Hertsel Shadian, Attorney at Law, LLC

Archive for the ‘IRS/Tax Articles’ Category

Health Insurance Tax Breaks for the Self-Employed

8 April 2011 | Hertsel Shadian

Here is some information from the IRS about a special tax deduction available for self-employed individuals. You may be able to deduct premiums paid for medical and dental insurance and qualified long-term care insurance for you, your spouse, and your dependents if you are one of the following:

  • A self-employed individual with a net profit reported on Schedule C (Form 1040), Profit or Loss From Business, Schedule C-EZ (Form 1040), Net Profit From Business, or Schedule F (Form 1040), Profit or Loss From Farming.
  • A partner with net earnings from self-employment reported on Schedule K-1 (Form 1065), Partner’s Share of Income, Deductions, Credits, etc., box 14, code A.
  • A shareholder owning more than 2% of the outstanding stock of an S corporation with wages from the corporation reported on Form W-2, Wage and Tax Statement.

To deduct the premiums paid for such insurance, the insurance plan must be established under your business.

  • For self-employed individuals filing a Schedule C, C-EZ, or F, the policy can be either in the name of the business or in the name of the individual.
  • For partners, the policy can be either in the name of the partnership or in the name of the partner. You can either pay the premiums yourself or your partnership can pay them and report the premium amounts on Schedule K-1 (Form 1065) as guaranteed payments to be included in your gross income. However, if the policy is in your name and you pay the premiums yourself, the partnership must reimburse you and report the premium amounts on Schedule K-1 (Form 1065) as guaranteed payments to be included in your gross income. Otherwise, the insurance plan will not be considered to be established under your business.
  • For more-than-2% shareholders, the policy can be either in the name of the S corporation or in the name of the shareholder. You can either pay the premiums yourself or your S corporation can pay them and report the premium amounts on Form W-2 as wages to be included in your gross income. However, if the policy is in your name and you pay the premiums yourself, the S corporation must reimburse you and report the premium amounts on Form W-2 as wages to be included in your gross income. Otherwise, the insurance plan will not be considered to be established under your business.

For more information, consult your professional tax advisor or tax preparer, or see IRS Publication 535, Business Expenses, available at www.IRS.gov or by calling 800-TAX-FORM (800-829-3676). Please also feel free to forward this article to others that might benefit from this information.

Six Tax Facts about Choosing the Standard or Itemized Deductions

6 April 2011 | Hertsel Shadian

When filing your federal income tax return, taxpayers can choose to either take the standard deduction or to itemize their deductions. Whether to itemize deductions on your tax return depends on how much you spent on certain expenses last year. Money paid for medical care, mortgage interest, taxes, charitable contributions, casualty losses and miscellaneous deductions can reduce your taxes. If the total amount spent on those categories is more than your standard deduction, you usually can benefit by itemizing. (Note, however, that some of these deductions are subject to minimum Adjusted Gross Income (AGI), meaning that only the amount of the expense above a certain percentage of AGI can be deducted—the remainder is lost.)

Following are six tax facts to help you choose the method that gives you the lowest tax:

1. Standard deduction. The standard deduction amounts are based on your filing status and are subject to inflation adjustments each year. For 2010, the amounts are as follows:

  • Single     $5,700
  • Married Filing Jointly   $11,400
  • Head of Household   $8,400
  • Married Filing Separately  $5,700
  • Qualifying Widow(er)  $11,400

2. Some taxpayers have different standard deductions. The standard deduction amount depends on your filing status, whether you are 65 years or older or blind, and whether an exemption can be claimed for you by another taxpayer. If any of these apply, you must use the Standard Deduction Worksheet on the back of Form 1040EZ, or in the 1040A or 1040 instructions. The standard deduction amount also depends on whether you plan to claim the additional standard deduction for a loss from a disaster declared as a federal disaster or state or local sales or excise tax you paid in 2010 on a new vehicle you bought before 2010. You must file Schedule L, Standard Deduction for Certain Filers to claim these additional amounts.

