Tax time-- Attorney provides tips for filing returns

By Roberta M. Gubbins

Legal News

It's that time of year again and the Internal Revenue Service has added more complications to the personal income tax return that could trip up the unwary. Lee B. Reimann, attorney with Wilingham and Coté, recently addressed the Ingham County Bar Association to bring to people's attention the filing of a return with all the credits and deductions and how to get these deductions on a return.

"The first is the 'Making Work Pay' credit, which was created when the government adjusted the withholding tables to allow for a $400 credit to be given to workers who earned under $75,000 on a single return. They didn't want to send everyone a $400 check because they didn't want people to save it. At the end of the year you need to apply for this credit, you need to apply to make up for the underpaid withholding. That is done a schedule M.

"The credit is phased out at $150,000 dollars. Couples may find that if they have a joint income over that amount even if one of the spouses had their withholding adjusted. It is always applies to dependents who may find that they owe money at the end of the year on the income they earned. For those working and receiving social security who received $250 during the year--their credit is reduced by that amount.

"The second new schedule is Schedule L, which is used in two separate circumstances. If you itemize on your return but bought a new car, this is where you take the sales tax that you paid as a deduction. Also if you take the standard deduction but own real estate--for example, your house is paid off but you have real estate taxes--you can get an extra standard deduction of $500 on a single return or $1000 on a joint return. This is paid even if you don't itemize.

"The American Opportunity Credit expands the education credit in terms of income limits, which are $80,000 on a single return or $160,000 on a joint return. This allows for up to a $2,500 credit if you or a dependent has qualified tuition, mandatory fees, or related expenses. Those expenses include expenditures for course materials including books, supplies and equipment needed for a course of study and may also include a computer. They need to be at least a half time student working on a degree program.

"It's a one hundred percent credit on the first $2,000 so even students at lower paying schools can take advantage of it. It's 25% of the next $2,000--it is liberal credit and is for 2009 and 2010. This is for the first undergraduate degree. The biggest piece is that up to 40% of the credit is refundable so even if you owed tax, the first $1,000 is refunded. There is the lifetime learning credit for other expenses.

"The Residential Energy Credit is available for 2009 and 2010. It provides a credit of 30% of cost up to $1,500. Improvements include insulation expense, energy efficient doors and windows, and high-efficiency furnaces and air conditioners. You will need to get the certification from the provider. It is cumulative so you can't do it in both years. There are also certain window shades that also qualify.

"The first-time home buyers and long-time residence credits go until houses that go under contract by May 1 and close by July 1. They have extended it for the first four months of 2010. It is 10% of the purchase price up to $8,000. It is up to $6,500 for long time residents, which has a lot more restrictions. You need to have lived in your house five of the last eight years before you buy your new home. A lot of people are doing it.

"The change this year is that if you take the credit, you need to paper file because you need to attach the settlement statement from the purchase and include form 5405. This will delay the receipt of your refund.

"And, lastly, the first $2,400 of unemployment benefits are not taxable," she said.

In answer to questions, Reimann said:

A land contract purchase will probably not qualify for a first-time home buyer credit. There has to be a transfer of title and, she noted, related party transactions do not qualify.

It is not necessary to sell the first home before buying the new home to qualify for the credit, but both spouses need to qualify so if a couple married and only one of them had been in the house five of the last eight years, they would not qualify.

The State of Michigan uses collection agencies to collect any moneys due. They are not tax people, they are bill collectors.


Lee B. Reiman is a graduate of Cooley Law School. She can be reached at (517) 324-1045 or

Published: Thu, Mar 25, 2010