Tax changes for 2010
4853, new tax law signed into law
Monday, December 20, 2010 5:21 PM
Western CPE, the firm that I use for my continuing
education sent out this summary
PLANNING WITH THE NEW LAW
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.
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.
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.
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.
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
6. 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.
7. 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.
8. 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
included in the new legislation. Other tax provisions are included
in the agreement, including an employee payroll tax holiday, a
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
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
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.
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
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
55.0 cents per mile
14.0 cents per mile
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 www.irs.gov
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 accounts. Contribution 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
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.
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
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.
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.