3. Limited itemized deductions. Your total itemized deductions no longer are limited because of your adjusted gross income. (Prior to 2010, taxpayers with adjusted gross income above a certain amount would lose part of their itemized deductions.)

4. Married Filing Separately. When a married couple files separate returns and one spouse itemizes deductions, the other spouse cannot claim the standard deduction and therefore must itemize to claim their allowable deductions.

5. Some taxpayers are not eligible for the standard deduction. These taxpayers include nonresident aliens, dual-status aliens, and individuals who file returns for periods of less than 12 months due to a change in accounting periods.

6. Forms to use. The standard deduction can be taken on Forms 1040, 1040A or 1040EZ.  If you qualify for the higher standard deduction for new motor vehicle taxes or a net disaster loss, you must attach Schedule L. To itemize your deductions, use Form 1040, U.S. Individual Income Tax Return, and Schedule A, Itemized Deductions. These forms and instructions may be downloaded from the IRS website at www.IRS.gov or ordered by calling 800-TAX-FORM (800-829-3676).

For additional information about this topic, contact your professional tax advisor or tax preparer. See also the following links for additional information:

  • Publication 17, Your Federal Income Tax (PDF 2.3MB)
  • Schedule A, Itemized Deductions (PDF)
  • Schedule A, Itemized Deductions Instructions (PDF)

Tax Credits for Making Your Home Energy Efficient or Buying Energy-Efficient Products

5 April 2011 | Hertsel Shadian

Taxpayers who made some energy efficient improvements to their home or purchased energy-efficient products last year (including for certain electric vehicles) may qualify for a tax credit this year. Following is a brief description of six energy-related tax credits created or expanded by the American Recovery and Reinvestment Act of 2009 (the ARRA).

  1. Residential Energy Property Credit. This tax credit is for homeowners who make qualified energy efficient improvements to their existing homes. This credit is 30 percent of the cost of all qualifying improvements. The maximum credit is $1,500 for improvements placed in service in 2009 and 2010 combined. The credit applies to improvements such as adding insulation, energy efficient exterior windows and energy-efficient heating and air conditioning systems.
  2. Residential Energy Efficient Property Credit. This tax credit will help individual taxpayers pay for qualified residential alternative energy equipment, such as solar hot water heaters, solar electricity equipment and wind turbines installed on or in connection with their home located in the United States, and geothermal heat pumps installed on or in connection with their main home located in the United States. The credit, which runs through 2016, is 30 percent of the cost of qualified property. ARRA removed some of the previously imposed annual maximum dollar limits.
  3. Plug-in Electric Drive Vehicle Credit. ARRA modified this credit for qualified plug-in electric drive vehicles purchased after Dec. 31, 2009. The minimum amount of the credit for qualified plug-in electric drive vehicles, which runs through 2014, is $2,500 and the credit tops out at $7,500, depending on the battery capacity. ARRA phased out the credit for each manufacturer after they sell 200,000 vehicles.
  4. Plug-In Electric Vehicle Credit. This is a special tax credit for two types of plug-in vehicles—certain low-speed electric vehicles and two- or three-wheeled vehicles. The amount of the credit is 10 percent of the cost of the vehicle, up to a maximum credit of $2,500 for purchases made after Feb. 17, 2009, and before Jan. 1, 2012.
  5. Credit for Conversion Kits. This credit is equal to 10 percent of the cost of converting a vehicle to a qualified plug-in electric drive motor vehicle that is placed in service after Feb. 17, 2009. The maximum credit, which runs through 2011, is $4,000.  
  6. Treatment of Alternative Motor Vehicle Credit as a Personal Credit Allowed Against AMT.  Starting in 2009, ARRA allowed the Alternative Motor Vehicle Credit, including the tax credit for purchasing hybrid vehicles, to be applied against the Alternative Minimum Tax. Prior to the 2009 law, the Alternative Motor Vehicle Credit could not be used to offset the AMT. This meant the credit could not be taken if a taxpayer owed AMT or was reduced for some taxpayers who did not owe AMT.

