Uncertainty in Tax Law Changes

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.