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2010 CCH Whole Ball of Tax
You Can Reduce Your Taxes Without Itemizing
(RIVERWOODS, ILL., January 2010) – You don’t have to itemize to find opportunities for savings on your taxes, according to CCH, a Wolters Kluwer business and a leading provider of tax, accounting and audit information, software and services (CCHGroup.com). But be sure to select your tax form carefully and read the instructions thoroughly. Not every deduction or credit appears on every form. While some deductions and credits have their own lines, others do not. You are required to do some hunting and may have to fill in the blanks to take advantage of them.
Here are deductions and other income-minimizing opportunities available to non-itemizers. The first four are available on both Form 1040 and 1040A:
- IRA deductions – The maximum deduction per year for an Individual Retirement Account ( IRA) is $5,000 for 2009. Individuals 50 and older can make an additional catch-up contribution of up to $1,000. You can still reduce your taxes through an IRA contribution. Contributions made up to the return due date, without extensions, are treated as made on the last day of 2009.
- Student loan interest – I f you qualified for and have paid interest on qualified education loans, you may claim an above-the-line deduction for the interest, up to $2,500. The deduction is phased out for individuals with a modified adjusted gross income (AGI) of more than $50,000, and more than $100,000 for joint filers.
- Tuition and fees – You can take up to $4,000 as an above-the-line deduction for qualifying educational expenses at an accredited post-secondary institution. The deduction is subject to reduction at AGI levels above $65,000 ($130,000 for joint filers) and is not available if AGI exceeds $80,000 ($160,000 for joint filers). This must be coordinated with other educational exclusions and cannot be used if you claim the American Opportunity Tax Credit or Lifetime Learning Credit.
- Teachers’ classroom expenses – Eligible educators can deduct up to $250 per year for unreimbursed expenses incurred in connection with books, supplies (other than non-athletic supplies for courses in health or physical education), computer equipment and supplementary materials used in the classroom.
These adjustments are available only on Form 1040:
- Expenses for reservists, performing artists, fee-basis government officials – Normally, expenses related to an occupation are taken as itemized deductions or are subtracted from income on a business return, but there are exceptions for these narrow classes. See Form 2106 for details.
- Health Savings Accounts (HSAs) and Archer Medical Savings Accounts (MSAs) – The deduction for HSAs is taken on line 25. If you have an MSA, you must indicate the deduction by writing in “MSA” and the amount on the dotted line next to line 36.
- Moving expenses – To qualify, your new workplace must be at least 50 miles farther from your old home than was your previous workplace.
- Deductions for the self-employed – If you’re self-employed, you can deduct one-half of your self-employment taxes. You also can deduct the health insurance premiums you paid as a self-employed individual. Self-employed individuals also can deduct their contributions to Keogh, SEP and SIMPLE retirement plans from their gross income.
- Early withdrawal penalties – If you earned interest that you later forfeited because of a premature withdrawal penalty, you can use the loss to reduce your gross income.
- Alimony – Alimony is deductible, including back alimony, in the year when it is actually paid. Amounts that are actually property settlements or child support are normally non-deductible – although different rules apply to pre-1984 divorces.
- Write-in deductions – In addition to the deduction for MSAs, a variety of deductions that apply to only a small number of people are entered on the dotted line next to line 36 of Form 1040 and included in the total. For example, if you signed over a check for jury duty pay to your employer (who paid your normal salary during your jury service), you would claim the deduction here and identify it as “Jury Pay.” A complete list of write-in deductions is in the Form 1040 instructions for line 36.
The Standard Deduction, Plus
In addition to the normal standard deduction, there is an additional amount to be claimed if you or your spouse is blind or was born before January 2, 1945, or both. You can also increase your standard deduction if you paid state and local real estate taxes, or certain new motor vehicle taxes in 2009. The extra amounts for age and blindness can be claimed on Form 1040 or 1040A. So can the amounts for real estate and new motor vehicle taxes, but they require the use of a new schedule, Schedule L.
If you had a net loss in a federally declared disaster area, you can tack that amount on to your standard deduction as well, but only if you file Form 1040.
If you qualify for the deduction for new car sales and use taxes, you can take it in this section of Form 1040 even if you itemize – but you can’t take an itemized deduction for sales taxes, only for state and local income taxes.
