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Business & Tech

Tax Tips: Recent Changes That Can Affect Your Return

Local accountants provide tips, advice and the latest changes to help taxpayers understand the enigma that is our tax code.

As of Monday we can all officially file our tax returns after a short delay by the IRS in order to update the processing systems with the latest tax law changes. That leaves two months until April 15 and whether you’re doing your own taxes with a program like TurboTax, using an accountant, filing a 1040EZ, itemizing, a homeowner, business owner, a non-profit or estate planner, it’s important to know how to maximize your tax return. Two local accountants help to highlight some of the changes for this year as well as some general tips for every taxpayer.

Jack Young, CPA out of San Marino, shares what he believes to be a few important changes for taxpayers for this tax year.

Health Insurance Deduction Reduces Self Employment Tax

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With the enactment of the Small Business Jobs Act of 2010, self-employed taxpayers who pay their own health insurance costs can now reduce their net earnings from self-employment by these costs.

Making Work Pay Credit

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Most wage earners will benefit from larger paychecks in 2009 and 2010 as a result of the Making Work Pay tax credit. It is normally a maximum of $400 for working individuals and $800 for working married couples.

Lifetime Gift/Estate Tax Changes

You can give a total of up to $1 million in gifts, $5 million starting in 2011 (that exceed the annual limit of $13,000) in your lifetime, before you start owing the gift tax.

 

Thomas Hart, CPA is a partner with HighPoint Partners, LLP and has a tax practice in Pasadena. He offered the following tips for taxpayers getting ready to file a return.

Benefits of Home Ownership

Remember to deduct your property taxes, your mortgage interest, points you paid when purchasing your house and home improvements required for medical care. You may be eligible for the home office deduction if you work out of your home as a self employed person, or if you have a virtual office and do not have an assigned office at your place of work. The First-Time Homebuyers Tax Credit applies to primary home purchases up until April 30, 2010. If you installed solar energy systems or geothermal heating systems you may be eligible for a tax credit of up to 30 percent of those costs.

Education and Educator Expenses

The tuition and fees deduction covers up to $4,000 that you pay for yourself, your spouse or a dependent. You do not have to itemize to qualify for this deduction. The Hope and Lifetime Learning Credits are also available. Credits may be more valuable than deductions so calculate it both ways to determine which gives you more bang for your buck. If you are a teacher, you can deduct up to $250 for books, supplies, equipment and software that you paid for out of your own pocket.

Earned Income Tax Credit

The EITC is a refundable tax credit, meaning it could lead to a tax refund even if you did not have federal income tax withheld. Taxpayers that may have low taxable income years due to being laid off from a job may find out that they are eligible for this credit.

Child and Dependent Care Credit

If you work and pay for dependent care, you may qualify for a credit for up to 35 percent of those costs up to $6,000 for married couples who both work.

Job Related Moving Expenses

If you changed jobs and moved more than 50 miles, your moving expenses and storage costs are deductible. You do not need to itemize to take this deduction.

Fund your retirement

You have until April 15 to fund an IRA contribution for tax year 2010. IRA deductions may not be available if you have a pension plan at your work or if your taxable income exceeds certain limits.

Say no to money advances and rapid refund loans.

These offers are really high-interest short-term loans with outrageously high interest rates – ranging from 50 percent to over 500 percent APR. Worse yet, with electronic filing, these offers don't deliver your refund that much faster. Typically, they will speed up your refund by only a week or two, depending on your situation. Electronically filed returns result in refunds as soon as 10 days from filing the return.

The IRS offers many types of free tax help. Visit IRS.gov

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