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New tax rules may save you some money

February 14, 2011 12:00:00 AM PST
Tax rules seem to change every year. This year, thanks to some last-minute changes by Congress, you could be saving more than usual.

The whole tax code is confusing to most people, and when there are changes it makes it worse to try to understand it all.

So here are a few deductions that might put money in your pocket, plus a tip about avoiding an audit that we can learn from Bernie Madoff.

When Mike and Ela Arman started planning their new home, they decided to build it completely "green."

"We used high-efficiency water heater, high-efficiency heat pump, double-pane argon-filled windows that are insulated," said Mike.

In addition to saving energy, they'll also be saving money on their taxes, according to tax expert Elaine Smith, a program manager at H&R Block.

"The home energy-efficiency credit is an up to $1,500 credit you can get by making improvements to your home that increase its efficiency," said Elaine.

This particular credit expired at the end of last year. So you need to claim it on your 2010 return, or lose it forever.

Another expiring credit you'll want to claim for 2010: the Making Work Pay tax credit.

"It's $400 for single people and $800 for married filing jointly," said Elaine. "It's a credit for people who worked, even if they worked a little. It was one of the most commonly missed credits last year."

There are some other last-minute tax changes that may work out in your favor. An inflation adjustment, for example, will increase the standard deduction and the income tax credit you'll receive.

And that's not all.

"Taxpayers stand to get thousands of extra dollars and credits and deductions this year, such as the educator's expense, where teachers are paying for their own expenses for their classrooms, or the tuition and fees deduction which will help a lot of parents and students who are in higher education," said Peggy Riley, a regional spokesperson for the Internal Revenue Service (IRS).

A debate over estate taxes in Congress caused some confusion last year. But the result is that if the person died in 2010, there is no estate tax.

Unfortunately, the new tax changes are not all about more deductions. If you received unemployment benefits last year, chances are those payments are subject to taxation.

Bernie Madoff will spend the rest of his life in prison for his multimillion-dollar Ponzi scheme and tax evasion.

So here's a tip: If you suspect your spouse is not reporting income or is claiming fictitious deductions, you may want to consider filing a separate return to avoid going down with them if they get audited.

So how do you make sure you're getting all the deductions you deserve? Peggy suggests filing electronically so you'll always be using the latest up-to-date forms.

"The electronic programs will automatically ask you questions about credits and deductions that you may not even be aware of and it will definitely help you get the best refund you can get," said Peggy.

One more thing: You may have noticed an increase in your paycheck this year. That's because Congress added a provision to the Bush tax cuts that provides a 2-percent cut to the payroll tax that goes to pay for Social Security. That translates into as much as $2,100 for the year.

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