For additional information in regard to all these tax credits, consult your professional tax advisor or tax preparer, or see IRS Form 5695, Residential Energy Credits and IRS Fact Sheet FS-2009-10, Energy Provisions of the American Recovery and Reinvestment Act of 2009. The IRS also has produced a brief YouTube video to provide more information: Energy Tax Credit-Claim It- 2011. Please feel free to forward this article to others that might benefit from this information.

Important Tax Facts About the Child and Dependent Care Credit

1 April 2011 | Hertsel Shadian

If you paid someone to care for your child, spouse, or dependent last year, you may be able to claim the Child and Dependent Care Credit on your federal income tax return. Below are some important facts to know about claiming the credit for child and dependent care expenses.

  1. The care must have been provided for one or more qualifying persons. A qualifying person is your dependent child age 12 or younger when the care was provided. Additionally, your spouse and certain other individuals who are physically or mentally incapable of self-care also may be qualifying persons. You must identify each qualifying person on your tax return.
  2. The care must have been provided so you—and your spouse if you are married filing jointly—could work or look for work.
  3. To qualify for the credit, you—and your spouse if you file jointly—must have earned income from wages, salaries, tips, other taxable employee compensation or net earnings from self-employment. One spouse may be considered as having earned income if he or she was a full-time student or was physically or mentally unable to care for themselves.
  4. The payments for care cannot be paid to your spouse, to the parent of your qualifying person, to someone you can claim as your dependent on your return, or to your child who will not be age 19 or older by the end of the year, even if he or she is not your dependent.
  5. You also must identify the care provider(s) on your tax return—you will need each care provider’s name, address, and taxpayer identification number (either the social security number, or the employer identification number). You can request this information from the care provider with IRS Form W-10, Dependent Care Provider’s Identification and Certification. The care provider’s information, and the dollar amount of the care provided, then is reported on IRS Form 2441, Child and Dependent Care Expenses. (See also the Form 2441 Instructions for additional information on how to complete the Form.) If the care provider is tax exempt, you only need to report the name and address of the care provider on your return. If you do not provide information regarding the care provider, you still may be eligible for the credit if you can show that you exercised due diligence in attempting to provide the required information.
  6. Your filing status must be single, married filing jointly, head of household or qualifying widow(er) with a dependent child.
  7. The qualifying person must have lived with you for more than one-half of 2010. There are exceptions for the birth or death of a qualifying person, or a child of divorced or separated parents. For more information, see IRS Publication 503, Child and Dependent Care Expenses.
  8. The credit can be up to 35 percent of your qualifying expenses, depending upon your adjusted gross income.
  9. For 2010, you may use up to $3,000 of expenses paid in a year for one qualifying individual, or $6,000 for two or more qualifying individuals, to calculate the credit.
  10. The qualifying expenses must be reduced by the amount of any dependent care benefits provided by your employer that you deduct or exclude from your income.
  11. If you pay someone to come to your home and care for your dependent or spouse, you may be a household employer and may have to withhold and pay social security and Medicare tax and pay federal unemployment tax. For more information about this withholding and filing requirement, see IRS Publication 926, Household Employer’s Tax Guide.

For more information on the Child and Dependent Care Credit, contact your professional tax advisor or tax preparer, or see the link for IRS Tax Topic 602 and IRS Publication 503, Child and Dependent Care Expenses. You also may download these free publications from the official IRS website at www.IRS.gov or order them by calling 800-TAX-FORM (800-829-3676). Also, for information about the Child Tax Credit (a separate tax benefit available to certain taxpayers with children), see the earlier article, Ten Important Facts about the Child Tax Credit. As with all of these articles, please feel free to forward or share this with others that might benefit from this information.

