TAX LAW UPDATES FOR TAX YEAR 2010 Tax Law Updates for FS 2011 TAX LAW UPDATES FOR TAX YEAR 2010 Rev 11-05-2010

Personal/Dependency Exemption Tax Law Updates for FS 2011 Personal/Dependency Exemption No increase - $3,650 Rev 11-2010

Tax Law Updates for FS 2011 Standard Deduction: Single - $5,700 Married filing separately - $5,700 Head of household - $8,400 only increased $50 Married filing jointly/Qualifying widow(er) - $11,400

Tax Law Updates for FS 2011 Mileage Rates: Business Miles - 50 cents Medical or Moving Miles – 16.5 cents Charitable Miles - 14 cents

Tax Law Updates for FS 2011 Making Work Pay Credit

Making Work Pay Credit Maximum credit is $400 ($800 if married filing jointly) Credit is refundable Credit limited to 6.2% of earned income Can be employee or self-employed Phased out over modified AGI range of $75,000-$95,000 ($150,000-$190,000 if married filing jointly) Available for tax year 2010

Making Work Pay Credit (continued) Taxpayer must have a social security number; if married filing jointly, at least one spouse must have SSN Not available to nonresident aliens, individuals who can be claimed as dependents on someone else’s tax return, or estates and trusts

1040 pg. 2 Line 63

Making Work Pay Credit

Making Work Pay Credit (continued) Any Making Work Pay Credit must be reduced for taxpayers that received an Economic Recovery Payment in 2010 Some individuals may have received a $250 Economic Recovery Payment in 2010 if they did not receive an economic Recovery payment in 2009 but were recipients of social security benefits, supplemental security income, railroad retirement benefits, veteran disability compensation, or pension benefits in November 2008, December 2008, or January 2009 10

Earned Income Tax Credit Tax Law Updates for FS 2011 Temporary increase in Earned Income Tax Credit (EITC)

Earned Income Credit Credit percentage increases from 40% to 45% for families with 3 or more children (maximum credit is now $5,657) Phase-out amount for married taxpayers filing jointly increases from $3,120 to $5,000

Earned Income Tax Credit (EITC) for Tax Year 2009 No. of Children Maximum Credit Earned Income/ AGI Each Less Than $457 $13,460* 1 $3050 $35,535* 2 $5036 $40,363* 3 or More+ $5666 $43,352* Taxpayers with investment income of more than $3,100 are not eligible for the credit. *Increase these amounts by $5,010 for joint return filers. And/or by the 30% additional amount for NYS credit.

EITC Awareness Day 2010 Friday, January 28, 2011, EITC Awareness Day events News conferences or news releases to raise awareness of EITC and free tax preparation services Most volunteer return preparation sites will be open by EITC Day More than 60 percent of all EITC tax returns are filed during the month of February Don’t forget to let your IRS SPEC Relationship Manager know how you plan to participate.

American Opportunity Credit Tax Law Updates for FS 2011 American Opportunity Credit

Tax Law Updates for FS 2011 Student in first four years of post-secondary study Must be enrolled in 2010 in a program that leads to a degree or similar American Opportunity Tax Credit Student in first four years of post-secondary study Must be enrolled in 2010 in a program that leads to a degree or similar At least ½ the normal full-time workload Can’t have been convicted of felony of controlled substance Up to $2500 per student 100% of first $2000 and 25% of second $2000 40% is refundable credit (up to $1000) 16

Tax Law Updates for FS 2011 Up to $2500 per student 100% of first $2000 and 25% of second $2000 40% is refundable credit (up to $1000) American Opportunity Tax Credit Student in first four years of post-secondary study Must be enrolled in 2010 in a program that leads to a degree or similar At least ½ the normal full-time workload Can’t have been convicted of felony re controlled substance Up to $2500 per student 100% of first $2000 and 25% of second $2000 40% is refundable credit (up to $1000) 17

1040 Page 2 Line 66

Tax Law Updates for FS 2011 Temporary increase in refundable portion of Child Tax Credit

Additional Child Tax Credit The earned income threshold generally needed to qualify for the additional child tax credit decreases from $8,500 to $3,000 More people will qualify for the credit Lower threshold applies in 2009 and 2010

Tax Law Updates for FS 2011 First-Time Homebuyer Credit

First-Time Homebuyer Credit Extended closing deadline from June 30, 2010 to September 30, 2010 Purchased a qualifying home by April 30, 2010 and settle by September 30, 2010 Legislation enacted in July 2010 extended the closing deadline from June 30,2010, to September 30,2010. Eligible homebuyers who purchased a qualifying home by April 30, 2010 and settle by September 30, 2010 may be eligible for a credit up to $8,000. Documentation requirements apply ARRA provision extends the existing homebuyer credit for qualifying home purchases to purchases before December 1, 2009

First-Time Homebuyer Credit (continued) May be eligible for a credit up to $8,000 Documentation requirements apply 23

First-Time Homebuyer Credit (Continued) For purchases made in 2008, repayment of the credit over a 15-year period begins with the 2010 tax return. Minimum payment of $500

Form 5405 page 2

Tax Law Updates for FS 2011 Medicare Part D Coverage Gap “donut hole” Rebate – $250 More information can be found on www.medicare.gov The Affordable Care Act of 2010 provides a one-time $250 rebate in 2010 to assist Medicare Part D recipients who have reached their Medicare drug plan’s coverage gap. This payment is not taxable. This payment is not made by the IRS. More information can be found at www.medicare.gov

