Income Tax Changes 2010
TaxesWhat better way to start the New Year then with a review of the income tax changes for 2010? Due to the economic recession, there were not a lot of changes to the tax provisions in 2010. That being said, we will outline changes to Social Security, standard deductions, exemptions, mileage rate deductions, earned income credits, Hope and Lifetime Learning tax credits, as well as changes to retirement savings accounts such as 401k plans, IRAs, and Roth plans.
Federal Income Tax Filing Deadline
The tax filing deadline for the tax year 2009 is April 15, 2010 - which falls on a Thursday. In the remainder of this publication, we're going to be discussing the changes that became effective in the tax year 2010, which will become part of your income tax filing in 2011.
Social Security and Medicare
For 2010, the Medicare tax will remain at 1.45% while Social Security remains at 6.20%. The wage limit, or Social Security maximum, remains at $106,800 - the same value as was in place during 2009. The Cost of Living Adjustment (COLA) was 0.0% - a direct reflection of the slow growth we're experiencing in the U.S. economy.
Standard Deductions in 2010
According to the IRS, around two out of every three taxpayers claim the standard deduction on their income tax returns. In 2010, there was only one change to the standard deductions - the head of household standard deduction went up by $50. The deduction for all other taxpayers remained the same. The standard deductions that apply in 2010 include:
* Single - $5,700
* Married filing separately - $5,700
* Head of household - $8,400
* Married taxpayers filing jointly / qualifying widow(er)s - $11,400
Exemption Values
The amount you can deduct for each exemption you claim on your federal income taxes in 2010 did not increase from 2009. The 2010 value of $3,650 is the same value of an exemption in 2009. Here again, we saw no increase in 2010 and only a $250 increase over the last three years.
Mileage Deduction Rates
Studies funded by the IRS demonstrate that it's less expensive to drive a car in 2010. And that means the standard mileage deduction rates are decreasing. The following table outlines the mileage deduction rates for the tax year 2010:
Mileage Deduction Rates 2010
Category Rate
Business Miles 50.0 cents per mile
Charitable Services 14.0 cents per mile
Medical Travel 16.5 cents per mile
2010 Increase to Earned Income Credit
The earned income credit applies to working taxpayers that have earned income that falls below certain thresholds. The qualification threshold depends on the number of persons in each family. The thresholds in 2010 to qualify for this credit include:
* No Children - earnings must be less than $13,460 or $18,470 if married filing jointly.
* One Child - earnings must be less than $35,535 or $40,545 if married filing jointly.
* Two Children - earnings must be less than $40,363 or $45,373 if married filing jointly.
* Three or More Children - earnings must be less than $43,352 or $48,362 if married filing jointly.
The credits themselves have also increase in 2010, with the maximum credits that can be received as indicated below:
* No Children - $457
* One Child - $3,050
* Two Children - $5,036
* Three or More Children - $5,666
Tuesday, March 16, 2010
Income Tax Changes : Lifetime Learning and Hope Credits
Lifetime Learning and Hope Credits
In 2010, tax law changes also apply to the Hope Credit. The maximum Hope Credit, available for the first two years of post-secondary education, has increased to $2,500. This includes 100% of qualifying tuition and related expense not in excess of $2,000 plus 25% of those expenses that do not exceed $4,000.
In 2010, 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 $80,000, or $160,000 for those filing joint returns for the Hope Credit. The threshold for the Lifetime Learning Credit remains at $50,000, or $100,000 for those filing joint returns in 2010.
In 2010, tax law changes also apply to the Hope Credit. The maximum Hope Credit, available for the first two years of post-secondary education, has increased to $2,500. This includes 100% of qualifying tuition and related expense not in excess of $2,000 plus 25% of those expenses that do not exceed $4,000.
In 2010, 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 $80,000, or $160,000 for those filing joint returns for the Hope Credit. The threshold for the Lifetime Learning Credit remains at $50,000, or $100,000 for those filing joint returns in 2010.
Income Tax Changes 2010 :Contributions to Retirement Accounts
Contributions to Retirement Accounts
There was not a lot of good news in 2010 for those individuals looking to increase the rate of savings into their retirement accounts. Contribution limits for 401k as well as 403b plans remained the same in 2010 at $16,500. Catch up contributions also remained at $5,500 in 2010. Contribution limits to SIMPLE retirement plans also remained at $11,500, as did the catch up contribution limit of $2,500.
