An Oakland Calfornia based Tax Return Preparation Firm - Company Message
Tax changes for 2010

HR 4853, new tax law signed into law
Posted on Monday, December 20, 2010 5:21 PM
Western CPE, the firm that I use for my continuing education sent out this summary
At last, the Republicans and the President have put aside their differences and compromised on a temporary extension of the 2001 Bush tax rates. The 2010 tax rates will continue for 2011 and 2012. President Obama wanted the rates to go up for high-income taxpayers, but the agreement doesn't include any increase to rates, regardless of income.
On December 17, 2010, the President signed into law the "Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010." What's the best part of the legislation? It's the law, and that means we're finally back in business just in time for year-end planning.
Ideas for year-end.What does the extension of the Bush tax cuts mean to us and our clients as year-end approaches?

1.If income and deductions are about the same in 2010 and 2011, we can now plan that the tax burden will be similar between the years. No big tax changes will hit our clients on their 2011 tax returns.

Dividends and long-term capital gains for 2011 will continue to be taxed at 15%. There's no need to accelerate either type of income into 2010 to secure a lower tax rate.

3.  The zero tax rate for dividends and long-term capital gains will continue into 2011 for low-income taxpayers. A "low-income" taxpayer for 2010 is one whose taxable income is below $34,000 single and $68,000 married filing joint. Of course, a client with 2010 taxable income below these thresholds should recognize capital gains before year-end, at least to the extent the gains fall into the 0% rate.

4.  Postponing income from 2010 to 2011 is still a valid year-end tax planning move. Constructive receipt rules apply, so simply hiding a check in the drawer for a few weeks doesn't make the income taxable in another year.

5.. Accelerating deductions into 2010 from 2011 is still a valid year-end tax planning move. AMT may make a prepayment of property tax or state income tax valueless.

Choosing to report income from a 2010 Roth IRA conversion in 2011 and 2012 is more attractive now that we know the tax brackets will be the same in 2011 and 2012 as those in 2010. Perhaps you should look again at the advisability of a 2010 Roth IRA conversion before year-end.

Bonus depreciation is increased from 50% to 100% for qualifying assets purchased after September 8, 2010, and before January 1, 2012. Purchase of new equipment before year-end will get your business client a 100% deduction for the cost. Does this sound like §179 expensing to you? Almost. Section 179 is good for new and used equipment. Section 179 is limited to the taxable income of the business. One hundred percent bonus depreciation is available only for new assets, and the depreciation deduction can create a loss.

AMT is patched for 2010. If you did a tax projection earlier in the year, it's likely that your tax planning software used lower AMT exemption numbers and showed your client well into AMT. Redo the projection for more accurate numbers.

Lots more changes are included in the new legislation. Other tax provisions are included in the agreement, including an employee payroll tax holiday, a $5-million estate exemption, a patch to AMT, several extenders of 2009 deductions, and a two-year extension of the research and development credit.

Tax opportunity act 2010

Job opportunity act 2010

The following url will get you to this act. It is long and I will post a summary of some of it in the next few days.

Bush tax cuts extended? This appears to be what will happen. I will post more details when the fill if finally approved

So far there have been few changes, but you can count on many changes after the elections.

At this time, the only real change has been an extension of the new home buyers credit.

See my blog for a couple of changes.

Tax Changes for 2009

This does not include all changes, but are the ones that will affect most people.

How will the Making Work Pay tax credit affect you?

Most wage earners will benefit immediately — or already have — with a larger paycheck as a result of the changes made to the federal income tax withholding tables to implement the Making Work Pay tax credit. Some people may find that the changes built into the withholding tables result in less tax being withheld than they prefer. 

