It's already March>: time to get serious about filing your 2010 Form 1040 -- especially if you expect a refund. Here are several often overlooked tax-saving tips that could make your refund bigger or cut what you owe.
1. Claim Making Work Pay Credit
All but forgotten is President Obama's signature making work pay credit (MWPC), which was considered a key part of the much-criticized Stimulus Act. You could claim the MWPC on your 2009 return, but few seem to remember you can also claim it on your 2010 return. The credit can be as much as $400 for an unmarried worker or as much as $800 for a married couple. It is phased out starting at adjusted gross income (AGI) of $75,000 or $150,000 if you're a married joint-filer. To claim the MWPC, complete Schedule M (Making Work Pay Credit) and include it with your 2010 Form 1040. Enter the credit amount on line 63 of Form 1040. Since the MWPC is a "refundable" credit, you can collect the full amount even if it exceeds your federal income tax bill. Note that self-employed individuals can qualify for the MWPC too.
2. Claim Breaks for Supporting Struggling Relative
If you helped out a financially struggling relative last year, you may be eligible for some unexpected tax breaks. They can range from being able to use favorable head-of-household filing status (if you're unmarried) to claiming a $3,650 dependent exemption deduction to bagging a medical expense write-off.
3. Deduct Job Search Expenses
If you itemize deductions on Schedule A, you may be able to write off last year's expenses to hunt for a new job on your 2010 Form 1040.
4. Deduct Medicare Insurance and Long-Term Care Premiums
You can only claim a Schedule A itemized deduction for unreimbursed medical expenses, including health insurance premiums, to the extent they exceed 7.5% of your AGI. That may seem like an insurmountable hurdle, but seniors can often clear it, especially if they remember to include the following:
* Premiums for Medicare Part B coverage, which for 2010 ranged from $1,157 to $4,243 per covered person -- depending on your income level.
* Premiums for Medicare Part C coverage (so-called Medicare Advantage HMO-type coverage).
* Premiums for Medicare Part D coverage (prescription drugs).
* Premiums for Medicare supplemental insurance (so-called Medigap coverage).
* Premiums for qualified long-term care insurance, subject to the 2010 age-based limits per covered person shown below.
|Age of Covered Person in 2010||Limit|
|Age 40 or younger||$330|
|Age 41 to 50||$620|
|Aget 51 to 60||$1,230|
|Age 61 to 70||$3,290|
|Over age 70||$4,110|
5. Deduct Fees to Charge Taxes to Your Credit Card
Surprisingly enough, the IRS says you can treat credit card convenience fees paid to charge personal federal income tax bills (including estimated tax payments) as miscellaneous itemized deductions. However, you only get a write-off to the extent your total miscellaneous itemized deductions exceed 2% of AGI (other miscellaneous expenses include union dues, the aforementioned job hunting expenses, fees for tax preparation and advice and investment expenses). Fill out lines 21-27 of Schedule A to see if you can benefit.
6. Small Business Owners: Include Medicare Part B Premiums in Self-Employed Health Insurance Deduction
Sole proprietors, partners, limited liability company (LLC) members and S corporation shareholders can deduct qualified health insurance premiums paid to cover themselves and eligible family members. This is the so-called self-employed health insurance deduction. For 2010, you claim it on Line 29 on Page 1 of Form 1040. Because it is an above-the-line deduction (meaning a deduction claimed on Page 1), you don't need to itemize to benefit. The favorable news is that the IRS now admits you can include Medicare Part B premiums as part of your Line 29 write-off. Make sure you (or your tax preparer) take the new taxpayer-friendly IRS attitude into account when putting together your return, because Medicare Part B premiums for 2010 ranged from $1,157 to $4,243 per covered person. The additional Line 29 write-off from these premiums could lower your 2010 federal income tax bill by hundreds of dollars or more.
7. Self-Employed Individuals: Subtract Health Insurance Deduction in Calculating Self-Employment Tax
For 2010 only, a self-employed person is allowed to subtract the aforementioned Line 29 write-off for self-employed health insurance premiums (including Medicare Part B premiums) when calculating his or her self-employment tax liability on Schedule SE. Specifically, subtract the self-employed health insurance deduction in arriving at the amount you enter on Line 3 in Section A of Schedule SE. This little subtraction can be a big tax-saver if you pay the maximum 15.3% self-employment tax rate. (For 2010, the maximum 15.3% rate applies to the first $106,800 of self-employment income.)