Taxpayers Have Extra Time to Make a Contribution to Their IRA This Year

28 March 2011 | Hertsel Shadian

This year, taxpayers have a few extra days to make contributions to their traditional Individual Retirement Arrangements. That is because Emancipation Day, a legal holiday in the District of Columbia, will be observed on Friday, April 15, 2011, which moves the due date for filing tax returns and for making contributions to a 2010 IRA to Monday, April 18, 2011. Following are several important things you should know about setting aside retirement money in an IRA.

  1. You may be able to deduct some or all of your contributions to your IRA. You may also be eligible for the Savers Credit formally known as the Retirement Savings Contributions Credit.
  2. Contributions can be made to your traditional IRA at any time during the year or by the due date for filing your return for that year, not including extensions. For most people, this means contributions for 2010 must be made by April 18, 2011. Additionally, if you make a contribution between Jan. 1 and April 18, you should designate the year targeted for that contribution.
  3. The funds in your IRA generally are not taxed until you receive distributions from that IRA.
  4. Use the worksheets in the instructions for either Form 1040A or Form 1040 to figure your deduction for IRA contributions.
  5. For 2010, the most that can be contributed to your traditional IRA is generally the smaller of the following three amounts: $5,000, or $6,000 for taxpayers who were 50 or older at the end of 2010, or the amount of your taxable compensation for the year.
  6. Use IRS Form 8880, Credit for Qualified Retirement Savings Contributions, to determine whether you are also eligible for a tax credit equal to a percentage of your contribution.
  7. You must use either Form 1040A or Form 1040 to claim the Credit for Qualified Retirement Savings Contributions or if you deduct an IRA contribution.
  8. You must be under age 70 1/2 at the end of the tax year in order to contribute to a traditional IRA.
  9. You must have taxable compensation, such as wages, salaries, commissions, tips, bonuses, or net income from self-employment to contribute to an IRA. If you file a joint return, generally only one of you needs to have taxable compensation. However, see Spousal IRA Limits in IRS Publication 590, Individual Retirement Arrangements (IRAs), for additional rules.
  10. Refer to IRS Publication 590 for more information on contributing to your IRA account. Both Form 8880 and Publication 590 can be downloaded on the official IRS website at www.IRS.gov or ordered by calling 800-TAX-FORM (800-829-3676).

For more information about contributing to your IRA, consult your professional tax advisor, tax preparer or plan administrator. Please also forward this article to others that might benefit from this information.

Tax Effects of an Early Distribution from Your Retirement Plan

25 March 2011 | Hertsel Shadian

Some taxpayers may have needed to take an early distribution from their retirement plan last year. Individuals who took an early distribution need to be aware that there can be a tax impact to tapping your retirement fund.  Following are some facts about the tax effects of early distributions:

  1. Payments you receive from your Individual Retirement Arrangement (IRA) before you reach age 59½ generally are considered early or premature distributions.
  2. Early distributions usually are subject to an additional 10 percent tax.
  3. Early distributions also must be reported to the IRS as income and are subject to tax at the recipient’s regular income tax rates. However, the tax on this income may be offset by any withholding amounts applied to the distribution. These amounts all should be reported to you on a Form 1099-R issued by the plan administrator.
  4. Distributions you rollover to another IRA or qualified retirement plan (if done correctly) should not be subject to income tax or the additional 10 percent tax. You must complete the rollover within 60 days after the day you received the distribution. Contact your plan administrator for further information.
  5. The amount you rollover generally is taxed when the new plan later makes a distribution to you or your beneficiary.
  6. If you made nondeductible contributions to an IRA and later take early distributions from your IRA, the portion of the distribution attributable to those nondeductible contributions is not taxed.
  7. If you received an early distribution from a Roth IRA, the distribution attributable to your prior contributions should not be taxed.
  8. If you received a distribution from any other qualified retirement plan, generally the entire distribution is taxable unless you made after-tax employee contributions to the plan.
  9. There are several exceptions to the additional 10 percent early distribution tax, such as when the distributions are used for the purchase of a first home, for certain medical or educational expenses, or if you are disabled. Contact your plan administrator to learn more about these exceptions. Note that these exceptions to the 10 percent early distribution tax will not except the distribution from the regular income tax.