The income limits for those willing to contribute to traditional IRAs as well as Roth IRA plans increased modestly in 2010. The income phase-out threshold for Roth IRAs now starts at $167,000 for those filing joint returns - an increase of $1,000. There was no change for taxpayers filing as head of household or single.
Finally, if you're covered by a retirement plan at work and you are considering contributing to a tax-deductible traditional IRA, then the 2010 income phase-out limits start at $89,000 for joint filers (same as 2009), and increases t
There was not a lot of good news in 2010 for those individuals looking to increase the rate of savings into their retirement accounts. Contribution limits for 401k as well as 403b plans remained the same in 2010 at $16,500. Catch up contributions also remained at $5,500 in 2010. Contribution limits to SIMPLE retirement plans also remained at $11,500, as did the catch up contribution limit of $2,500.
The income limits for those willing to contribute to traditional IRAs as well as Roth IRA plans increased modestly in 2010. The income phase-out threshold for Roth IRAs now starts at $167,000 for those filing joint returns - an increase of $1,000. There was no change for taxpayers filing as head of household or single.
Finally, if you're covered by a retirement plan at work and you are considering contributing to a tax-deductible traditional IRA, then the 2010 income phase-out limits start at $89,000 for joint filers (same as 2009), and increases t
Sheltering from the Alternative Minimum Tax
If you are looking to shelter yourself from this tax, then your strategy should be to accelerate your income and defer deductions you may have taken.
Some of the ways you can accelerate income include:
* Withdrawing money from a taxable IRA or 401k plan.
* Cashing in any US Savings bonds - Series EE - that you may be holding.
* Taking a short-term capital gain on a stock position you are holding.
* Switching from tax-free bond holdings to taxable bonds.
* Closing out a certificate of deposit to take the interest income gain.
If you are running a business, you can defer deductions by depreciating capital expenditures such as the purchase of office equipment instead of expensing the cost in the current year.
Finally, you can delay the payment of certain deductible items to reduce the risk of paying the alternative minimum tax. For example, in December 2008 you may have prepaid real estate taxes that are due in January 2009. This strategy allows you to take the tax deduction in 2008, which lowers your tax liability, but may trigger a minimum tax. You can also apply this same strategy to medical expenses and un-reimbursed business expenses.
Some of the ways you can accelerate income include:
* Withdrawing money from a taxable IRA or 401k plan.
* Cashing in any US Savings bonds - Series EE - that you may be holding.
* Taking a short-term capital gain on a stock position you are holding.
* Switching from tax-free bond holdings to taxable bonds.
* Closing out a certificate of deposit to take the interest income gain.
If you are running a business, you can defer deductions by depreciating capital expenditures such as the purchase of office equipment instead of expensing the cost in the current year.
Finally, you can delay the payment of certain deductible items to reduce the risk of paying the alternative minimum tax. For example, in December 2008 you may have prepaid real estate taxes that are due in January 2009. This strategy allows you to take the tax deduction in 2008, which lowers your tax liability, but may trigger a minimum tax. You can also apply this same strategy to medical expenses and un-reimbursed business expenses.
Alternative Minimum Tax
Alternative Minimum Tax is nothing new; in fact it first appeared on tax forms dating back to 1978. The problem is that more and more individuals are falling victim to the alternative minimum tax and don't completely understand its purpose. There are even some ways to create a tax shelter and avoid paying a minimum tax, and we will discuss some strategies later in this article.
Alternative Minimum Tax Rules
The IRS's tax code gives special treatment to certain kinds of income and allows taxpayers to take tax deductions or credits for other special expenses. Unfortunately, if you are qualified to take too many of these exemptions or tax credits, your tax liability may fall below a threshold and the alternative minimum tax kicks in. This tax ensures that people that benefit too much from these special provisions are paying their fair share, or a minimum tax.
When that happens, the taxpayer is directed to a special form that figures your tax liability using a different formula than the normal tax calculation. Essentially, you wind up adding back certain tax deductions you may have taken to your income. Once you've gone through the alternative minimum tax calculation, you will pay the higher of your "normal" tax liability or the minimum tax.
The intention of the alternative minimum tax, or AMT, is to set a minimum tax rate of around 27% for some of the highest earning taxpayers in the United States. The AMT prevents these individuals from taking advantage of tax loopholes which allow them to shelter a substantial amount of income from federal income taxes. The AMT eliminates some of the benefits of what are called tax preference items including:
* Accelerated depreciation rates
* Long-term capital gains
* Percentage depletion
* Tax exempt income
* Tax credits
Unless changed by Congress, by 2010, an estimated one in five taxpayers will have an AMT liability. This problem stems from a lack of indexing for inflation and is widely viewed as a flaw in the alternative minimum tax rule's initial design. In 2006, an estimated 3.8 million taxpayers are expected to be affected by the Alternative Minimum Tax. And by 2007, that number is expected to grow to 23 million taxpayers.
