuing to spend money we don't have like drunken sailors. Their Progressive demagogues need to abandon thoughts of redistributing wealth and wake up to the fact that unless policy is set to make business profitable, there will be nothing to trickle down and unemployment will stay high or rise. You simply can't spend your way out of debt, be you a person or a nation.
Posted by: Joseph Rizzi at 01/21/2010 03:11:59 PM
PLEASE TELL US 85 YEAR OLD RENTERS WHAT TAX BREAKS ARE THERE FOR US?
Posted by: Anthony at 01/21/2010 04:25:34 PM
If you bought a new car, light truck, motorcycle or motor home on or after February 16, 2009, through the end of the year, you may be able to deduct the state or local sales tax or excise tax you paid on the vehicle on your 2009 tax return. accord\ing to the IRS it must be AFTER FEB 16TH, Not ON the 16th of Feb. Am I wrong?
Posted by: Ray at 01/21/2010 05:11:59 PM
I made a withdrawal fom my IRA in 2009. I am not 591/2 yet so I understand the 10% penalty. I paid this as part of a divorce settlement. Do both parties pay income tax on the amount withdrawn?
Posted by: sweetie at 01/21/2010 08:21:50 PM
...danielamartin, this has nothing to do with politics.
Posted by: Bruce Stanley at 01/22/2010 02:01:12 AM
Assembly Lines: Tax Returns should be given to the majority. They are the biggest spenders out here. Laborers. If they would have done this last year, we would have been much more balanced. But, noooooooooooooooo, it did not go to the majority of tax payers. The emergency bailout went to some other program. So, the people worry. 200,000,000 million people worrying.
Posted by: Verlene at 01/22/2010 01:52:40 PM
I rent an apartment, is a portion of my rent deductible?
Posted by: Ray at 01/23/2010 12:22:20 AM
Can you deduct expenses on food,clothing and other items you bought during the year as long as you have the receipts for these items?
Posted by: Elizabeth at 01/23/2010 07:23:37 PM
Can you claim the rent you have paid in 2009?
Posted by: Globie359 at 01/25/2010 09:11:19 AM
Gotta love the Dems...... As long as you spend what you don't have (car or house) you get a tax break. As long as you are sitting at home you get a tax break. If you have college age kids you get a tax break. But if you work hard, save what you can instead of buying a car or house you cannot afford, have young kids, and take a job instead of waiting for the union job, then you are "rich" and...out of luck.....
Posted by: Susan at 01/25/2010 09:46:07 AM
I retired December 1, 2009 at age 62. I then moved from Kansas City to Nebraska because of the death of my son-in-law in 2009 to help my daughter. I took $4000 of my 401K and bought a home for $7000 in Nebraska in 2009. Making payments on the house to private owner on the remaining balance in Nebraska at 10% interest. Lost my home by forclosure in Kansas City in 2007 so have not owned property since 2007. Can I take any of the moving expenses or money to purchase home off on my 2009 income tax?
Posted by: Chris B. at 01/25/2010 10:36:22 AM
I am happy for those who are going to get a tax refund, but for those of us who are retired and have lost so much of their savings, aren't buying houses, are too old for college, didn't have babies or buy a car, there isn't much relief.
Posted by: Sharon at 01/25/2010 10:37:05 AM
Wonderful to see all these tax breaks. How about having some for us SINGLE WORKING AMERICANS who are unable to afford to buy a car or put money into their home because we live almost pay check to pay check. If you don't have a home or children we are always giving more than anyone else. I can't aford to buy food most of the time I work and decerive a break. How about taxing social security disability? I know way too many people on it that can work.
Posted by: jean beld at 01/25/2010 11:04:55 AM
I am a widow and am disabled, I pay rent for the house I live in. Is there any tax breaks for me?
Posted by: vermonter at 01/25/2010 11:10:11 AM
I think these tax breaks are wonderful for the people that qualified. But they do not include many US citizens. the only tax break that could help anyone in need is the unemployment tax break. Talking, from experience, our family does not qualify for any of these as many others who just had hours cut, no pay raise or many other low income to fixed income people the Headline is MISleading! Perhaps the headline should read "Tax breaks for those who can afford to, buy a new home, new car, go to college or make energy saving repairs to your home, and yes ONE CREDIT for the layed off." We all need to speak the way it is and take off those rose colored glasses.