For more information about early distributions from retirement plans, the additional 10 percent tax and all the exceptions, contact your professional tax advisor or tax preparer, or see IRS Publication 575, Pension and Annuity Income, and Publication 590, Individual Retirement Arrangements (IRAs). Both publications are available at www.IRS.gov or by calling 800-TAX-FORM (800-829-3676). Also, see IRS Form 5329, Additional Taxes on Qualified Plans (including IRAs) and Other Tax Favored Accounts and the Form 5329 Instructions for additional information.  Please also feel free to share this article with others you think that might benefit from this information.

Tips to Help Make Tax Filing Easier

22 March 2011 | Hertsel Shadian

Tax preparation should not be so stressful. In fact, with proper organization and sufficient preparation time, tax filing can be managed very effectively. Following are some tips that hopefully will help to make your tax filing experience a little easier this year.

1. Don’t Procrastinate. Whether you use a professional tax preparer or prepare your returns yourself, resist the temptation to put off your taxes until the very last minute. If you prepare your own return, rushing to meet the filing deadline can cause you to overlook potential sources of tax savings and likely will increase your risk of making an error. If you use a professional tax preparer and wait until the last minute to give your return preparer all the documentation and information that your preparer needs, this might cause you to forget or overlook important and helpful information that your preparer will need to accurately prepare your return.

2. Use Free File.If you prepare your own return, consider using IRS Free File brand-name tax software or IRS online fillable forms. (Even if you use a professional tax return preparer, IRS Free File or fillable forms still might be a good way to preview your potential tax liability.) IRS Free File is available exclusively at the official IRS website at www.IRS.gov. Everyone should be able to find an option to prepare their tax return and e-file it for free. If you made $58,000 or less, you qualify for free tax software that is offered through a private-public partnership with various software manufacturers. If you made more than $58,000 or are comfortable preparing your own tax return, there also is Free File Fillable Forms, the electronic versions of IRS paper forms. For more information, visit www.IRS.gov/freefile to review your options.

3. Try IRS e-file. Available for the last 21 years, IRS e-file now is an easy, safe and fairly common way to file a tax return. According to the IRS, last year 70 percent of taxpayers—99 million people—used IRS e-file. Moreover, starting in 2011, many tax return preparers will be required to use e-file and therefore will explain your filing options to you. Based on IRS statistics, IRS e-file is approaching 1 billion returns processed securely each year. If you owe taxes, you also have payment options to file immediately and pay later (by the tax deadline). In addition, according to the IRS, e-file combined with direct deposit can get you your refund in as few as 10 days.

4. Don’t Panic if You Can’t Pay. If you cannot pay the full amount (or any amount) of the taxes you owe by the mid-April deadline, you still should file your return by the deadline if possible and pay as much as you can to avoid penalties and interest. (Filing on time also will get the clock started on any future statute of limitations for assessment of additional tax by the IRS.)  You can further discuss your payment options with your professional tax advisor or tax preparer.  You also can contact the IRS to discuss your payment options at 800-829-1040. The agency may be able to provide some relief such as an installment agreement. Note also that, according to the IRS, more than 75 percent of taxpayers eligible for an Installment Agreement can apply using the Web-based Online Payment Agreement application available on IRS.gov. To find out more about this simple and convenient process, click this link, Online Payment Agreement Application, or type “Online Payment Agreement” in the search box on the IRS.gov homepage.

