2010 Tax Changes

All unemployment compensation received in 2010 is subject to taxation. For 2009 up to $2,400 could have been excluded from income.

Making work pay credit of up to $400 again available this year. Certain households who did not receive the $250 economic recovery payment in 2009 but got it in 2010 will reduce their Making Work Pay Credit by that amount.

Medicare Part D recipients who received a $250 rebate to assist with the "donut hole" drug plan coverage gap do not need to report this income nor pay taxes on it.

First Time Homebuyer Credit
•If you took advantage of the credit in 2008 you must begin the 15 year repayment of that credit
•For first time homebuyer's in 2010 to qualify for the credit of 10% of the purchase price up to an $8,000 credit, you had to meet the September 30, 2010 settlement deadline. This refundable credit will not require repayment.

No income limits on Roth IRA conversions. To recap, anyone can convert a traditional IRA to a Roth IRA in 2010 the old income limits that were in the way have been repealed. Anyone who does this also has the option of paying the taxes resulting from the conversion over two tax years 2011 and 2012.

For households who do not have enough expenses to itemize their deductions, the following are standard-deduction amounts based on IRS defined filing status:
•$11,400 Married Filing Jointly or Qualifying Widow(er)
•$8,400 Head of Household
•$5,700 Single or Married Filing Separately
Personal and Dependent Exemptions remain at $3,650 each.

Earned Income Tax Credit - Maximum income amounts and credit available
•$13,460 ($18,470 MFJ- Married Filing Jointly) no qualifying child - credit $457
•$35,535 ($40,545 MFJ) one qualifying child - credit $3,050
•$40,363 ($45,373MFJ) two qualifying children - credit $5,036
•$43,352 ($48,362MFJ) three or more qualifying children - credit $5,666

Additional Child Tax Credit - eligible households could receive this refundable credit if they earned at least $3,000 and had an eligible child.

Increase in Deductible Limit for Long-Term Care Premiums. For 2010, the maximum amount of qualified long-term care premiums you can include as medical expenses has increased. You can include qualified long-term care premiums, up to the amounts shown below, as medical expenses on Schedule A (Form 1040).

Age 40 or under - $330.
Age 41 to 50 - $620.
Age 51 to 60 - $1,230.
Age 61 to 70 - $3,290.
Age 71 or over - $4,110.

Expanded Definition of Qualified Expenses for Qualified Tuition Programs
The definition of qualified higher education expenses for tax-free distributions from a qualified tuition program is expanded to include amounts paid in 2009 or 2010 for the purchase of computer software, any computer or related peripheral equipment, fiber optic cable related to computer use, and Internet access (including related services) that are to be used by the beneficiary and the beneficiary's family during any of the years the beneficiary is enrolled at an eligible educational institution.

Self-Employed Health Insurance Deduction.
As always, the premiums paid for health insurance by the small business owner will be deducted on page one of form 1040. But for 2010, those same premiums can be included on Schedule E, Self Employment Tax as a deduction reducing net earnings from self employment and reducing the related Self Employment Tax. This can be up to a 15.3% savings on the cost of health insurance.