If you are preparing your tax return by hand, you may want to consider using one of the shorter tax forms. Form 1040-EZ and 1040-A are less time-consuming to fill out, and most taxpayers earning $100,000 or less are eligible to utilize those short forms.
The Form 1040 functions as a kind of summary, with various income and expense items tallied up on separate schedules or worksheets, and the results carried to the 1040. Tax software will help you work through these items and fill out the 1040 based on your data inputs.
Many people will find that preparing their Form 1040 for the year 2010 will be mostly similar to their 2009. There are some changes from last year, and there are some new tax breaks that some people may find particularly beneficial. So here's some key points about what's different for 2010.
Deadline: April 18, 2011
This year's filing deadline is April 18th, 2011. This is a bit unusual since April 15th, the traditional tax filing deadline, falls on a Friday. However this April 15th, the District of Columbia will be celebrating Emancipation Day on the 15th, and so IRS headquarters will be closed on that day. This gives taxpayers three extra days to make IRA contributions, file tax returns, and submit tax payments.
Extended Deadline: October 17, 2011
Taxpayers may file an extension, which provides them with an extra six months to file their tax returns. This year the normal extended deadline of October 15th falls on a Saturday, and so the extended deadline will be Monday, October 17, 2011.
Last Year to Claim the Making Work Pay Tax Credit
The Making Work Pay tax credit was designed to be limited to two years (2009 and 2010). This tax credit is expiring, as scheduled, and 2010 will be the last year for this tax credit. Making Work Pay provides a refundable tax credit of up to $400 based on wage or self-employment income.
No More "Additional" Standard Deduction for Property Taxes
In 2008 and 2009, homeowners could add up to $500, or $1,000 if they were married, to their standard deduction if they paid property taxes, in lieu of itemizing. That particular tax break has expired as scheduled. Homeowners will once again need to itemize to take any deduction for real estate taxes.
Unemployment Benefits are Fully Taxable in 2010
This year all unemployment benefits will be included in a person's income. This is different than in 2009 when the first $2,400 of benefits were excluded from the income tax. And speaking of being unemployed, if you paid for health insurance coverage under COBRA at a discounted rate, you may need to pay back the COBRA subsidy you received if your income for the year exceeds $125,000 for the year.
Last Year to Deduct Mortgage Insurance Premiums
2010 will be the last year to deduct any mortgage insurance premiums. This deduction lasted four years (2007 through 2010).
Adoption Credit Made Refundable for 2010
If you adopted a child in 2010, your adoption tax credit will be a fully refundable credit. If you adopted a child in a previous year, any carryover amounts of the adoption credit that haven't been used up may be refundable as well.
Heightened Awareness of Foreign Income and Assets
The IRS is busy trying to find taxpayers who've been remiss in reporting the existence of foreign bank accounts and income earned abroad. Don't be surprised if your tax software or accountant starts asking about questions about foreign accounts, foreign trusts, and hidden income. If you do have bank or brokerage accounts abroad, be aware that you may have a requirement to file a special foreign bank account report with the Treasury. Foreign issues will receive even greater emphasis in 2011 when the IRS begins enforcing a new law requiring taxpayers to disclose foreign assets on their tax returns.
Reporting Roth Conversions
2010 was the first year that higher-income people were eligible to transfer money from their pre-tax Traditional IRA and 401(k) accounts into post-tax Roth accounts. Roth conversions made during 2010 need to be reported on the 2010 tax return, and taxpayers will need to choose between two reporting methods: recognizing and taxing all Roth conversions in 2010, or spreading the income between 2011 and 2012. Taxpayers also have a third option as well: they can "undo" or recharacterize their Roth conversion.
People May See Their Alternative Minimum Tax Decrease Slightly
Exemption thresholds for the alternative minimum tax were increased slightly for the year 2010. But the minimum tax continues to loom as a pressing tax issue for many middle- and high-income earners.
Self Employed People May See Their Self-Employment Tax Drop Slightly
For 2010 only, health insurance premiums paid by self-employed persons for themselves and their family will reduce their self-employment tax. This creates a temporary parity between employees (who already get their health insurance free of income and FICA taxes) and the self-employed (who traditionally have to pay Social Security and Medicare taxes on their health and dental insurance).A number of other changes, or rather temporary preventions of changes, were implemented as part of the Tax Relief Act of 2010.