5. Request an Extension of Time to File—But Pay on Time. If the mid-April tax deadline clock runs out, you can get an automatic six-month extension of time to file through October 17. However, this extension of time to file does not give you more time to pay any taxes due. If you have not paid at least 90 percent of the total tax due by the April deadline, you might also be subject to an Estimated Tax Penalty. To obtain an extension, just file Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return. The easiest way to file a Form 4868 is through Free File at www.IRS.gov/freefile, or by contacting your professional tax advisor or tax preparer. Form 4868 also is available for downloading at the following link, Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return, or from the IRS website at www.IRS.gov, or you can call 800-TAX-FORM (800-829-3676) and have a paper form mailed to you.

For more information about tax filing, contact your professional tax advisor or tax preparer, or visit the official IRS website at www.IRS.gov.  Please also feel free to forward this article to others you know that might benefit from this information.

Seven Tax Tips About Rental Income and Expenses

17 March 2011 | Hertsel Shadian

Do you rent property to others? If so, you’ll want to read the following seven tips about rental income and expenses.

You generally must include in your gross income all amounts you receive as rent. Rental income is any payment you receive for the use of or occupation of property. Expenses of renting property can be deducted from your gross rental income. You generally deduct your rental expenses in the year you pay them.  IRS Publication 527, Residential Rental Property, includes information on the expenses you can deduct if you rent property. Here are some more tips about rental income and expenses:

  1. When to report income. You generally must report rental income on your tax return in the year that you actually receive it.
  2. Advance rent. Advance rent is any amount you receive before the period that it covers.  Include advance rent in your rental income in the year you receive it, regardless of the period covered.
  3. Security deposits. Do not include a security deposit in your income when you receive it if you plan to return it to your tenant at the end of the lease. However, if you keep part or all of the security deposit during any year because your tenant does not live up to the terms of the lease, you must include the amount you keep in your income in that year.
  4. Property or services in lieu of rent.  If you receive property or services—instead of money—as rent, include the fair market value of the property or services in your rental income.  If the services are provided at an agreed upon or specified price, that price is the fair market value unless there is evidence to the contrary.
  5. Expenses paid by tenant. If your tenant pays any of your expenses, the payments are rental income, and you must include them in your income. You can deduct the expenses if they are deductible rental expenses. See “Rental Expenses” in Publication 527, for more information.
  6. Rental expenses.  Generally, the expenses of renting your property—such as maintenance, insurance, taxes, and interest—can be deducted from your rental income.
  7. Personal use of vacation home. If you have any personal use of a vacation home or other dwelling unit that you rent out, you must divide your expenses between rental use and personal use.  If your expenses for rental use are more than your rental income, you may not be able to deduct all of the rental expenses.

For more information about rental income and expenses, consult your professional tax advisor or tax preparer, or see IRS Publication 527. This publication can be downloaded by clicking the link above, or from the official IRS website at www.IRS.gov, or ordered by calling 800-TAX-FORM (800-829-3676). Please also feel free to forward this article to others you know that might benefit from this information.

Hertsel Shadian, Attorney at Law, LLC

IRS Has $1.1 Billion for People Who Have Not Filed a 2007 Income Tax Return

13 March 2011 | Hertsel Shadian

According to the Internal Revenue Service, refunds totaling more than $1.1 billion may be waiting for nearly 1.1 million people who did not file a federal income tax return for 2007. However, to collect the money, a return for 2007 must be filed with the IRS no later than Monday, April 18, 2011. The IRS estimates that half of these potential 2007 refunds are $640 or more.

Some people may not have filed returns because they had too little income to require filing a tax return, even though they had taxes withheld from their wages or made quarterly estimated payments. In cases where a return was not filed, the law provides most taxpayers with a three-year window of opportunity for claiming a refund. If no return is filed to claim a refund within three years, the money becomes property of the U.S. Treasury. For 2007 returns, the window to file closes on April 18, 2011. The law requires that the return be properly addressed, mailed and postmarked by that date. There is no penalty for filing a late return qualifying for a refund.

