Are you getting ready for the new year? Do you have your New Year resolutions written down. How about taxes, are you organized? Got your receipts, your mileage logs, expense records ready to go? Let me ask you this, have you reviewed the tax bill of 2010? Well there are some interesting segments that will affect just about everyone. Here is a quick overview for you:
Most attention has been on the bill’s provision that will keep the current six income tax rates that start at 10 percent and top out at 35 percent in place for two more years. If Congress had not acted, all taxpayers would pay higher taxes in 2011.
But that year is still more than a week away. There are still tax moves to make by Dec. 31 that could lower this year’s tax bill, and some of them are part of the new tax bill. These are tax provisions that expired on Dec. 31, 2009, but which now are retroactively in effect for the 2010 tax year.
Here are answers to some questions about what the new tax bill means to those tax breaks.
Am I going to have to pay the alternative minimum tax?
Chances are that fewer taxpayers will face the alternative minimum tax, or AMT, when they file their 2010 tax returns. The tax bill includes a patch that increases the income level at which this costly parallel tax kicks in.
Can I deduct my state sales taxes?
Yes. If you live in a state that doesn’t have a state income tax, you still can claim your state and local sales tax amounts as a deduction instead. Even if your state does assess an income tax, if the rate is low and your sales tax level is high, this deduction might be preferable. Remember, you have to itemize to claim this deduction.
Is the tuition and fees tax break still available?
This is one of the above-the-line deductions. You don’t have to itemize to claim this tax break, which could be as much as $4,000. You take the deduction directly on your Form 1040 or Form 1040A.
I have a student loan. Can I still deduct the interest on the loan?
Yes. The tax bill continues the $2,500 annual interest deduction on qualified student loans. Older loans, interest paid beyond the first 60 months of the loan, also are still OK and the income levels at which this tax break is reduced will remain at the higher levels, adjusted for inflation, set by the previous and now-extended tax law. This, too, is done directly on 1040 and 1040A tax returns.
I’m a teacher. Will I still be able to deduct some of my expenses?
Educators are OK under the new tax bill. The ability to deduct some out-of-pocket expenses for classroom supplies will remain as an above-the-line deduction.
Are private mortgage insurance payments still deductible?
Private mortgage insurance, or PMI, generally is required if a homebuyer can’t make at least a 20 percent down payment on a residence. Since 2006, some PMI payers have been able to deduct their policy premiums as itemized expenses on Schedule A. That option will remain in effect for a while, thanks to the just-passed tax bill. The existing limits (those that say if you make more than $110,000 you can’t claim this deduction, and if you make between $100,000 and $110,000 the deduction is reduced) will stay on the tax books, too.
Can I still deduct my home’s property taxes if I take the standard deduction?
Sorry. This home-related tax break wasn’t part of the new tax package. In previous tax years, the last one being 2009, homeowners could add up to $500 (or $1,000 if married filing jointly) in residential real estate taxes to their standard deduction amount. That tax break ended on Dec. 31, 2009, and was not extended.
I’d like to donate some of my IRA money to a charity. Can I do that?
Older, generous owners of traditional IRAs are in luck. The ability for folks age 70½ or older to directly donate up to $100,000 per year from their IRA to a qualified charity is back on the tax books. This is a particularly appealing tax move for individuals facing a required minimum distribution, or RMD. This is a specific amount, based on the retirement account owner’s age, that must be taken out of tax-deferred retirement accounts each year.
Now an RMD, and more as long as it doesn’t exceed $100,000, can go directly to a charity so that the IRA owner follows the distribution rule but doesn’t have to count the donated money as taxable income.
And because of the lateness in getting this law back in the tax code, the new bill provides a grace period. Eligible IRA owners will be able to make their retirement account charitable donations in January 2011 and have the distributions count as if they were made for the 2010 tax year.
There’s even better news for all these reinstated tax breaks. Taxpayers won’t have to worry about their status next year. In addition to putting the deductions back in place for 2010, the new tax bill extends them through the 2011 tax year.