The IRS has released the 1040 form and accompanying instructions for taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. year 2010 here. There are a few changes from last year, though nothing major—he changes are certainly not comparable to the difference between ’08 and ’09. Remember, the return you file in 2011 is for income received in the year 2010, and the recent fight over the expiration of the Bush-era tax cuts was for income starting in 2011. Even if they had expired, your tax return wouldn’t have changed until 2012.
The 2009 stimulus bill included a number of tax cuts targeted towards lower and middle-income families (discussed here and here). These were all originally enacted on a two-year basis, and were originally set to expire at the end of 2010. Most, save for Making Work Pay, have been extended further in the recent tax compromise bill. The tax return you file this year includes the second year of these stimulus bill tax cuts, so the Making Work Pay credit is still present—even though it expired at the end of 2010, it won’t disappear from your 1040 until you file your 2011 income tax return in 2012.
Additionally, many tax parameters (such as bracket levels) are indexed for inflationInflation is when the general price of goods and services increases across the economy, reducing the purchasing power of a currency and the value of certain assets. The same paycheck covers less goods, services, and bills. It is sometimes referred to as a “hidden tax,” as it leaves taxpayers less well-off due to higher costs and “bracket creep,” while increasing the government’s spending power. and change every year without requiring Congress to act. However, inflation between 2009 and 2010 was quite low, so bracket levels barely changed from 2009 to 2010.
The practical effect of all this is that the 2010 tax return you file sometime in the next couple of months will be very similar to the one you filed last year. Here is a list of some of the more notable changes:
-The limitations on itemized deductions and personal exemptions for high income taxpayers, known collectively as PEP and Pease, have completely expired. The Bush tax cuts began a slow phase-out of these provisions which concluded for tax year 2010.
-AMT exemption levels have been set at $47,450/$72,450 (up from $46,700/$70,950) for single/married filers in 2010—a retroactive effect of the recent tax compromise. I say “retroactive” because this change affects taxes on income earned in 2010, despite not having been enacted until the very end of that year. (It doesn’t seem retroactive because, again, you don’t file your 2010 tax return until 2011, but it is nevertheless technically a retroactive change.)
-The increased standard deductionThe standard deduction reduces a taxpayer’s taxable income by a set amount determined by the government. It was nearly doubled for all classes of filers by the 2017 Tax Cuts and Jobs Act (TCJA) as an incentive for taxpayers not to itemize deductions when filing their federal income taxes. for real estate taxes has expired. Previously, even non-itemizers could increase their standard deduction by up to $1000 in real estate taxes, but this particular tax break has always been a temporary extender, and was not renewed for next year.
-The first time homebuyer’s credit has expired. Home sales after April 30th, 2010, are, for the most part, not eligible for the credit.
Another notable change: Taxpayers have three additional days to finish their taxes. Because of Emancipation Day in the District of Columbia, returns aren’t due until April 18th, instead of the usual April 15th.
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