Alternative Minimum Tax Rules
The IRS's tax code gives special treatment to certain kinds of income and allows taxpayers to take tax deductions or credits for other special expenses. Unfortunately, if you are qualified to take too many of these exemptions or tax credits, your tax liability may fall below a threshold and the alternative minimum tax kicks in. This tax ensures that people that benefit too much from these special provisions are paying their fair share, or a minimum tax.
When that happens, the taxpayer is directed to a special form that figures your tax liability using a different formula than the normal tax calculation. Essentially, you wind up adding back certain tax deductions you may have taken to your income. Once you've gone through the alternative minimum tax calculation, you will pay the higher of your "normal" tax liability or the minimum tax.
The intention of the alternative minimum tax, or AMT, is to set a minimum tax rate of around 27% for some of the highest earning taxpayers in the United States. The AMT prevents these individuals from taking advantage of tax loopholes which allow them to shelter a substantial amount of income from federal income taxes. The AMT eliminates some of the benefits of what are called tax preference items including:
* Accelerated depreciation rates
* Long-term capital gains
* Percentage depletion
* Tax exempt income
* Tax credits
Unless changed by Congress, by 2010, an estimated one in five taxpayers will have an AMT liability. This problem stems from a lack of indexing for inflation and is widely viewed as a flaw in the alternative minimum tax rule's initial design. In 2006, an estimated 3.8 million taxpayers are expected to be affected by the Alternative Minimum Tax. And by 2007, that number is expected to grow to 23 million taxpayers.
10 Tax Saving Tips
Here are 10 superior tips for saving your tax.It seems that everyone reads about the latest tax saving tips just prior to filing their returns. At this point, it's often too late to do much about your pending tax bill. You can, however, start saving on your personal income tax bite during the year, and make additional strategic moves as the year-end approaches. Here are some basic tips for saving on your taxes.
1. Keep all business-related receipts. Keep track of what the receipts are for, and save them in a safe place.
2. Deductions. Many people neglect to carefully look for, and claim, all the deductions to which they're entitled. By simply taking the standard deduction, you may miss out on other available deductions.
3. Take all applicable tax credits. For each child under the age of 17, there is up to a $1,000 tax credit. There are also various other credits, such as those available when you adopt a child or when you elect to claim a Lifetime Learning Credit.
4. Take a loss. If you’ve done well with your investments and are looking at significant capital gains, prior to year-end is the time to offset some of those gains by selling a losing venture. Also, remember that you can carry forward up to $3,000 from previous years’ losses.
5. Consider tax-free investments. Returns are not very high, but if you're looking for a safe, tax-friendly investment, consider tax-free government or municipal bonds, among other such investments. This type of investment is particularly good for a high-income individual.
6. Remember charitable donations. While donations should not be made simply for tax purposes but for philanthropic reasons, you can always make a couple more at the end of the year to lower your tax bite. Remember to get receipts.
7. Gift if you can. You can give up to $12,000 away tax-free to each person you choose. This is typically for retirees with significant assets who want to gift money now, rather than leave it for estate taxes later.
8. Max out your IRA or other retirement plan contributions. Of course, by doing so you're assuming that your personal income will be lower when you withdraw the money. While that may or may not be the case, it’s safe to say that, if there are a number of years until you start taking distributions, the tax laws will likely change many times over between now and then — hopefully in your favor.
9. Put your (over 14-year-old) children on the payroll. By having them do some work for you, you’ll be able to shift some of your income that would be taxed at a higher rate to their lower tax bracket without being hit with kiddie taxes. Be careful, however, because college financial aid could be affected by their income.
10. Double-check your work. Errors in tax preparation and on tax returns account for millions of dollars that taxpayers could have saved every year. Remember to double-check everything.
1. Keep all business-related receipts. Keep track of what the receipts are for, and save them in a safe place.
2. Deductions. Many people neglect to carefully look for, and claim, all the deductions to which they're entitled. By simply taking the standard deduction, you may miss out on other available deductions.
3. Take all applicable tax credits. For each child under the age of 17, there is up to a $1,000 tax credit. There are also various other credits, such as those available when you adopt a child or when you elect to claim a Lifetime Learning Credit.
