2010 tax opportunities, challenges
It's less than 100 days and counting until the tax-filing deadline on April 18. For individuals who experienced a major life change in 2010, taxes could be more complicated. According to Minnesota Society of Certified Public Accountants, five changes that impact tax filers include divorce, death, relocation, employment changes and birth or adoption of a child.
Following a divorce, the parting couple must decide who will claim deductions such as mortgage interest, real estate taxes and the personal exemption for children. It's also important to determine who will claim any 2009 state refund (received in 2010) as income or other previously joint income. Federal and state laws require filing as single or head of household, even if the divorce was final on Dec. 31, 2010.
If a spouse died in 2010, the surviving spouse can still file a joint return for 2010. If a dependent died, the custodial taxpayer can claim the deceased dependent for a full personal exemption. No federal estate tax exists for 2010, but the person handling the estate can choose to apply either 2011 or 2010 rules. If the gross value of the estate is $1 million or less, there is no requirement to file either a federal or Minnesota estate tax return. However, spouses who inherit the entire estate can now inherit up to $10 million in most cases without triggering federal estate tax. Leaving a large estate solely to a spouse may reduce or eliminate the spouse's ability to pass on inheritance tax-free. A CPA can assist with these estate-planning issues.
Taxpayers who relocated because of a job can potentially deduct moving expenses. To qualify as a deduction, it must pass muster based on distance, date the taxpayer started the new job, and length of time on the new job. The time test is different for self-employed persons. If the taxpayer moved to a different state, he or she may have to file two state income tax returns.
Unemployment benefits are taxable. In 2009, the economic stimulus bill exempted the first $2,400 of unemployment benefits from federal income taxes. However, for 2010, there is no exemption of tax allowed from unemployment benefits. Individuals seeking employment can deduct expenses tied to the job search such as professional resume writing, mileage from driving to job interviews and networking expenses. Taxpayers who set up home-based businesses may qualify for the home office expense deduction.
Taxpayers who adopted or gave birth can claim the child on the 2010 tax return, even if it occurred on the last day of 2010. To claim the dependent, the taxpayer must obtain a Social Security number for the child. The taxpayer may need to request an extension to allow time for Social Security to process the paperwork.
Some people experience several of these life changes in one year. Due to the complexity of state and federal tax codes, consider consulting with a CPA about major life changes to avoid surprises and receive all of the tax opportunities available.
The Minnesota Society of Certified Public Accountants (MNCPA) serves the public interest by advancing the highest standards of ethics and practice within the CPA profession. MNCPA delivers on that promise by offering extensive continuing professional education and resources; advocating for members and the public with regulatory agencies and boards; and mentoring and encouraging the CPAs and business leaders of tomorrow. Founded in 1904, MNCPA's 9,400 members work in public accounting, business, industry, government and education.