Highbaugh Tax Tips Blog: 2010

We could all use a little help on our taxes this year... Well guess what... the Education Credit has been beefed and now you can even claim books. To be eligible your Adjusted Gross Income must be less than 80k (single) and 160k (joint)... Be sure to ask your tax preparer if you qualify.

Information below is borrowed from the IRS website

More parents and students can use a federal education credit to offset part of the cost of college under the new American Opportunity Credit. This credit modifies the existing Hope credit for tax years 2009 and 2010, making it available to a broader range of taxpayers. Income guidelines are expanded and required course materials are added to the list of qualified expenses. Many of those eligible will qualify for the maximum annual credit of $2,500 per student.

In many cases, the American Opportunity Credit offers greater tax savings than existing education tax breaks. Here are some of its key features:

Tuition, related fees and required course materials, such as books, generally qualify. In the past, books usually were not eligible for education-related credits and deductions.
The credit is equal to 100 percent of the first $2,000 spent and 25 percent of the next $2,000. That means the full $2,500 credit may be available to a taxpayer who pays $4,000 or more in qualified expenses for an eligible student.
The full credit is available for taxpayers whose modified adjusted gross income (MAGI) is $80,000 or less ($160,000 or less for filers of a joint return). The credit is reduced or eliminated for taxpayers with incomes above these levels. These income limits are higher than under the existing Hope and lifetime learning credits.
Forty percent of the American opportunity credit is refundable. This means that even people who owe no tax can get an annual payment of the credit of up to $1,000 for each eligible student. Existing education-related credits and deductions do not provide a benefit to people who owe no tax. The refundable portion of the credit is not available to any student whose investment income is taxed, or may be taxed, at the parent’s rate, commonly referred to as the kiddie tax. See Publication 929, Tax Rules for Children and Dependents, for details.

Though most taxpayers who pay for post-secondary education qualify for the American Opportunity Credit, some do not. The limitations include a married person filing a separate return, regardless of income, joint filers whose MAGI is $180,000 or more and, finally, single taxpayers, heads of household and some widows and widowers whose MAGI is $90,000 or more.

There are some post-secondary education expenses that do not qualify for the American Opportunity Credit. They include expenses paid for a student who, as of the beginning of the tax year, has already completed the first four years of college. That’s because the credit is only allowed for the first four years of a post-secondary education.

Students with more than four years of post-secondary education still qualify for the lifetime learning credit and the tuition and fees deduction.

Tami Highbaugh-Abdullah

317.345.4182

http://highbaughtax.com

Every year I have clients ask me what they should bring to the office when they come for their tax prep appointment.... It seems no matter how much information I give them I still send them back to get more.

Each situation is different and what maybe be a quick tax prep for one client may take a few days for another. I like to ensure my clients get the largest refund possible or owe the least amount of tax liability that is legally possible. I like to educate my clients on the latest tax laws so they know what they should and shouldn't do during the rest of the year. I borrowed the tax checklist from turbo tax. I hope it helps you get prepared.

Personal information

The IRS needs to know exactly who's filing and who is covered in your tax return. To do this, they require Social Security numbers.

Social Security Numbers

Yours
________________________________________________
Spouse
________________________________________________
Dependents
________________________________________________

Information about your income

The following documents will help to identify all of your various sources of income for the year.

Income from Jobs

Forms W-2 for all employers for whom you and your spouse worked during the year

Investment Income

Interest income - Form 1099-INT
Dividend income - Form 1099-DIV
Proceeds from the sale of stocks, bonds, etc. - Form 1099-B
Confirmation slips or brokers' statements for all stocks, etc., that you sold in 2010
Schedule(s) K-1 (Form 1065) from investments in partnerships
Schedule(s) K-1 (Form 1120S) from investments in S Corporations
Income from foreign investments: Amount of foreign taxes paid (you can find this on the brokers' statements)
________________________________________________
Stock option exercises and sales:
________________________________________________
Stock option agreement (showing the type of options you received)
Stock option statement showing exercise prices of options
Form 1099-B for proceeds from stock sales
Sale of employee stock purchase plan shares:

Stock price on grant date
_________________________________________________
Stock price on purchase date
_________________________________________________
If the stock sale occurred before the qualifying period began, Form W-2 showing "compensation income" from a disqualifying disposition

Income from State and Local Income Tax Refunds

Form 1099-G from state or local governments
State income tax return from 2009, if any
City income tax return from 2009, if any

