Archive for the ‘2010 Tax Information’ Category

Wall Street Reform Becomes Law

Monday, January 9th, 2012

On Wednesday, July 21, 2010, President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Here are some of the key measures:

  • No More “Too Big to Fail” Bailouts. The federal government will now have the power to seize and liquidate failing financial firms while limiting taxpayer financial exposure. Large financial institutions also face stricter capital, leverage and liquidity requirements.
  • New Consumer Protection Bureau. The bill establishes a new Consumer Protection Bureau with the task of monitoring mortgages, credit cards and other loan products.
  • New Financial Stability Oversight Council. The Council is designed to serve as an “advanced warning system” to expose risks that might threaten the economy.
  • Oversight of Derivatives. Derivative trades must snow pass through clearing houses or swap repositories to increase market transparency and allow better oversight.
  • The “Volker” Rules. These rules are designed to limit big, insured banks’ activities in speculative derivatives and stock investments. The rules also require big banks to sell off much of their interest in hedge funds and private equity.
  • Reduced Fees on Debit/Credit Cards. The law will curb the fees retailers are required to pay banks and credit unions on debit and credit card transactions.
  • Oversight of Credit Rating Agencies. New rules require more objective review and accountability for ratings from the firms that rate financial products.

Many of these rules will take years to implement, and there is divided opinion over the effectiveness of the bill. It will be years before we will understand the full effect of this historic bill’s passage.

Pending Legislation–Be Prepared

Monday, January 9th, 2012

Many tax provisions in 2009 have expired and will catch taxpayers by surprise if legislation is not passed to extend the laws into 2010. Here are some tips while we are in limbo:

Tip 1: Keep Sales Tax Receipts for Major Purchases. In 2009 you could opt to deduct either state income taxes OR the state and local general sales taxes paid as an itemized deduction on your Federal Tax Return. This option goes away without an extension. So if you purchase a large item like an automobile make sure to keep the receipt…just in case.

Tip 2: Teachers, Document Your Expenses. The $250 out-of-pocket expense deduction on your taxes is not currently available in 2010 without a law change, but don’t assume it will not occur. Continue to save your receipts.

Tip 3: Save Energy Efficient Purchase Documents. Many of the credits available for purchasing new energy efficient improvements for your home have also expired. But again, save the receipts as many of these provisions may also be extended through 2010.

Tip 4: Don’t plan on Property Tax Standard Deduction. Many taxpayers who did not itemize last year were able to receive an increased Standard Deduction up to $1,000 for Property Tax payments. This provision has not yet been extended into 2010.

Tip 5: Hold off on That Direct IRA Contribution to Charity. The tax-free distribution directly from individual retirement accounts (IRAs) to qualified charities for seniors has not yet been extended through 2010.

Most experts agree that these provisions will be extended into 2010, but until they are all we can do is be prepared.

Be Aware of More Tax Law Changes

Monday, January 9th, 2012

Tip 1: Don’t Forget Your Minimum Required Distribution

There is a minimum required distribution from retirement accounts for those aged 70 1/2 years old or over. In 2009, this distribution requirement was waived for one year due to the sharp decline in reinvestment values during the recession. In 2010, the minium distribution is required once again. If not sure how much you must take out of your accounts, please call.

Tip 2: Time to Review Capital Gains

At the end of 2010 the long-term capital gains tax rates are going up. The current rate of 15% (0% if you are in the 15% or lower income tax bracket) will be reset to earlier levels. The amount will, in all likelihood, be 20%.

Tip 3: Plan for less in Dividends

Through 2010 tax rates on ordinary dividends are taxed at long-term capital gains rate (15% maximum). Starting next year these same dividends will be taxed as ordinary income (up to 39%).

Tip 4: Unemployment Benefits Taxed Once Again

In 2009, the first $2,400 of unemployment benefits an individual received was federal tax-free. This provision does not apply to 2010 so plan ahead.

Wall Street Reform Bill

Monday, January 9th, 2012

If you are like most Americans, reading a summary of the Wall Street Reform and Consumer Protection Act might better serve as an alternative to sleeping pills. So what does this bill mean to you?

  1. Limited Use of Debit/Credit Cards. You may start seeing minimum charge amounts for debit and credit cards. Visa and Mastercard rules are being loosened up to allow retailers to reject unprofitable transactions. Often using your debit card for a $1.00 can of soda can cost the retailer more to process the transaction than the purchase is worth.
  2. Home Mortgages Will Change. Most pre-payment penalties will be eliminated. Complex mortgage products will need to pass through the new Consumer Protection Bureau. Lenders are required to ensure that borrowers can pay the loans that they sell and the bill prohibits lenders from steering borrowers to more expensive loan options. Refinancing fees will also be reduced.
  3. Access to Your Credit Score. You’ll be able to see your credit “score” free if you are refused for a mortgage. Currently you have the right to see your credit report free once per year, but until now you had to pay to see your credit score.
  4. Beware Car Loans. Read car loans carefully as car lenders are exempt from oversight by the Consumer Protection Bureau.
  5. Higher Limits on Deposit Insurance. Effective immediately, the FDIC has permanently raised the limit from $100,000 on insured individual deposits to $250,000.
  6. No more $30 fee for a $2.00 overdraft. You’ll need to “opt-in” to expensive bank overdraft programs. Banks can no longer automatically charge you high fees for overdrafts. You will probably start seeing letters from your bank disclosing how overdraft fees are calculated and asking for your permission (opt-in) to their overdraft policy.
  7. Lower Prices? The Federal Reserve will try to ensure that fees charged to merchants by credit and debit card companies are reasonable and in proportion to the cost of processing the transaction. Because of this, you may see more discounts for cash payments OR even lower prices as merchants pass their credit card expense savings back to you.
  8. Emergency Mortgage Relief. The bill provides for $1 billion in bridge loans to qualified unemployed homeowners with reasonable prospects for re-employment to help cover mortgage payments until the homeowner is re-employed.
  9. New Bank Fees? You will need to review your bank’s fee structure. Because banks will be losing some current revenue streams, expect banks to start looking for fees elsewhere. Be on the lookout for new fees, such as charges for checking accounts or online banking.
  10. No More Nasty Letters Required. If the “Act” is correct you’ll no longer have to send nasty letters to your representative regarding taxpayer bailouts. If institutions gamble and fail, they can no longer look to us to make them whole.