The IRS also reminded taxpayers seeking a 2007 refund that their checks will be held if they have not filed tax returns for 2008 and 2009. In addition, the refund will be applied to any amounts still owed to the IRS, and may be used to offset unpaid child support or past due federal debts such as student loans.

By failing to file a return, people stand to lose more than a refund of taxes withheld or paid during 2007. In addition, many low- and moderate-income workers may not have claimed the Earned Income Tax Credit (EITC) to which they might have been entitled. The EITC helps individuals and families whose incomes are below certain thresholds, which in 2007 were $39,783 for those with two or more children, $35,241 for people with one child, and $14,590 for those with no children. (For more information about the EITC, see the IRS’s EITC Home Page on the official IRS website.)

Current and prior year tax forms and instructions are available on the Forms and Publications page of www.IRS.gov or by calling the IRS toll-free at 1-800-TAX-FORM (1-800-829-3676). Taxpayers who are missing Forms W-2, 1098, 1099 or 5498 for 2007, 2008 or 2009 should request copies from their employer, bank or other payer. If these efforts are unsuccessful, taxpayers can get a free transcript showing information from these year-end documents by ordering on-line, calling 1-800-908-9946, or by filing Form 4506-T, Request for Transcript of Tax Return, with the IRS. For additional information or assistance, contact your professional tax advisor or tax return preparer. Please also help to spread the word about these unclaimed refunds by forwarding this article to others.

Chart of Number of Individuals by State Who Did Not File a 2007 Return with a Potential Refund:

  State  Individuals  Median Potential Refund Total Potential Refunds*
  Alabama 17,600 $634 $15,649,000
  Alaska 5,200 $688 $6,545,000
  Arizona 31,000 $543 $29,217,000
  Arkansas 9,100 $606 $8,111,000
  California 124,000 $597 $129,205,000
  Colorado 20,900 $588 $21,591,000
  Connecticut 11,900 $714 $14,769,000
  Delaware 4,000 $658 $4,121,000
  Dist. of Columbia 4,400 $629 $4,751,000
  Florida 74,500 $665 $87,293,000
  Georgia 36,800 $590 $35,475,000
  Hawaii 7,600 $717 $8,960,000
  Idaho 4,600 $540 $4,340,000
  Illinois 38,800 $692 $44,168,000
  Indiana 20,200 $679 $19,864,000
  Iowa 9,500 $668 $8,411,000
  Kansas 10,400 $621 $9,601,000
  Kentucky 11,200 $660 $10,449,000
  Louisiana 19,500 $663 $20,327,000
  Maine 3,600 $606 $4,398,000
  Maryland 25,100 $645 $27,727,000
  Massachusetts 23,000 $701 $26,881,000
  Michigan 30,800 $663 $31,943,000
  Minnesota 14,000 $604 $13,786,000
  Mississippi 9,400 $585 $8,440,000
  Missouri 20,300 $604 $18,588,000
  Montana 3,400 $607 $3,185,000
  Nebraska 4,700 $620 $4,509,000
  Nevada 15,000 $630 $15,575,000
  New Hampshire 3,900 $741 $4,960,000
  New Jersey 31,000 $705 $36,504,000
  New Mexico 7,900 $594 $7,510,000
  New York 62,600 $706 $78,405,000
  North Carolina 29,300 $565 $26,385,000
  North Dakota 1,600 $635 $1,877,000
  Ohio 33,200 $620 $30,240,000
  Oklahoma 15,200 $620 $14,280,000
  Oregon 17,600 $521 $15,309,000
  Pennsylvania 34,600 $686 $35,317,000
  Rhode Island 3,100 $644 $3,380,000
  South Carolina 12,400 $561 $11,132,000
  South Dakota 2,000 $639 $1,937,000
  Tennessee 17,200 $633 $17,049,000
  Texas 91,700 $692 $104,801,000
  Utah 7,600 $560 $8,392,000
  Vermont 1,700 $672 $1,694,000
  Virginia 29,800 $629 $31,380,000
  Washington 28,200 $702 $34,692,000
  West Virginia 3,500 $686 $3,484,000
  Wisconsin 12,900 $593 $11,609,000
  Wyoming 2,700 $788 $3,350,000
  Grand Total 1,060,200 $640 $1,120,566,000

*Excluding the Earned Income Tax Credit and other credits.

