There are just a few weeks to go and like every tax season there are always a range of topics that come up multiple times. To begin with there was the compromise by the president and Congress in late December that extended the tax cuts from the Bush administration. This gave us all some certainty to
plan for through 2012. It also sets up a showdown for the next presidential election cycle that will define the future of taxation.
Here are a few other topics to be aware of in filing your 2010 taxes:
Energy credits: Making certain improvements that promote energy efficiency to your personal residence during 2010 can be used to claim a credit of 30 percent of costs up to a maximum of $1,500. Some of the improvements include furnaces, insulation, windows and doors. Remember, this is on your home, not rental property. For rentals, you can still deduct the improvements or depreciate them; there just are not any tax credits like there are with the home improvements. Unfortunately, this credit is not available in 2011.
Education credits: Yes there are still Education credits to be claimed by taxpayers and their dependents for tuition, fees and (in some cases) books. Once again it is a credit. To claim it on your return, you need to claim the student as a dependent. Make sure the dependent didn’t file a return claiming themselves even though they made only $2,000 on a part-time job. It is better for the dependent to amend their return and for the parents to claim the dependent and take the education credit.
Sales tax: Every year I get questions about if my client is itemizing can they still deduct the sales taxes paid in 2010. The answer is yes and part of the confusion is that this deduction is usually in flux as to whether it will be around. Just a quick recap: The IRS allows you to deduct sales tax paid in 2010 by saving your receipts. A lot of my clients don’t want to do that so we use the IRS table provided that calculates a deduction based on income, location and number of dependents. It also allows taxpayers to claim additional deduction for sales tax paid on major purchases such as cars, boats, RVs and major home improvements.
Section 179: For business owners the Section 179 options are still very attractive to deduct in the year of purchase the cost of a major item used in their trade or business. There are limits to how much can be written off, depending on business profits, and you should always plan this out with your tax adviser to make sure you are maximizing the writeoff for your current year and future years.
Mortgage points: A lot of clients are taking advantage of the low interest rates we have been blessed with and refinancing their mortgages. The points paid on a refinance are to be written off (amortized) over the life of the loan. The thing the client forgets is that there are points that have been written off for the last four years, for example, since the last refinance. As a result of the recent refinance, that old loan has been paid off so now you can deduct all of the remaining points from the old loan. In many cases this can be an additional Schedule A deduction of $2,000 to $3,000. This is a prime example how keeping good records does pay off.
Reinvested dividends: Another area where records pay off is keeping track of dividends that your mutual funds or stocks pay out each year that are then reinvested into purchasing more shares of stock or the fund. I am talking about taxable accounts here, not IRAs or 401(K)s. You calculate your basis by adding the original purchases of shares plus any reinvested dividends that you already paid tax on. The sum of those items is what can be deducted against the sale of the fund or stock. Many times, depending on the length of time held, the calculation goes from a gain to a capital loss.
As I write many times, it’s always a good idea to check with your adviser as everyone’s situation is unique. Also, if you have already filed a return and perhaps missed one of these items, don’t fret. You’re able to amend your tax return within three years of filing to claim your refund. As always feel free to contact me with any questions you may have.
David Rumsey is the owner of Pettis Rumsey Inc., a Marysville accounting firm that works with small-business owners. For a free report on the top 20 questions a small business should ask before hiring a CPA, go to www.PettisRumseyCPA.com.
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