Residential Energy Credits Tax Law Updates for FS 2011 Residential Energy Credits

Residential Energy Credits Extension and modification of credit Nonbusiness energy property: Form 5695, Part I Amount of credit increases from 10% to 30% Credit limited to $1,500 for the total of all 2009 and 2010 purchases Credit expanded to include certain asphalt roofs and stoves that burn biomass fuel Definition of qualifying property revised, primarily to update energy efficiency requirements

Form 5695 page 2

Tax Law Updates for FS 2011 Basis of Inherited Property: No automatic increase in basis to fair market value (FMV) Inherited property treated as a gift The Economic Growth and Tax Relief Reconciliation Act of 2001 repealed the estate tax for decedents dying after 12/21/2009 and before 1/1/2011. As a result the basis of asset inherited from decedents who died in 2010 is calculated differently. 30

Tax Law Updates for FS 2011 Basis of Inherited Property: Basis of inherited property is lesser of decedent's basis or FMV Executor may allocate limited basis increase to some property Generally, for estate of decedents dying after 12/31/2009 and before 1/1/11 the basis of assists acquired for the decedents the lesser of the decedent's adjusted basis or the fair market value of the property on the date of the decedent’s death. However, there are some exceptions to the general rule. This change is only for the year 2010. the law providing for estate tax is scheduled to be reinstated on January 1, 2001. Determining the basis of property inherited from a descendent who died in 2010 can be very complex and should be refer to a tax professional. 31

Tax Law Updates for FS 2011 Expiring Tax Benefits: Economic Recovery Payments for SSA, VA and RRB Special Credit for Certain Government Retirees

Tax Law Updates for FS 2011 Expiring Tax Benefits (continued): Increased Standard Deduction for Real Estate taxes or net disaster loss Unemployment Compensation Payments Some taxpayers who purchased a qualified motor vehicle after February 16, 2009 and before January 1, 2010 did not have to pay their new motor vehicle taxes until 2010. In these instances they may be eligible to deduct the amount on their 2010 income tax return The mailing of 80,000 letters to customers who illegally collected UI benefits and did not respond to requests to pay back the money collected.  New York State now has the authority to garnish the federal income tax returns for those customer who haven’t attempted to repay.  A copy of the letter is attached.    It is important that all One Stop staff are made aware of this change.  Customers have and will continue to ask questions about this process.  One Stop staff should advise customers that they can request additional information by calling the Department’s Benefit Overpayment Section at 1-800-533-6600. If One Stop staff have any questions, they can email HRD mailbox at WDTD Employment & WorkforceSolutions@labor.state.ny.us

Tax Law Updates for FS 2011 Expiring Tax Benefits (continued): Sales Tax for Purchase of New Vehicle Deduction for educator expenses in figuring AGI

Tax Law Updates for FS 2011 Expiring Tax Benefits (continued): Itemized deduction for state and local general sales taxes Tuition and Fees deduction in figuring AGI

Tax Law Updates for FS 2011 Refund Option – Savings Bonds: Purchase Savings Bonds without a bank account Refund balance in paper check Form 8888, Allocation of Refund (including Bond Purchases) In addition to he three direct deposits, taxpayers can now use their refund to request up to three US series I saving Bonds registrations and receive a paper check for the balance of the refund. Taxpayers can make bond purchases for themselves, add beneficiaries or co-owners, and make bond purchases for someone other than themselves. Use Form 8888, Allocation of Refund (including Bond Purchases), to request these refund options.

Tax Law Updates for FS 2011 In-Scope Changes: Schedule C, Profit or Loss from Business (Sole Proprietorship) Same as Schedule C-EZ Expenses up to $10,000 The limited Schedule C has the same criteria as Schedule C-EZ, except the expense limit will be up to $10,000 from $5,000. The business Income lesson in the trainnig material will be expeanded to include more specific information about business expenses and recordkeeping. Intermediate Level 37

Tax Law Updates for FS 2011 In-Scope Changes: Schedule K-1 (Form 1041, Form 1065 or Form 1120S) Royalty income added For tax year 2009 , interest, dividends, capital gains/loss, and tax-exempt interest topics from Schedule K-1s were included in the scope of the VITA/TCE program. Schedule K-1, Royalty income is being added to scope for filing season 2011 – advanced level 38

Tax Law Updates for FS 2011 In-Scope Changes: Form 5329, Additional Taxes on Qualified Plans(Including IRAs) and Other Tax-Favored Accounts – Part 1 Exceptions to additional tax on early distribution Part 1 of the form provides exceptions to the additional tax on early distribution from qualified pension plans or IRAs. Including this section in scope will allow volunteers to assist taxpayers who may have received an early distribution and spent the funds on items such as college tuition or qualified medical expenses. Intermediate level 39

Tax Law Updates for FS 2011 In-Scope Changes: Cancellation of Debt (COD) – Debit Cards Health Savings Accounts (HSAs) 40

Intake/Interview & Quality Review Sheets Tax Law Updates for FS 2011 Form 13614-C Intake/Interview & Quality Review Sheets A must for preparers! 41

Tax Law Updates for FS 2011 QUESTIONS???? QUESTIONS??? QUESTIONS????? 42