Important Tax Law Changes for 2010

1 March 2011 | Hertsel Shadian

Taxpayers should make sure they are aware of many important changes to the tax law before they complete their 2010 federal income tax return. Here are several important changes you should keep in mind when you file your 2010 federal income tax return in 2011.

1. Health Insurance Deduction Reduces Self Employment Tax. In 2010, eligible self-employed individuals can use the self-employed health insurance deduction to reduce their liability for social security self-employment tax in addition to their income tax liability. As in the past, eligible taxpayers claim this deduction on Form 1040 Line 29. However, in 2010, eligible taxpayers can also enter this amount on Schedule SE Line 3, thus reducing net earnings from self-employment subject to the 15.3 percent social security self-employment tax.

Premiums paid for health insurance covering the taxpayer, spouse and dependents generally qualify for this deduction. Premiums paid for coverage of an adult child under age 27 at the end of the year, for the time period beginning on or after March 30, 2010, also qualify for this deduction, even if the child is not the taxpayer’s dependent.

As before, the insurance plan must be set up under the taxpayer’s business, and the taxpayer cannot be eligible to participate in an employer-sponsored health plan. Details, including a worksheet, are in the instructions to Form 1040.

2. First-time homebuyer credit. You must meet the required deadlines to be eligible to claim the credit.  You must have bought—or entered into a binding contract to buy—a principal residence on or before April 30, 2010. If you entered into a binding contract by April 30, 2010, you must have closed or gone to settlement on the home on or before Sept. 30, 2010.  Due to the documentation requirements for claiming the credit, taxpayers who claim the credit on their 2010 tax return must file a paper—not electronic—return and attach Form 5405, First-Time Homebuyer Credit and Repayment of the Credit, and a properly executed copy of a settlement statement used to complete the purchase.

Taxpayers who claimed the first-time homebuyer credit for a home bought in 2008 must generally begin repaying it on the 2010 return. In most cases, the credit must be repaid over a 15-year period. Many of those affected by this requirement should have received reminder letters from the IRS.

A repayment requirement also applies to a taxpayer who claimed the credit on either their 2008 or 2009 return and then sold it or stopped using the home as their main home in 2010. Use Form 5405 to report the repayment.

In addition, certain members of the armed forces and some other taxpayers still have time to buy a home and take the credit. See Form 5405 and its instructions for details.

3. Standard Mileage Rates for 2010. The standard mileage rate for business use of a car, van, pick-up or panel truck is 50 cents for each mile driven. The rate for the cost of operating a vehicle for medical reasons or as part of a deductible move is 16.5 cents per mile. The rate for using a car to provide services to charitable organizations is set by law and remains at 14 cents a mile.

4. Tax Breaks Extended. Several tax breaks that expired at the end of 2009 were renewed and can be claimed on 2010 returns. These include:

  • State and local general sales tax deduction, primarily benefiting people living in areas without state and local income taxes. Claim on Schedule A, Line 5.

  • Higher education tuition and fees deduction benefiting parents and students. Claim on Form 8917.

  • Educator expense deduction for kindergarten through grade 12 educators with out-of-pocket classroom expenses of up to $250. Claim on Form 1040, Line 23 or Form 1040A Line 16.

  • District of Columbia first-time homebuyer credit. Claim on Form 8859.

For further information about these changes, consult your professional tax advisor or tax preparer, or visit the official IRS website at www.IRS.gov. Please also feel free to share this article with others that might benefit from this information.