With deadline coming, some tax breaks still in effect

The deadline for filing the 2010 federal tax return is April 18, thus fast approaching. Thanks to the 2010 Tax Relief Act passed by Congress in December, some tax breaks were extended.

Congress surprised most of us when it passed significant new tax legislation with a number of meaningful tax cuts. At the same time, the new law let stand many tax rates that many had expected to rise - such as capital- gains and dividends rates. Because Washington observes Emancipation Day on April 15, you have until midnight April 18, 2011, to postmark or e-file your tax forms.

It is important to remember that the new law is temporary, says Alan Mandeloff, tax partner at Citrin Cooperman in Philadelphia and president of its wealth-management division. Congress must act before Jan. 1, 2013, and many of the tax rates could change after that. (See Citrin Cooperman's tax planning guide online at: http://www.webtaxguide.net/CitrinCooperman/).

Here's a breakdown of things to keep in mind as you prepare your taxes.

Investors: Remember that the current rate for capital gains and dividends in your investment portfolio remains 15 percent for the next two years - a surprise, but very positive. The dividend tax rate was originally set to rise to as high as 39 percent, and that would have been very damaging to the stock market.

Remember any tax-loss carry-forwards from previous years. If you lost money in your portfolio, and have unused capital-loss carry-forwards from 2009 or previous years, you should be able to offset capital gains realized in 2010. If your capital losses exceeded your gains, you can generally use the excess to offset up to $3,000 of income ($1,500 for married couples filing separately).

Numerous tax-credit programs - the child-and-dependent-care credits, tuition, and earned income, among others - were also extended for another two years, and Congress maintained current tax brackets. An invisible break for regular folks? Congress cut the employee's share of Social Security payroll tax by 2 percentage points for 2011, providing an immediate boost to your paycheck.

Child-and-dependent-care taxes: The child tax credit remains at $1,000 per child living at home. For 2010, if you (and your spouse, if married) were working, you may be able to claim the first $3,000 of day-care expenses for one child and the first $6,000 for two or more children. The credit can be up to 35 percent of your expenses, depending on your adjusted gross income.

College tuition and fees credit: There is credit of 100 percent of the first $2,000 of qualified tuition and related expenses, plus 25 percent of the next $2,000 of qualified tuition and related fees paid during the tax year, for up to $2,500 per eligible student per year for the first four years of postsecondary education.

Depreciation expense: Perhaps most important for business owners, the bill extends the 100 percent depreciation expense for tax purposes for any equipment ("business property") acquired after Sept. 8, 2010, through Dec. 31, 2011, and placed into service, according to the Journal of Accountancy. This was a welcome break since it benefits businesses. For more information, visit the IRS Small Business and Self-Employed Tax Center (http://www.irs.gov/businesses/small/index.html).

AMT: The bill also included an AMT (Alternative Minimum Tax) extension for 2010 and 2011. For tax year 2010, the AMT exemption amounts are $47,450 for individual taxpayers and $72,450 for married taxpayers filing jointly. For 2011, the amounts are $48,450 and $74,450, respectively.

Medical and dental expenses: With insurance premiums climbing, more Americans may be able to deduct these as expenses, according to a study by Fidelity. But these items must exceed 7.5 percent of adjusted gross income, or 10 percent of adjusted gross income if you are subject to the AMT.

Job search expenses: If you looked for a new job in 2010, you may be able to deduct certain job-search expenses, as long as it was for a new job in your present occupation. You cannot deduct job-search expenses if you looked into a new occupation, or there was a substantial break between the end of your last job and when you looked for a new one.

Estate taxes: Congress revived the estate tax, and gave you two choices this year. If you are the executor of an estate of someone who has died in 2010, you can elect to be taxed under the 2010 rules - when there was no estate tax. Or, you can elect the new $5 million federal estate-tax exemption at the new 35 percent rate. In practical terms, that means you would pay taxes on assets above $5 million at a 35 percent rate.

One potential pitfall? The increasing disparity between the federal estate-tax exemption and the amount exempt from state tax. In Pennsylvania, Mandeloff says, the state levies an inheritance tax of between 4.5 percent and 15 percent, depending on the relationship to the person who died.

Teacher classroom expenses: Eligible educators can generally deduct up to $250 ($500 if married filing jointly and both spouses are educators, but not more than $250 each) of any un-reimbursed expenses for books, supplies, computer equipment (including related software and services), other equipment, and supplementary materials that are used in the classroom.

Two-year tax rule for Roth IRA conversions: If you converted a traditional IRA or other qualified retirement plan account to a Roth IRA in 2010, you have a choice when it comes to taxes. You can elect to either pay the entire tax bill with your 2010 return or split the converted amount evenly between your 2011 and 2012 tax returns.

Adoption credit: For 2010, the maximum credit for adoption costs increased to $13,170 and applies to the adoption of any eligible child, not just special-needs children.

Home buyers and energy improvements: Eligible buyers who bought or entered into contract to buy their primary residence on or before April 30, 2010, and closed by Sept. 30, 2010, may be able to take a first-time home buyer credit. The maximum credit for a first-time home buyer is $8,000. The maximum credit for a long-time resident home buyer is $6,500. You can also claim a tax credit of up to 30 percent of any expenses for improved energy efficiency, such as furnaces, water heaters, windows and doors, or insulation (the maximum credit is $1,500).

Marriage penalty relief: Congress provided some temporary relief to married couples filing jointly, by increasing the basic standard deduction to twice the amount for a single individual.