If you're not eligible for the Making Work Pay tax credit, withholding changes could mean a smaller refund next spring. A limited number of people, including those who usually receive very small refunds, could in some situations owe a small amount rather than receiving a refund. Those who should pay particular attention to their withholding include:

  • Pensioners (see more information under Pensioners, below)
  • Married couples with two incomes
  • Individuals with multiple jobs
  • Dependents
  • Some Social Security recipients who work
  • Workers without valid Social Security numbers

The Making Work Pay tax credit, normally a maximum of $400 for working individuals and $800 for working married couples, is reduced by the amount of any Economic Recovery Payment ($250 per eligible recipient of Social Security, Supplemental Security Income, Railroad Retirement or Veteran's benefits) or Special Credit for Certain Government Retirees ($250 per eligible federal or state retiree) that you receive. If you are affected by this reduction, you should review your withholding to ensure that sufficient funds have been withheld to meet your tax obligation.

If you believe your current withholding is not appropriate for your personal situation, you can perform a quick check using the IRS withholding calculator. If you are not familiar with the withholding calculator, watch this IRS how-to video for instructions. When you have determined your correct withholding, make any adjustments by filing a revised Form W-4, Employee's Withholding Allowance Certificate, with your employer.

Pensioners do not qualify for the Making Work Pay credit, unless they receive earned income. However, because the February withholding tables also apply to pensioners, the IRS has provided pension plans with an optional adjustment procedure. If you are a pensioner with questions about your withholding, contact your pension plan administrator.
If desired, pensioners can adjust their withholding by filing Form W-4P, Withholding Certificate for Pension or Annuity Payments.

Standard Deductions in 2009

According to the IRS, around two out of every three taxpayers claim the standard deduction on their income tax returns.  Once again, the rates that apply to 2009 have increased from their 2008 levels.  The standard deductions that apply in 2009 include:

  • Single - $5,700
  • Married filing separately - $5,700
  • Head of household - $8,350
  • Married taxpayers filing jointly / qualifying widow(er)s  - $11,400
  • Married taxpayers filing separately - $5,700

There is a continuation of the extra deduction for property taxes paid and added was a provision to deduct sales taxes on new vehicles. 

Exemption Values

The amount you can deduct for each exemption you can claim on your federal income taxes has increased again in 2009.  The 2008 value of $3,500 has increased to $3,650 in 2009.  That's a total increase of $250 over the last two years.

Mileage Deduction Rates

As was the case in 2008, the IRS is telling us once again that it's more expensive to drive a car in 2009.  And that means the standard mileage deduction rates are increasing.  The following table outlines the mileage deduction rates for the tax year 2009:

Mileage Deduction Rates

      2009 Category Rate Business miles 55.0 cents per mile
      Charitable Services 14.0 cents per mile
      Medical Travel 24.0 cents per mile

Earned Income Credit 

The maximum earned income tax credit for low and middle-income workers and working families with two or more children is $5,028 in 2009, up from $4,824 in 2008.  The qualifying income limit for the credit for joint return filers with two or more children is $43,415 in 2009, up from $41,646.

There has been a change adding a category for a third qualifying child.

There also have been changes Changes to the Uniform Definition of a Child  The change in the Uniform Definition of a Child adds two new rules to the definition of a “qualifying child.”

      The child must Be younger than the person claiming the child
      Not have filed a joint return other than to claim a refund

For more information on whether a child qualifies you for the EITC, see Publication 596, Chapter 2, Rules If You Have a Qualifying Child at

Tax Year 2009 maximum credit:

             $5,657 with three or more qualifying children
             $5,028 with two qualifying children
             $3,043 with one qualifying child
                $457 with no qualifying children

Lifetime Learning and Hope Credits 

In 2009, tax law changes also apply to the Hope Credit.  The maximum Hope Credit, available for the first two years of post-secondary education, remained at $1,800.  In 2009, the taxpayer's modified adjusted gross income will be used to determine the reduction in the amount of the Hope Scholarship and Lifetime Learning Credits.  Credit reductions start for taxpayers with an AGI in excess of $50,000, or $100,000 for those filing joint returns.

