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Tuesday, January 25, 2011

Time to Start Thinking About 2010 Income Tax Filings

Many Americans will have to wait up to a month to file their 2010 tax returns this year.

That's because Congress' late action in December on extending tax credits is forcing the Internal Revenue Service to update its computer system to process claims.

"A lot of taxpayers will face a delay in filing a return because of the late changes," IRS spokesman Mark Hanson said.

Three groups will have to wait until mid- to late February before they can file. They are filers who itemize deductions; those who claim a higher education tuition and fees deduction; and K-12 educators who claim an out-of-pocket expense of up to $250 even if they don't itemize.

"The majority of taxpayers will be able to fill out their tax returns and file them as they normally do," IRS Commissioner Doug Shulman said in a statement. "We will do everything we can to minimize the impact of recent tax law changes on other taxpayers."

Also, the IRS has started regulating the tax-preparation industry. Paid tax preparers must now register with the IRS and receive a preparer tax identification number.

They can sign up by going to www.IRS.gov/taxpros. This does not affect individuals who fill out their own tax forms.

Filing a tax return is one of the biggest financial dealings people have every year, and they should not have to worry about the preparer not being legitimate, Hanson said.

"Hopefully, this will give taxpayers peace of mind that the tax preparer is registered with the IRS and is professional," he said.

About two-thirds of taxpayers traditionally get a refund, Hanson said. The rest usually have to pay and often are the last to file.

This year, procrastinators will have three extra days to prepare and file their taxes.

That's because the District of Columbia recognizes Emancipation Day, which this year falls on April 15, and it affects tax deadlines in the same way that federal holidays do. So taxpayers will have until April 18 to get their financial documents in order.

The IRS expects to receive more than 140 million individual tax returns this year, with most of those being filed by the April 18 deadline. Taxpayers requesting an extension will have until Oct. 17 to file their 2010 tax returns.

Here are some of the deductions taxpayers could qualify for:

Energy: Homeowners can deduct up to 30 percent of the costs paid or incurred in 2010 for any qualified energy-efficiency improvement. The credit is limited to a total of $1,500. If you claimed part of it in 2009, you can take only the remainder on your 2010 taxes.

College: The American Opportunity Credit allows for up to $2,500 per student. The credit includes books, which did not qualify for deductions in the past. The credit counts all of the taxpayer's first $2,000 spent and 25 of the next $2,000 spent.

Homes: First-time home buyers who bought a house by April 30 and closed on it by Sept. 30 last year are eligible for a credit of up to $8,000. If you claimed the credit on your 2009 form, you can't claim it again.

Electric vehicles: Taxpayers who bought plug-in electric vehicles in 2010 are eligible for a credit of 10 percent of the vehicle's cost or no more than $2,500 per vehicle. Also, those who bought qualifying hybrid cars can claim a deduction as well.

Earned Income Tax Credit: The American Recovery and Reinvestment Act provides a temporary increase in the earned income tax credit for taxpayers with three or more qualifying children. The maximum credit is $5,657 for taxpayers who earned less than $49,000 last year. The credit started in 2009 and is good for 2010 as well.

Standard deductions: The IRS increased its standard deductions in 2009, and they will remain in place for 2010 returns. The exception is for heads of households, whose $8,400 deduction is up $50 from 2009.

Here's what most preparation services suggest you bring to an appointment:

--Prior tax return.

--Photo identification.

--Social Security cards for all people claimed on the return.

--Income statements.

--Child-care information with the provider's Social Security number or tax identification number.

--Proof of bank account for direct deposit or debit.

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