Thursday, February 24, 2011

TAXES: Money-Saving Tax Breaks Could Inspire You to Get Your Taxes Done

When it comes to tax filing season, there are two kinds of people: those who file their tax returns right after they receive their W-2s, and those who toss their tax documents into a drawer, quietly hoping that a jolly old accountant will slide down the chimney on the night before Tax Day and complete their 1040s.
If you fall into the second group, you have even more reason to dither this year. The deadline for filing your tax return is April 18—three days later than usual because Emancipation Day, a holiday in Washington, D.C., will be observed on April 15.
In addition, the IRS announced earlier this year that it wouldn’t process returns from taxpayers who claim itemized deductions until mid-February. The IRS said it needed time to program its systems to accommodate several tax breaks included in the tax compromise bill signed into law late last year.
Now, though, that reason for procrastination is gone. The IRS started accepting returns Monday from taxpayers who itemize. Here are some money-saving tax breaks that could give you the nudge you need to get started:
Adoption tax credit. The health care reform act increased the maximum adoption tax credit to $13,170. The tax credit is refundable, so if the amount of the credit exceeds your tax bill, you’ll receive a check for the balance.
The amount of the credit is limited to the cost of adopting a child, up to the maximum credit. Eligible expenses include adoption fees, court costs, attorney fees and travel expenses, including meals and lodging.
Taxpayers who claim this credit are required to attach documents certifying the adoption, such as a court order or decree, to IRS Form 8839. Because of that requirement, taxpayers who claim the adoption credit must file a paper return, says Barbara Weltman, author of J.K. Lasser’s 1001 Deductions and Tax Breaks.
Deduction for corrosive drywall damage. Thousands of home owners have filed complaints with regulators because their homes were built with Chinese-made drywall that emits corrosive sulfur gases. Last year, the IRS issued a special ruling that allows taxpayers to deduct the cost of repairing the damage to their homes or appliances as a casualty loss.
Ordinarily, taxpayers can’t deduct a casualty loss unless it’s caused by a “sudden disruption,” such as a fire or tornado, says William Massey, senior tax analyst for Thomson Reuters.
“Damage or loss resulting from progressive deterioration of property is not considered a casualty loss under traditional rules,” he says.
You can’t claim the loss if your insurance company has reimbursed you for the cost of repairs. If you have a pending claim, you’re eligible to deduct 75% of the amount you spent on repairs last year. The ruling is limited to defective drywall installed between 2001 and 2008.
You installed energy-efficient windows or doors, or bought a new furnace or air conditioner. If you made your home more energy efficient last year, you may be eligible for a tax credit for up to 30% of the cost, up to a maximum of $1,500. A tax credit is a dollar-for-dollar reduction in your tax bill, making a credit more valuable than a deduction.

Keep in mind, though, that $1,500 is a lifetime maximum. If you claimed the full credit on your 2009 tax return, you can’t claim it in 2010, even if you made more home improvements last year, Weltman says.
If you’re not sure whether your energy-efficient improvements qualify, check the paperwork, says Mildred Carter, federal analyst for tax publisher CCH.
Most manufacturers will certify that their products meet the standards for the credit, she says. Your contractor should also be able to help.
You don’t need to include the certification when you file your tax return, Carter says, but you should file it with your tax records in case the IRS has questions about your return.
You bought an energy-efficient vehicle. Some taxpayers who purchased hybrid cars in 2010 may be eligible for a tax credit for up to $2,200. However, the credit phases out after the manufacturer has sold 60,000 vehicles.
Toyota and Honda hybrids aren’t eligible for the credit. Ford hybrids purchased after March 31, 2010, aren’t eligible, either.
Taxpayers who purchased a plug-in, electric-drive vehicle, such as the Chevy Volt or Nissan Leaf, are eligible for a tax credit of up to $7,500.

You can find more information about tax credits for energy-efficient vehicles online at Search under “Tax Incentive Center.”
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Sandra Block (c) Copyright 2011 USA TODAY, a division of Gannett Co. Inc.
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