Contributions to Retirement Accounts

There was some good news in 2009 for those individuals willing to increase the rate of savings into their retirement accountsContribution limits for 401k as well as 403b plans increased in 2009 from $15,500 to $16,500.  Catch up contributions also increased by $500 to $5,500 in 2009.  Contribution limits to SIMPLE retirement plans also increased by $1,000 to $11,500, while the catch up contributions remained unchanged at $2,500.

The income limits for those willing to contribute to traditional IRAs as well as Roth IRA plans increased again in 2009.  The income phase-out threshold for Roth IRAs now starts at $166,000 for those filing joint returns, and $105,000 for taxpayers with a filing status of single or head of household.

Finally, if you're covered by a retirement plan at work and you are considering contributing to a tax-deductible traditional IRA, then the income phase-out limits start at $89,000 for joint filers, and increases to $55,000 for those with a filing status of single or head of household.

Making Work Pay Tax Credit

The Stimulus Act provides tax relief to 95 percent of American workers through the “Making Work Pay” tax credit, a refundable tax credit of up to $400 per worker ($800 per couple filing jointly), phasing out completely at $190,000 AGI for couples filing jointly and $95,000 AGI for single filers. Taxpayers will not get a separate, special check mailed to them like last year’s economic stimulus payment. For many taxpayers, the additional credit will automatically start showing up in their paychecks this spring. For people who receive a paycheck, the credit will typically be handled by their employers through automated
withholding changes. For some other people, the credit can be claimed when they file their 2009 tax return next year.

Expansion of Child Tax Credit

The Act also cuts taxes for the families of millions of children through an expansion of the child tax credit (allowing families to begin qualifying for the child tax credit with every dollar earned over $3,000).

Energy Tax Credits

The legislation also includes tax incentives to spur energy savings as well as to create so-called “green jobs”. In particular, the Act:

• Provides $20 billion in tax incentives for renewable energy and energy efficiency over the next 10 years

• Includes a three-year extension of the production tax credit (PTC) for electricity derived from wind (through 2012) and for electricity derived from biomass, geothermal, hydropower, landfill gas, waste-to-energy, and marine facilities (through 2013)

• Provides grants of up to 30 percent of the cost of building a new renewable
energy facility to address current renewable energy credit market concerns;

• Promotes energy-efficient investments in homes by extending and expanding tax credits through 2010 for purchases such as new furnaces, energy-efficient
windows and doors, or insulation;

• Provides a tax credit for families that purchase plug-in hybrid vehicles of up to
$7,500 to spur the next generation of American cars;

• Includes clean renewable energy bonds for State and local governments; and

• Establishes a new manufacturing investment tax credit for investment in
advanced energy facilities, such as facilities that manufacture components for the production of renewable energy, advanced battery technology, and other
innovative next-generation green technologies.

Tax Credit

The bill provides for a $8,000 tax credit that is available to first-time home buyers for the purchase of a principal residence on or after January 1, 2009 and before December 1, 2009. The credit does not require repayment. Most of the mechanics of the credit will be the same as under the 2008 rules: the credit will be claimed on a tax return to reduce the purchaser's income tax liability. If any credit amount remains unused, then the unused amount will be refunded as a check to the purchaser. If you sell the house before three years expire, you have to repay the credit.  NOTE this has been extended about Nov 1, 2009

Education Credits

In the area of education, the Act also has tax implications. Several provisions deal with making college more affordable including one that increases the higher education tax credit to a maximum of $2,500. The law also makes it available to nearly 4 million low income students who had not had any access to the higher education tax credit in the past – by making it partially refundable. In addition, the Act Increases the maximum Pell Grant by $500, for a maximum of $5,350 in 2009 and $5,550 in 2010.

Unemployment Benefits

The  Act temporarily will change the taxation of unemployment benefits for the 2009 tax year only. Under the new economic stimulus law, the first $2,400 of unemployment benefits received in 2009 will not be subject to federal taxes. The exemption will be reflected on those tax returns filed in 2010.

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