Monday, January 17, 2011

What you need to know about the 2010 tax season. There have been a few changes.

Dear readers: The challenges of being 60 and single are numerous. Among them is the daunting task of preparing a federal tax return on your own. I'd done taxes before but for 18 years my husband had been in charge of tax preparation. Then he was gone and I was on my own, so it was with some anxiety that I gathered up receipts, 1099s and charitable donation records and filed a long form. The experience was stressful but rewarding. Now, I have found that doing my own taxes has been another confidence builder. If I can do my taxes, I certainly can manage a budget and invest my own money. All of that has proved true. I encourage 60 and single women to take on the challenge and I encourage married women to get more involved for the obvious reasons. Below is a report on this year's tax season. There have been some changes.  - Julia

Correction:  Congress reduced the life-time energy tax credit from $1,500 to $500, but you can still claim the $1,500 on your 2010 return. 

WHAT'S NEW for the 2010 TAX SEASON:
The decision this year by the Internal Revenue Service to no longer mail taxpayers a 1040 tax forms and instructions packet will make it harder on those who like doing their own taxes. But that's not the only frustration taxpayers will face in preparing their 2010 returns by this year's April 18 deadline.
The last-minute extension in late December of Bush era tax cuts means that those who itemize deductions must wait until mid- to late-February before filing. That will allow the IRS to update its computers with the new rules, agency officials say.
The delay particularly affects Washington residents who again can claim as a deduction on the estimated amount of state sales tax they paid in 2010. Last year, 860,000 residents claimed the deduction, said David Tucker, IRS spokesman in Seattle. Oregon taxpayers can claim as a deduction that state's income tax.
The delay also affects those deducting among other things:
- Annual mortgage loan interest.
- Tuition and fees for higher education up to $4,000.
- Educator class-room expenses up to $250.
- Charitable deductions.
- And medical and dental expenses over a certain amount.
A spokeswoman for the AARP Tax-Aide program in my hometown said that the exact date that the IRS software will be available has not yet been established. "Until the IRS clears AARP Tax-Aide to file returns, we will be unable to prepare returns containing any (itemized) deductions., she said.  AARP Tax-Aide assists people all over the nation with their returns, focusing mainly on low-income folks and seniors, 60 and older. So if you need a bit of help, find a Tax-Aide site. (See above.)
Tucker said his agency is working closely with the software industry and tax preparation professionals to minimize delays and ensure a smooth tax season. He emphasized that electronic filing is the "fastest, most secure way” for those affected by the delay to get their refunds. “By filing online, you can get your refund by direct deposit in as few as 10 days,” Tucker said.
Last year, seven out of 10 taxpayers filed their return online. In Washington, a total of 3.18 million taxpayers filed returns. Of those 2.46 million received refunds totaling $7.14 million.
Saving on paper
To save $10 million in printing costs, the IRS wants you to go to a nearby library or to www.irs.gov for those forms once automatically delivered in the 1040 tax packet to your mailbox. The packets are still available at libraries, federal tax centers and at www.irs
Tucker said the IRS hasn't stopped printing the 1040 Forms and Schedules, but just isn't mailing them.
2010 tax highlights for taxpayers:
- State taxes are deductible: Washington residents can deduct the estimated amount of state sales tax they paid in 2010 on their federal return. Oregon residents may deduct their state’s income tax.
- Unemployment benefits are taxable: If you were unemployed in 2010 and received unemployment insurance benefits, the exemption on the first $2,400 of paid UI benefits has expired. You are liable for taxes on all 2010 benefits.
- Tax rates: This year's tax rates carry over from last year but the brackets are a bit higher.
- Energy tax credits: Energy tax credits for homeowners have been extended on purchases related to energy efficient improvements but the amount of the lifetime credit has been reduced to $500 per taxpayer. That's down from $1,500. Bottom line: You can claim up to $1,500 on your 2010 tax return, but it is a "lifetime" credit. Those who have yet to claim an energy tax credit claim will be allowed a life-time total of up to $500. Needless to say, those in the energy business are disappointed.
- Capital gains: Rates are unchanged on both long-term capital gains and dividends.
- Tax-free gifts: The annual exclusion for tax-free gifts remains at $13,000 per donor. Gifts of tuition and payments for medical care also are exempt. That means you can give each of your kids up to $13,000 and not have to report it to the IRS.
- Teachers' deduction: Teachers can deduct up to $250 in personal expenses for classroom materials.
- Estate taxes: Under extended tax rules, an individual can avoid paying taxes at death on estates worth up to $5 million. Consult with your CPA on details.
- Tax day extended: The IRS is giving us three extra tax preparation days because of Emancipation Day observed as a public holiday in Washington D.C. IRS offices will be closed on April 15. We get to file until April 18.

TAX TIPS from the IRS:

1. Gather your records: Receipts, canceled checks and other documents that support income or deductions you’re claiming on your return.
2. Be on the lookout for W-2s and 1099s coming in the mail.
3. Use Free File at http://www.irs.gov/ to fill your return. If you made $58,000 or less, you qualify for free tax software that is offered through a private-public partnership with manufacturers. If you made more or are comfortable preparing your own tax return, there's Free File Fillable Forms, the electronic versions of IRS paper forms. Visit www.irs.gov/freefile to review your options.
4.Try IRS e-file: Last year, 70 percent of taxpayers - 99 million people - used IRS e-file.
5. Consider direct deposit for your refund. It's safe and fast.
6. Visit the IRS Web site at http://www.irs.gov/ to find forms, publications, tips, answers to frequently asked questions and updates on tax law changes.
7. Check out IRS Publication 17, Your Federal Income Tax on the IRS Web site. It’s a comprehensive collection of information for taxpayers with what you’ll need to know when filing your return. click here.
8. Review your work. Don’t rush. Mistakes will slow down the processing of your return. Double-check all Social Security numbers and math calculations on your return.
9. If you run into a problem, go to http://www.irs.gov or call toll-free at 800-829-1040.
10: If you need face-to-face help with your tax return, search out the nearest AARP Tax-Aide site. Trained volunteers staff the sites and are ready to help you prepare your return. The help is geared to low-income people and seniors (that's us) 60 and older. To find a Tax-Aide site near you, click here.
- Sources:: IRS, AARP-Tax Aide.com.
MORE helpful Web sites:
- Tips on filing your own taxes, click here.
- Free Turbo-Tax software, click here.
- Federal income 2010 tax brackets for single people, click here.
- Should you file your own taxes? Here's a quick test. click here.

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