Alimony Received

Bank statements or record of deposits

Business or Farming Income

Books/accounting records for your business OR:
Invoices or billings
Bank statements
Cancelled checks for expenses
Payroll records

In addition, you will need:

Invoices for major purchases of machinery, equipment, furniture
Logs or other records listing vehicle mileage
Inventory records, if your business maintains an inventory of goods or materials

If You Use Your Home for Business

Square footage of your home office area
________________________________________________
Total square footage of your home
________________________________________________
Total rent paid, if home is rented
________________________________________________
Mortgage interest reported on Form 1098
________________________________________________
Property tax payments from assessor's bill, cancelled checks, or impound records
________________________________________________
Homeowner insurance premium payments
________________________________________________
Invoices for repairs and maintenance on your house
Utility bills

IRA/Pension Distributions

Form 1099-R for payments from IRAs or retirement plans
Account summary form for the year for your IRA accounts , or
Deposit receipts and contribution records
If you received a distribution from an IRA account, the most-recently filed Form 8606 (if you made contributions in prior years to IRAs that weren't deductible on your income tax return)

Rental Property Income

Profit and loss statements from your property manager, or
Checkbook or cancelled checks for expenses
Form 1099-MISC or other records for rental income paid to you
Mortgage interest reported on Form 1098
Property tax payments from assessor's bill, cancelled checks or impound records
Record of suspended rental losses from prior years (usually shown on last year's income tax return)

Unemployment Income

Form 1099-G from your state unemployment agency, or
Unemployment check stubs and deposit records

Social Security Benefits

Form SSA-1099

Income From Sales of Property

If the property was sold in 2010:

Sales proceeds: Bill of sale, escrow statement, closing statement or other records
Cost of the property you sold: Invoices, receipts or cancelled checks
Improvements made to the property: Invoices or construction contracts and cancelled checks
Form 1099-C if your lender cancelled or forgave a portion of your debt. Normally considered taxable income, debt forgiveness on your principal residence is exempt from federal taxes through 2012. (You'll need Form 982.)

If the property was sold at a profit before 2010 on the installment basis:

Previous year's return – Form 6252: Installment Sales
Amount of principal collected on the installment note owed to you and the date you received each payment
________________________________________________
Amount of interest collected on the note
________________________________________________
Name, address and Social Security number of the buyer
________________________________________________
________________________________________________
________________________________________________

Miscellaneous Income

Jury duty pay records
Form(s) W-2G for gambling and lottery winnings
Receipts for all gambling purchases
Form 1099-MISC for prizes and awards you received
Form 1099-MSA for distributions from medical savings accounts
Scholarship records (if you used the money for anything other than tuition, books and supplies)
Director's fees receipts if you received money for serving on a corporate board of directors

Adjustments to your income

The following can help reduce the amount of your income that is taxed, which can increase your tax refund or lower your tax due.

Homebuyer Credits

Form 5405
Purchasers must attach a properly executed settlement statement to their return (for homes purchased after Nov. 6, 2009)
The revised law passed on Nov. 6, 2009, gives the IRS broader authority, called “math error authority,” to deny homebuyer credit claims, without having to first audit a taxpayer’s return. This authority applies, retroactively, to credits claimed on original and amended 2008 returns, as well as to claims yet to be filed.

IRA Contributions

Year-end account summary or bank statements

Green Energy Credits

Form 5695 for residential energy credits
Receipts for adding insulation, energy efficient exterior windows, energy-efficient heating and air conditioning systems, solar hot water heaters, geothermal heat pumps, and wind turbines

Student Loan Interest

Form 1098-E showing interest paid, or
Loan statements

Medical Savings Account Contributions

Account statements or
Cancelled checks

Moving Expenses

Invoices from moving companies, or
Cancelled checks, and
Paycheck stub for moving expense reimbursements

Self-employed Health Insurance

Insurance premium bills, or
Cancelled checks

Keogh, SEP, SIMPLE and Other Self-employed Pension Plans

Year-end account summary, or
Cancelled checks
Alimony Paid
Cancelled checks

Educator Expenses

Cancelled checks for expenses paid for classroom supplies, etc.

Itemized tax deductions and credits

The government offers a number of deductions and credits to help lower the tax burden on individuals, which means more money in your pocket. You'll need the following documentation to make sure you get all the deductions and credits you deserve.