Credits Can Reduce Tax, Boost Income
Dollar for dollar, tax credits are more valuable than deductions when it comes to lowering your tax bill. When you reduce your income by a dollar, you may be reducing your taxes by only 15, 28, 33 or 35 cents. When you take a tax credit of a dollar, that’s a full dollar in your pocket instead of Uncle Sam’s.
- Foreign Tax Credit – This is for income taxes paid to a foreign country. See the instructions for Form 1116 for more details.
- Dependent Care Credit – A credit is allowed to an individual who maintains a household for one or more qualifying individuals and who pays child or dependent care expenses enabling the individual to be gainfully employed. The amount of the credit is determined by multiplying the eligible employment-related expense paid during the year by the applicable percentage.
- Education Credits – Claim the American Opportunity Tax Credit (formerly the Hope Credit) and the Lifetime Learning Credit on line 49 and attach Form 8863. The refundable portion of the American Opportunity Tax Credit is claimed on line 66.
- Retirement Savings Tax Credit – You can get a tax credit of up to $1,000 for contributions to an IRA or a qualified plan, such as a 401(k). The actual amount you get depends on your level of income for the year. To be eligible for this credit, AGI must be $53,000 or less for joint filers, $39,750 or less for heads of households or $26,500 or less for singles. You can’t take the credit if you were born after January 1, 1991, or are claimed as a dependent on another person’s 2008 return or met the definition of “student” given on the 1040 instructions. The credit is in addition to any other deduction or exclusion that applies to retirement savings contributions.
- Child Credit – It may be hard to believe, but some people who qualify for the $1,000-per-child credit don’t take it. Figuring the credit can take a bit of work, though, with even the simplest situations requiring a worksheet in the instructions and some situations requiring the use of a separate publication, Pub. 972.
- Adoption Credit – You offset your tax by up to $12,150 in qualified adoption expenses per eligible child, including taking the credit for adopting special needs children even if you don’t have expenses. The credit begins to phase out for those with modified AGI over $182,180. It isn’t identified by name on your tax return, though. You take the credit on line 52 of Form 1040, checking the box for Form 8839.
- Residential Energy Efficient Property Credit – This is another credit taken on line 52, calculated on Form 5695. It applies to expenses for solar electric, solar water heating, fuel cell, small wind energy and geothermal heat pump expenses.
- Other Credits, Including Prior Year AMT and Hybrid Vehicle – A variety of credits are taken on line 53 of Form 1040. You have to check a box or write in a form number to identify the credit you’re taking. Check the Form 8801 box to claim a credit based on prior year alternative minimum tax. (The refundable part of this credit is claimed on line 68.) Write in “Form 8910” to claim the credit for a hybrid vehicle. See the instructions for a complete list of the credits claimed on this line, including the Credit for the Elderly or Disabled, which used to have its own line on the Form.
- First-time Homebuyer Credit – You won’t find this credit, available only to those who bought homes on or after April 9, 2008, in the section of Form 1040 headed “Tax and Credits.” Look instead under “Payments,” line 67.
- Making Work Pay Credit – Your withholding for the year may have been reduced to pay you this credit throughout the year, but you can lose the benefit of the credit if you don’t fill out Schedule M and make an entry on line 63 of 1040 for line 40 of 1040-A. Those who file 1040EZ have to fill out a worksheet on the back of the form and make an entry on line 8.
Note that only the Making Work Pay Credit, credit for child and dependent care expenses, credit for the elderly and disabled, education credits, child tax credit and retirement savings contribution credit can be taken on Form 1040A.
Earned Income Credit
Many people with low incomes are entitled to an earned income credit, even individuals without children. Taxpayers with children must fill out Schedule EIC and attach it to Form 1040 or 1040A. Childless taxpayers can use Form 1040EZ to see if they are eligible to claim the credit. The IRS will compute the credit for you if you wish.
About CCH, a Wolters Kluwer business
CCH, a Wolters Kluwer business (CCHGroup.com) is a leading provider of tax, accounting and audit information, software and services. It has served tax, accounting and business professionals since 1913. CCH is based in Riverwoods, Ill. Wolters Kluwer is a leading global information services and publishing company. Wolters Kluwer is headquartered in Alphen aan den Rijn, the Netherlands (www.wolterskluwer.com).
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