Top 5 changes that will affect your 2010 tax return

by Jim Sloan

New tax rules have gone into effect for most Americans that not only keep their taxes from going up but also increase the size of their paychecks and give them other opportunities to reduce how much they have to pay the federal government. That means more money for your checking account and savings accounts. And to give you time to double check your deductions, the tax deadline has been extended to April 18.

Here's a rundown of the top five changes you need to be aware of:

1. Homebuyers tax credit

If you bought a house in early 2010 and you meet certain income requirements, you could qualify for a tax credit of up to $8,000. You had to have entered a binding contract by April 30, 2010, and you needed to close by Sept. 30 2010 in order to qualify.

Here are some other restrictions:

  • You could get the full $8,000 tax credit if you did not own a principal residence for three year prior to buying the house.
  • If you owned and lived in a home for at least five consecutive years in the eight years prior to the purchase, you could claim a $6,500 tax credit.
  • The house could not cost more than $800,000 and had to be your principal residence.
  • The credit phases out for singles earning $145,000 or more or couples making more than $245,000.

2. Health insurance deduction

If you're self-employed, you can use the self-employed health insurance deduction to reduce your Social Security self-employment tax and income tax. What's new for 2010 is that you can deduct health insurance for you, your spouse, dependents and non-dependent children up to age 27 from net earnings that are subject to the 15.3 Social Security self-employment tax.

3. Key tax breaks that were extended

There are certain tax breaks that expired in 2009 but have been renewed, including deductions for state and local general sales taxes for people living in areas without state and local income taxes; higher education tuition and fees deductions; and out-of-pocket expense deductions of up to $250 for teachers from kindergarten to grade 12. Another change: businesses can decrease their tax liability by depreciating 100 percent of their office equipment, furniture and fixtures after Sept. 8, 2010 and through Dec. 31, 2011.

4. Exemptions and itemized deductions no longer tied to income levels

Prior to 2010, taxpayers with higher incomes were not allowed all the exemptions and deductions that lower-levels earners got. Now taxpayers at all income levels can take these exemptions and deductions, and limitations for such things as medical and dental expenses, certain itemized deductions, and casualty and theft losses are the same for all taxpayers.

5. New payroll tax cut

As part of the 2010 Tax Relief Act, wage earners and self-employed workers earning up to $106,800 will see their share of Social Security taxes decreased by two percentage points, from 6.2 percent to 4.2 percent. Your future Social Security benefits are affected by this cut, and many people will find up to an extra $1,000 in their paychecks over the course of the year. For instance, a single person earning $40,000 annually will have an extra $15 in their paycheck every week, and a single person earning $60,000 will see an extra $23 a week.

Disclaimer:This content is not provided or commissioned by American Express. Opinions expressed here are author's alone, not those of American Express, and have not been reviewed, approved or otherwise endorsed by American Express. This site may be compensated through American Express Affiliate Program.

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