Key 2010 Exemptions and Deductions

Sunday, February 6th, 2011

Listed here are key deduction rates for 2010.

Personal Exemptions

The personal exemption for each qualifying dependent remains at $3,650 for 2010.

2010 Alert: The phase-out of the personal exemption will not apply in 2010. This includes taxpayers with adjusted gross incomes in excess of the former phase-out-amounts.

Standard Deductions

Standard deductions for those who do not itemize are shown below. Only the deduction for head of household increases for 2010.

  2010 2009
Single $5,700 $5,700
Married Filing Sep. $5,700 $5,700
Married Filing Joint $11,400 $11,400
Head of Household $8,400 $8,350

 

If 65 or over and/or blind add:

  2010 2009
Single/Head of Household $1,400 $1,400
Married / Surviving Spouse $1,100 $1,100

 

2010 Alert: The real estate tax standard deduction is available again in 2010. It is up to $500 (single) and $1,000 (married).

2010 Alert: The overall phase-out limitation on itemized deductions does not apply in 2010. This includes taxpayers with adjusted gross income in excess of the former phase-out amounts.

Standard Mileage Rates

The standard mileage rates for 2010 are:

Mileage Rate/Mile
Business Travel $.50
Medical/Moving $.165
Charitable Work $.14

2010 Tax Rates

Sunday, February 6th, 2011

The income brackets for each tax rate are:

Single Married Jointly Head of Household Tax Rate
$1-8,375 $1-16,750 $1-11,950 10%
$8,376-34,000 $16,751-68,000 $11,951-45,550 15%
$34,001-82,400 $68,001-137,300 $45,551-117,650 25%
$82,401-171,850 $137,301-209,250 $117,651-190,550 28%
$171,851-373,650 $209,251-$373,650 $190,551-373,650 33%
Over $373,650 Over $373,650 Over $373,650 35%

Making Work Pay Credit Reminder

Sunday, February 6th, 2011

Unless Congress acts, 2010 marks the second, and final, year of the Making Work Pay Credit. This provision in the tax code allows for a tax credit of up to $400 for individuals and $800 for married couples filing jointly. The credit phases out for those with incomes in excess of $75,000 or $150,000 married filing jointly.

Please recall that federal payroll withholding tables were adjusted so that for most clients your tax refund will be approximately the same. However, if your income is higher or you have more than one job, you could actually owe slightly more than is typical. It is also important in some cases to file a tax return even if you think you owe no tax as you may be eligible for this credit.

Uncertainty in Tax Law Changes

Sunday, February 6th, 2011

With so many tax provisions expiring in 2009 and 2010, it makes planning your taxes extremely difficult. This is especially true when you need to retain records throughout the year in order to take the deduction. What should you do? For many provisions it is recommended to plan to your greatest benefit. Here are some key areas to note:

  1. Exclusion of unemployment benefits. You may no longer exclude from income the first $2,400 of unemployment benefits in 2010.
  2. New vehicle sales tax deduction. There is no longer a tax benefit for sales tax paid on purchasing a new car. This provision expired in 2009.
  3. Alternative Minimum Tax. The exemption levels drop back down in 2010 unless Congress acts to sustain higher exemption levels. For the past few years Congress has done just that, saving numerous tax payers from this higher tax.
  4. Domestic Production Activities Deduction. This deduction increases from 6% to 9% of qualifying business net income in 2010.
  5. State and Local Sales Tax Deduction. Save any receipts that substantiate payment of large amounts of sales tax. If continued, you may opt to deduct either state income taxes OR the state and local general sales taxes paid as an itemized deduction.
  6. Teachers Classroom Expense. If you are a teacher, assume you will be able to continue to deduct up to $250 of qualified out-of-pocket expenses for unreimbursed purchase of qualifying classroom supplies and materials.
  7. Other Provisions Worth Watching. Other common tax code provisions that could be extended through 2010 include: direct contributions to charities from qualified retirement plans, the standard deduction option for property taxes, and the extension of the qualified tuition and education expense deduction. In all these cases, once again, save any documentation required to take advantage of these options to retain flexibility if and when the tax law changes.

The One-Year Estate Tax-Break

Sunday, February 6th, 2011

For 2010, and only 2010, the federal estate tax is eliminated for individual estates. This change means that the old “stepped up basis” rules for property transferred to you via an estate is no longer used. Instead, you will need to determine the gain on each individual asset transferred. Uto to $1.3 million of these “carryover” gains can be exempt from tax (add $3 million for gains inherited from a spouse).

In addition, the tax rate on gifts above a $1 million lifetime exemption is dropping from 45% in 2009 to 35% in 2010. Recall, any gifts below the lifetime limit to any one person would not be subject to this tax.

In 2011, the one-year federal estate tax elimination expires and the federal estate tax laws revert back to old tax laws in place in 2001 unless Congress acts to modify the rules.

Remember Your 2010 RMD

Sunday, February 6th, 2011

In 2009, those age 70 1/2 or over were given a one-year waiver on making required minimum distributions (RMD) from qualified retirement accounts. This waiver has expired. So unless Congress acts, to avoid penalties, please make any required retirement plan distributions prior to year end.