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TAXATION: 2010 Important Tax Law Changes

1. Standard Deductions unchanged

2. Personal Exemptions

3. Mileage Rates

4. First-Time Homebuyer Credit and Repayment of the Credit

5. Earned Income Credit

1. Standard Deductions unchanged:

For most people who don't itemize deductions, the basic standard deduction remained relatively unchanged in 2010. However, there was a slight change for heads of households. In 2010, the standard deductions are:

$8,400 for head of household (up from $8,350 in 2008)
$11,400 for Married taxpayers filing jointly and qualifying widows or widowers (unchanged from 2009)
$5,700 for married taxpayers filing separately (unchanged from 2009)
$5,700 for single individuals (unchanged from 2009)

Taxpayers are not able to claim the standard deduction if someone else can claim you as a dependant on their tax return.

For 2010, you can no longer increase your standard deduction by:

• State or local real estate taxes,

• New motor vehicles taxes (for vehicles purchased in 2010), or

• Disaster losses (for disasters occurring in 2010).

But, you can increase your standard deduction in 2010 if you:

• Had a net disaster loss in 2010 occurring in 2008 or 2009 (from Form 4684, line 17), or

• Purchased a new motor vehicle after February 16, 2009, and before January 1, 2010, and paid the sales or excise taxes in 2010.

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2. Personal Exemptions:

The amount you can deduct for each exemption has remained flat at $3,650 in 2010.

What has changed is the phase-out of the personal exemption. In previous years, you would lose all or part of the exemptions if your Adjusted Gross Income was above a certain amount. For instance, in 2009, the phase out begins at:

• $125,100 - Married persons filing separately

• $166,800 - Single individuals

• $208,500 - Heads of households

• $250,200 - Married persons filing jointly, or qualifying widows and widowers

In 2010 you will not lose any part of your deduction for personal exemptions, regardless of the amount of your AGI.

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3. Mileage Rates:

Business Mileage: For miles driven for business use between January 1st and December 31st of 2010, the IRS provides a standard mileage rate of 50 cents per mile, a decrease of 5 cents per mile from 2009.

Medicare Care/Moving Mileage: If you used your car to get medical care or to move in 2010, you can deduct 16.5 cents per mile, a decrease of 8 cents per mile.

Charitable Mileage: Taxpayers who used their car to provide charitable services to a qualified charitable organization can still receive credit for their mileage. That rate is 14 cents per mile, and remained unchanged from 2009.

It's important to keep proper documentation to support your deductions. Maintain the record of begin and end odometer readings, the date that you made the travel, and the specific reason for claiming the mileage rate deduction.

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4. First-Time Homebuyer Credit and Repayment of the Credit

Final Year for Claiming the Credit

For most taxpayers, 2010 is the final year to claim the first-time homebuyer credit. In order to claim the credit for a main home purchased in 2010, taxpayers must have purchased their home:

Before May 1, 2010, or

After April 30, 2010, and before September 1, 2010, and entered into a binding contract before May 1, 2010, to purchase the property before July 1, 2010.

Additional Time to Purchase for Members of the Uniformed Services or Foreign Service and Employees of the Intelligence Community

Members of the uniformed services or Foreign Service and employees of the intelligence community serving outside the United States may have additional time to purchase a home and qualify for the credit. They may claim the credit for a main home purchased in the United States:

Before May 1, 2011, or

After April 30, 2011, and before July 1, 2011, and they entered into a binding contract before May 1, 2011, to purchase the property before July 1, 2011.

Repaying the Credit for a Home Purchased in 2008
If you claimed the credit for a home purchased in 2008 and you owned and used the home as your main home during all of 2010, you must begin repaying that credit with your 2010 tax return. The minimum payment is 1/15 of the original credit received.
For more details on repaying or claiming the credit visit the First-Time Homebuyer Credit page.

Sale of Main Home

Gain from the sale or exchange of the main home is no longer excludable from income if allocable to periods of nonqualified use.

Generally, nonqualified use means any period after 2008 where neither you nor your spouse (or your former spouse) used the property as a main home (with certain exceptions).

A period of nonqualified use does not include:

Any portion of the 5-year period ending on the date of the sale or exchange that is after the last date you (or your spouse) use the property as a main home;

Any period (not to exceed an aggregate period of 10 years) during which you or your spouse is serving on qualified official extended duty:

As a member of the uniformed services,

As a member of the Foreign Service of the United States, or

As an employee of the intelligence community; and

Any other period of temporary absence (not to exceed an aggregate period of 2 years) due to change of employment, health conditions, or such other unforeseen circumstances as may be specified by the IRS.

To figure the portion of the gain that is allocated to the period of nonqualified use, multiply the gain by the following fraction:

total nonqualified use during period of ownership after 2008
total period of ownership

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5. Earned Income Credit (EIC)

Amount of credit increased. The maximum amount of the credit has increased. The most you can get for 2010 is:

$3,050 if you have one qualifying child,
$5,036 if you have two qualifying children,
$5,666 if you have three or more qualifying children, or
$457 if you do not have a qualifying child.

Earned income amount increased. The maximum amount of income you can earn and still get the credit has increased for 2010. You may be able to take the credit if:

You have three or more qualifying children and you earn less than $43,352 ($48,362 if married filing jointly),
You have two qualifying children and you earn less than $40,363 ($45,373 is married filing jointly),
You have one qualifying child and you earn less than $35,535 ($40,545 if married filing jointly), or
You do not have a qualifying child and you earn less than $13,460 ($18,470 if married filing jointly).

Investment income amount. The maximum amount of investment income you can have and still get the credit is still $3,100 for 2010.

Advance payment of the credit. If you get the advance payments of the credit from your employer with your pay, the total advance payments you get during 2010 can be as much as $1,830.

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Capital Gains and Dividend Tax Rates

The tax rate on capital gains from the sale of assets held longer than one year remains at 0% for people in the 10 percent or 15 percent tax brackets. The 15 percent maximum tax rate on long-term capital gains for taxpayers in higher brackets also remains the same.

Similarly, the special 5 percent maximum rate on dividends of taxpayers in the 10 percent and 15 percent tax brackets remains at zero percent through 2010.

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Penalty for Failure to File Income Tax Return Increased

If you do not file your return by the due date (including extensions) you may have to pay a failure-to-file penalty. For income tax returns required to be filed after 2008, the failure-to-file penalty for returns filed more than 60 days after the due date (including extensions) is increased. In this situation, the minimum penalty is the smaller of $135 or 100% of the unpaid tax.

What is Electronic filing direct deposit?

We electronically transmit your tax return to the IRS. You can request your refund amount to be directly deposited into your checking or savings account and receive your money usually in 9-14 days.
e-File Refund cycle : web link

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