Advance Child Tax Credit Payment

Copy of the IRS notice announcing the amount of your payment
Amount of the payment you received
________________________________________________

Child Care Costs

Cancelled checks or invoices
Child care provider's name
________________________________________________
Provider's address
________________________________________________
Provider's tax ID or Social Security number
________________________________________________

Education Costs

Receipts for tuition (or cancelled checks) for post-high school education
Tuition statement - Form 1098-T

Adoption Costs

Social Security number or ID number of adopted child
________________________________________________
Receipts or cancelled checks for:
- Legal fees
- Transportation
- Other costs

Interest You Paid

Home mortgage interest:

Form 1098, or
Your mortgage statement showing how much interest you paid in 2010

Points:

Form 1098 if you purchased a home in 2010
Your 2009 tax return if you refinanced in a prior year and are deducting points over the life of the loan

Investment interest expense:

Brokers' statements showing margin interest paid
Loan statements for loans taken out to purchase investments

Charitable Donations

Cash donations:

Charity bills, receipts or cancelled checks
Records of the mileage incurred for charitable purposes (such as Scouts)

Donations of property:

Receipts from a charitable agency
Estimated value of property given
________________________________________________
Appraisal fees for expensive donations
________________________________________________

Other charitable donations:

Prior years' tax returns if you have unused charitable contributions (carryovers) from earlier years
Year-end paycheck stub if donations were paid through your wage

Casualty and Theft Losses

Description of property damaged or stolen
Receipts or cancelled checks showing cost of property
Insurance policy and insurance reports showing reimbursement
Appraisal fees if applicable
Previous year’s return if your loss was in a federally-declared disaster area and you plan to deduct your 2010 loss on an amended 2009 return

Other Miscellaneous Tax Deductions

Reimbursement check stubs or reports from your employer
Union dues - paycheck stub for automatic withdrawals
Gifts to clients, etc. - receipts showing date, cost and description
Supplies - receipts or bills
Property purchased for use in your work - invoices, receipts
Uniform and special clothing costs - bills or paycheck stubs showing deductions

Job Expenses

Seminar fees - receipts or invoices
Professional publications and books - receipts or invoices
Receipts for small tools and supplies you purchased

Job travel information:

Invoices, receipts or ticket stubs for transportation
Mileage records per vehicle used
Hotel bills
Restaurant tickets showing name and address of establishment
Parking fee receipts

Medical and Dental Expenses

Invoices, receipts for medical or dental expenses, hospital care, medical aids, medicines and drugs, nursing care, nursing home expenses, transportation costs for obtaining medical care

Taxes you've paid

Properly documenting the taxes you've already paid can keep you from overpaying.

State and Local Income Taxes

Last year's state income tax return
Forms W-2
Cancelled checks for state estimates paid

Real Estate Taxes

Tax collector bills or cancelled checks
Form 1098 or closing statement if you bought, sold or refinanced property in the current year

Personal Property Taxes

Tax bills or cancelled checks
Automobile licensing bills, if fees are charged annually based on value

Information on household employees wages paid during 2010

A household employee is anyone you paid to provide domestic services in your home, like a nanny, babysitter, au pair, landscaper, etc. You are responsible for paying employment taxes for that person if you did not hire them through an agency, or if they are not self-employed and making estimated tax payments on their own.

If you are required to pay taxes on a household employees wages, you'll need:

Completed Form W-9 from your employee showing his or her Social Security number or other Taxpayer Identification Number (TIN)
________________________________________________

Other tax payments

If you paid quarterly estimated tax payments (usually paid by self-employed workers), you'll need:

Records showing the date paid and amount

If you applied a tax overpayment from 2009 to 2010, you'll need:

Your 2009 income tax return

If you filed or plan on filing extensions for your 2010 tax return, you'll need:

Cancelled checks for payments you made with the extension

Direct deposit information

If you want your tax refund deposited directly into your bank account, you'll need:

Routing number from the lower left side of one of your checks (usually the first nine digits)
_______________________________________________
Bank account number from the bottom of the check or on a bank statement
________________________________________________

Foreign bank account information

Name of financial institution
______________________________________________
Location of financial institution
________________________________________________
Account number
________________________________________________
Maximum value of account
________________________________________________

Hybrid or clean diesel auto purchases

To receive a tax break for the purchase of a hybrid or clean diesel automobile, you must provide:

Bill of sale for a hybrid automobile purchased in 2010