TAX TIME – What new tax breaks await for 2010 filing?

Every year, it's a tradition. April 15th approaches and taxes are filed. And of course every year, new tax laws and new tax breaks are created and go into effect.

If you're preparing to file, Equifax has compiled a list of the new tax breaks along with some tips for organizing your tax records. Please note one big change just for this year – Filing date is extended three days so instead of filing April 15th, you can now file by Monday, April 18th, 2011.

Let's start with the most important tax breaks you should consider when filing your 2010 return:

Higher Standard Deductions — The standard deduction for single people, at $5,700, is $250 higher this year than in 2009. That's $50 more for those who file as head of household. This brings their standard deduction to $8,400. Unfortunately for married couples who file jointly, there will be no new tax break. Their standard deduction for 2010 will be the same $11,400 they received in 2009.

Larger Earned Income Credit — Targeting primarily working families, this tax break consists of a tax credit when income is below a certain level and the credit varies depending on how many kids you have. For example, a married couple with three children and combined earnings of less than $48,362 are eligible for an earned income credit of up to $5,666 – an increase of $628.50 more than last year. The credit is available to singles and married couples, and the maximum credit is higher than last year in all cases.

Tax-free Employer-Paid Parking and Transit Costs — It's almost like a $2,700 raise. This year, the IRS allows up to $230 a month for parking and transit expenses, tax-free. You'll want to check to see if your company qualifies or if your employer is obligated. If you're paying huge monthly fees to park or travel to and from work out of pocket, this tax break could allow up to $2,700 a year in relief.

Energy Credits in 2010 and 2011 — With the President's heavy focus on the environment and clean energy, it's natural to see additional tax credits for home energy efficiency improvements. The stimulus package provided for a uniform credit of 30% on the cost of qualifying improvements up to $1,500, such as adding insulation, energy-efficient exterior windows, & energy-efficient heating and air conditioning systems. You can claim this credit via your 2010 & 2011 tax returns for improvements placed in service during 2010.

Bigger Credit for College Expenses — Designed for those with children in college. You may just qualify for the American opportunity tax credit, or AOC. As a modification of the Hope Credit, the AOC is a tax break on the costs for the first two years of post-secondary education. For tax year 2010, the maximum amount has been raised to $2,500, up $700 from last year. The credit covers 100% of tuition and eligible expenses up to $2,000 plus 25% of the next $2,000. As incomes go up, the AOC is subject to gradual phase out at higher income levels.

Health Insurance Deduction for the Self-Employed — Good news for those who work for themselves. While they have always been able to deduct health insurance premiums, for tax year 2010, a new federal law can effectively increase the size of the deduction by about 15% for many of the self-employed. Now the law allows these individuals to deduct health insurance premiums at a more favorable point in the process of completing their tax returns – before they've calculated their self-employment taxes. As a result, there will be a marked reduction in self-employment taxes since the amount of income those taxes are based on will be substantially reduced.

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From the Blog: Filing Taxes 2011: Should I Do My Own Taxes?

by Eva Rosenberg

Way back in the mists of time, I worked for a national CPA firm. They charged $250 for a simple individual tax return. Back then, that was more than my rent-today's equivalent of over $1,250. That's a lot of money for a simple tax return!

I thought it was absolutely ridiculous for people to have to pay that much money to get a simple tax return prepared. In the early 1980s, I started teaching people how to do their own tax returns.

Is it still a good idea to do your own tax return? In many instances, yes.

The way tax software is developing these days, you will get a lot of guidance on the routine issues that apply to the life of the average person.

The question is, are you the average person?

None of us likes to feel average. We all know we are special with unique aspects to our lives. Will the tax software help us deal with those things?

In many cases, yes.

I have been looking at software provided by the top online tax-preparation services for this year. Their emphasis is on walking you through the process of doing your tax return, bringing to your attention things you might otherwise overlook.

    You should do your own tax return if
  • You have a job or two.
  • You have no business, not even a little eBay thing on the side.
  • You're a student, full- or part-time.
  • You own a home and are paying the mortgage, essentially, on time.
  • You have a child (or several) whose exemption is not in dispute with an ex-spouse.
  • You have interest income from savings accounts or notes.
  • You have routine dividend income, nothing complicated.
  • You sell a few batches of stock, nothing complicated.
  • You have fully reimbursed business expenses.
  • You have a rental property with regular rental income and no big maintenance or repair issues.
    You should not be doing your own tax return if
  • You have several jobs, sometimes consecutively, sometimes simultaneously.
  • You have a business-or several-especially one with losses.
  • You are in business with a partner or friend and have never really formalized how all that fits together for tax purposes.
  • You are freelancing-where you should really be an employee.
  • You have unreimbursed employee business expenses.
  • You have a child or children whose exemptions are in dispute with an ex, or with others.
  • You have adopted a child or children in the past year.
  • You have sold your home at a loss, with short-sale or foreclosure issues.
  • You have sold investment real estate or rentals.
  • You have high out-of-pocket medical expenses.
  • You are a domestic partner or in a same-sex relationship.

Essentially, it boils down to this: If your life is straightforward and uncomplicated financially, you should do your own tax return. If you start having questions and issues, perhaps it's time to sit down and speak to someone who can help you resolve them.

Have a question about your taxes? Join "Tax Mama" Eva Rosenberg during our Live Chat at 1:00 on Thursday, 3/24. Reserve your spot now!

Comment on this article at the Equifax Personal Finance Blog

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This Month's Poll Question: Which new tax credits can you take advantage of in your 2010 return?

Every year, new tax laws and new tax legislation go into effect. Some can mean substantial savings on their tax return. How about you? We want to know how the new tax credits for the tax year 2010 will affect you.

Previous Poll Results:

Last month we asked where you will cut your spending to save money. Our results show that 32% of responders will try to eat out less. 27% will cut back on shopping. 22% will save money on entertainment. 6% will cut spending on transportation or personal care and 5% on purchases for the home. 2% are not planning on cutting their spending.

We thank you for sharing and wish you great success in reaching your savings goals!

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