Posted by: audrae at 01/25/2010 03:27:14 PM
Although this article makes this year's tax season look all shiny and happy, the reality for most middle class families, is that they will receive a reduced refund. I did not buy a home, an energy star appliance, pay for college, etc. I had an average year with a little less income than last year, and a tax refund that is about $1500 less than last year. Why you ask? Because of Obama's stupid "make work pay" tax credit. Although I brought home $30 more on my paycheck every 2 weeks, (that is $600) my tax refund is $1500 less. This is ridiculous and not at all what was promised.
Posted by: Peggy at 01/25/2010 07:45:26 PM
What about tax breaks for widows of 5 years, that have to claim single?
Posted by: Tom at 01/26/2010 05:20:13 PM
I think you're incorrect on the minimum required tuition/expenses. I dont believe there is a minimum tuition required to receive the credit. This isnt listed anywhere in the IRS code if it is so.
Posted by: Elinor at 01/26/2010 05:38:38 PM
Where are the tax breaks for those who do not pay for college, won't buy cars and houses we cannot afford, have to live on what we earn instead of running up huge debt on credit cards, haven't the means to buy alternative-energy products, and actually work for a living? We are the ones who most try to not depend on government handouts, so we get screwed by having to purchase all the above, through our taxes, for others.
Posted by: Mary Beth Franklin at 01/27/2010 09:26:19 AM
Anthony, hi, Mary Beth Franklin here, author of this article. You are correct. To qualify for the sales tax deduction on a new car, light truck, motorcycle or motor home, the purchase must be AFTER Feb 16, 2009, and before January 1, 2010. I apologize for the error. The article has been corrected.
Posted by: Mary Beth Franklin at 01/27/2010 09:27:46 AM
Verlene, hi, Mary Beth Franklin here. Alas, your rent is not a tax-deductible expense.
Posted by: Mary Beth Franklin at 01/27/2010 09:33:21 AM
Ray, hi, Mary Beth Franklin here, author of this article. While there is no specific deductions for food, clothing and other items you purchase during the year, you may be able to deduct the sales taxes on those itemize if you itemize your deductions. You can choose between deducting your state income taxes or state sales taxes. For most people, the income tax is the larger deduction. But if you live in a state with no income tax, then you'd choose the sales tax deduction. You can claim an estimated amount based on your state, income and family size as supplied by IRS tables or if you held on to all your receipts, you can add them up and claim whichever amount is larger. YOu can also add the sales tax for big-ticket items like cars, boats or building supplies to that amount. Hope this helps.
Posted by: Mary Beth Franklin at 01/27/2010 09:47:51 AM
To Susan, hi, this is Marty Beth Franklin, author of this article. You certainly have had a rough few years with the loss of your son-in-law and your home in Kansas City. Your 401(k) distribution will be subject to state and federal income taxes but there will be no early withdrawal penalty because you were older than 55 when you left your job. If you bought your new home after Nov. 6, 2009, you may qualify for a new tax credit for long-term homeowners who buy a new house after that date. The credit is worth 10% of the purchase price of the house, up to a maximum $6,500 credit. To prove you were a long-time homeowner, you must supply documentation showing you owned your home for at least five consecutive years out of the last eight years. You need to file Form 5405, Firs-time Homebuyer Credit, plus attach documentation that may include five years worth of 1098 mortgage interest statements or property tax records or proof of homeowner insurance. Because of the new documentation requirement for the homebuyer credit, you can't e-file your 2009 return. You must print it out and mail it to the IRS which could delay your refund for a few weeks.
Posted by: Mary Beth Franklin at 01/27/2010 09:58:12 AM
To Mr. Rizzi: Hi, this is Mary Beth Franklin, author of this article. Taxpayers who are 65 or older benefit from a larger standard deduction. For 2009, the standard deduction is $5,700 for individuals (up from $5,450 on 2008 returns) and $11,400 for married couples filing jointly (up from $10,900 in 2008). In addition, taxpayers 65 and older can claim an extra standard deduction of $1,100 each if married or $1,400 if single. Add the $3,650 per-person personal exemption and a married couple where both spouses are 65 or older don't even have to file a tax return unless their income exceeds $20,900. And, depending on your income, some or all of your Social Security benefits are exempt from income taxes.
Posted by: Mary Beth Franklin at 01/27/2010 10:09:32 AM
Tom, hi, Mary Beth Franklin here, author of this article. True, there is no required minimum payment of college tuition and related expenses to be eligible for the new American Opportunity Credit. My article refers to a simple math computation that explains how much you would have to spend to claim the MAXIMUM credit of $2,500 per student per year. The credit is applied to 100% of the first $2,000 of eligible expenses and 25% of expenses above $2,000. So as I stated in the article, to qualify for the maximum $2,500 credit, you would have to spend at least $4,000 in eligible expenses which include tuition and expenses, including books and other course materials, during the first four years of college. Hope this helps.