4. Take a loss. If you’ve done well with your investments and are looking at significant capital gains, prior to year-end is the time to offset some of those gains by selling a losing venture. Also, remember that you can carry forward up to $3,000 from previous years’ losses.
5. Consider tax-free investments. Returns are not very high, but if you're looking for a safe, tax-friendly investment, consider tax-free government or municipal bonds, among other such investments. This type of investment is particularly good for a high-income individual.
6. Remember charitable donations. While donations should not be made simply for tax purposes but for philanthropic reasons, you can always make a couple more at the end of the year to lower your tax bite. Remember to get receipts.
7. Gift if you can. You can give up to $12,000 away tax-free to each person you choose. This is typically for retirees with significant assets who want to gift money now, rather than leave it for estate taxes later.
8. Max out your IRA or other retirement plan contributions. Of course, by doing so you're assuming that your personal income will be lower when you withdraw the money. While that may or may not be the case, it’s safe to say that, if there are a number of years until you start taking distributions, the tax laws will likely change many times over between now and then — hopefully in your favor.
9. Put your (over 14-year-old) children on the payroll. By having them do some work for you, you’ll be able to shift some of your income that would be taxed at a higher rate to their lower tax bracket without being hit with kiddie taxes. Be careful, however, because college financial aid could be affected by their income.
10. Double-check your work. Errors in tax preparation and on tax returns account for millions of dollars that taxpayers could have saved every year. Remember to double-check everything.
Monday, March 15, 2010
Five Tax Saving Tips - Auto Purchase
As if price slashing and 0% interest rates weren't enough to spur you on to buy a new car, the US government is now offering incentives to help you make your decision now.
One of the provisions of the recently-passed American Recovery and Reinvestment Act of 2009 is a tax deduction for the purchase of a new qualified vehicle. Keep the following thoughts in mind when searching for your new car:
1. You can deduct state and local sales taxes on up to $49,500 of the purchase of a qualified vehicle. This could mean a tax break of almost $750 if your state tax rate is 6% and you are in the 25% tax bracket.
2. Qualified vehicles not only include new cars, light trucks and motorcycles, but motor homes as well.
3. You can take advantage of this tax deduction on your 2009 tax return as long as you purchase the new vehicle before January 1, 2010.
4. Even those who do not itemize deductions can receive this benefit.
5. Deductions begin to phase out if you are single and earn more than $150,000 or if you and your spouse jointly earn more than $250,000.
If your monthly car maintenance expenses have been continuing to increase, 2009 might be the best time to buy that new car of your dream.
Also keep in mind that you can take advantage of proceeds from a Home Equity Line of Credit (HELOC) to pay for major purchases. In addition to interest on mortgages up to $1 million, taxpayers can deduct interest on HELOCs up to $100,000.
Learn more how you can save money with free financial planning tips at Comprehensive Financial Planning.
Gary provides Guardian Angel protection for your financial issues by ensuring that your current advisers and working for you. Supported by over 30 years of financial experience, an MBA in finance from Northwestern University and CFP and ChFC certifications; Gary is an expert at discovering your hidden financial fears and providing solutions.
One of the provisions of the recently-passed American Recovery and Reinvestment Act of 2009 is a tax deduction for the purchase of a new qualified vehicle. Keep the following thoughts in mind when searching for your new car:
1. You can deduct state and local sales taxes on up to $49,500 of the purchase of a qualified vehicle. This could mean a tax break of almost $750 if your state tax rate is 6% and you are in the 25% tax bracket.
2. Qualified vehicles not only include new cars, light trucks and motorcycles, but motor homes as well.
3. You can take advantage of this tax deduction on your 2009 tax return as long as you purchase the new vehicle before January 1, 2010.
4. Even those who do not itemize deductions can receive this benefit.
5. Deductions begin to phase out if you are single and earn more than $150,000 or if you and your spouse jointly earn more than $250,000.
If your monthly car maintenance expenses have been continuing to increase, 2009 might be the best time to buy that new car of your dream.
Also keep in mind that you can take advantage of proceeds from a Home Equity Line of Credit (HELOC) to pay for major purchases. In addition to interest on mortgages up to $1 million, taxpayers can deduct interest on HELOCs up to $100,000.
Learn more how you can save money with free financial planning tips at Comprehensive Financial Planning.
Gary provides Guardian Angel protection for your financial issues by ensuring that your current advisers and working for you. Supported by over 30 years of financial experience, an MBA in finance from Northwestern University and CFP and ChFC certifications; Gary is an expert at discovering your hidden financial fears and providing solutions.
Subscribe to:
Posts (Atom)