Posted by: Mary Beth Franklin at 01/27/2010 10:15:25 AM
Cheryl, hi, Mary Beth Franklin here. while your new energy star front loader washing machine may cut down on your utility bills, it doesn't qualify for a tax credit. However, homeowners who install energy-efficient home improvements such as new windows, doors, insulation, or home heating/air conditioning systems in 2009 and/or 2010 qualify for a tax credit of up to $1,500 over the two-year period.
Posted by: Mary Beth Franklin at 01/27/2010 10:28:25 AM
Ray, hi, Mary Beth Franklin here, author of this article. There are ways to avoid taxes on penalties on retirement plan distributions that are part of a divorce settlement, but you must have a Qualified Domestic Relations Order (QDRO) to permit a tax-free transfer from your retirement plan to the IRA or other retirement plan of your ex-spouse. Without this court-ordered document, you would be liable for taxes and early withdrawal penalties if you took distributions from your IRA, regardless of what you did with the money.
Posted by: TAMI GOODE at 01/28/2010 12:14:34 PM
CAN MY DAUGHTER CLAIM GAS RECEIPTS FOR DEDUCTION ON HER TAXES FOR COLLEGE COMMUTE?
Posted by: Mildred D. at 01/30/2010 03:39:48 AM
My parents are both unemployed and still supporting 3 kids with one unemployment check. They live with my sister and her own family. She is the one basically paying for everything. Should my parents file? or Should my sister claim the 3 kids?
Posted by: Linda at 02/02/2010 07:32:07 PM
How nice to get a tax credit!!! I can't afford a new car nor new windows that I desperately need. I'd love to continue my education, but can't afford that either. I haven't had a raise for three years, while everything I need continues to go up. As a primary classroom teacher I spend several thousand dollars each year on the items for my classroom. My students' parents are from the lowest economic group in the district, so they are of little help with basic school supplies. I could use some tax credit for supplying tissue, handsantizer, paper, and pencils.
Posted by: Jeannette Mettert at 02/11/2010 08:05:50 AM
would like to know about tax breaks for people on unemployment
Posted by: john at 03/02/2010 03:01:26 PM
can i take a property tax deduction if i do not itemize?
Posted by: Annoyed at 04/07/2010 01:16:33 PM
Making Work Pay Credit = anyone who had EARNED INCOME qualifies - either you got this throughout the year or in a lump sum at the end of the year - its a refundable credit; you have to factor this into your refund monies so if it looks short it wasnt you just got it earlier. ANYONE WHO HAS CHILDREN gets a Child Tax Credit and the Additional Child Tax Credit and the Child/Dependant Care Credit for children under 13yo (if you paid for child care). ANYONE WHO OWNS A HOME gets to claim their mortgage interest and taxes paid on the property. Etc etc These credits primarily work for the middle class yet all I see is a lot of bitchin from those who qualify for them. Ex. the one who doesn't have college age kids complaining about the credit for education expenses; your young children will turn into teenagers you send to college; so youll get this credit when they go and I hope they do so they dont turn out as big an idiot as you apparently are; also your refund is based on your withholdings if not itemizing so if you had less withheld then you will get less back - easy math here. PLEASE Research Read and Get the facts from reliable sources before you complain...
Posted by: Lori Q. at 04/14/2010 04:12:02 AM
...My father was laid off-due to no fault of his own. (My parents) lost their home and are in a mess. we are all pulling together to help, but our work has slowed down due to the economy. I need to know what they can qualify for any help they can recieve to help them live, food , gas, to find a job. They need a home, they have gone through having their credit fixed and then he got laid off again. they are in a mess, and at their age, it is devastating. they worked too hard to have this happen. also my father has extreme high blood pressure, and after 15 years of going to the same doctor and the doctor got paid great through the excellent insurance he had, and now that he is laied off, he needed a refill of his medicine, and the nurse told him to go to a clinic. the clinic could not fit him in for four months!!!...after all the years he went to his doctor, they couldn't work out some kind of plan with him--they couldn't fill his high blood pressure medicine.!!...I'm scared to death, my daddy is my whole world...I want to know what to do...My dad is a wonderful man..this should not be happening to him...please tell me anything I can do... surely their is a tax break for them...direct me in the right direction to go...
Posted by: JnMc at 05/18/2010 07:37:46 AM
I found today's article extremely important especially for me...an entrepreneur. If anybody can email me the 17 ways to save money on taxes, I'll be more than happy. Great advises and great job. Thanks Mary Beth!