Hold onto your wallets, and tighten up your money management controls!

Here is a brief summary of tax law changes for 2010.

By Patti S. Spencer of Spencer Law Firm

The New Year brings many tax changes. Many tax breaks are phased out. The changes below are the current state of the law. It is always possible for Congress to act to extend or replace disappearing provisions.

The House passed a bill that extended many of these provisions, but the Senate was unable to schedule a vote on it. The Senate has been tied in knots over the health care bill.

Roth IRA conversions

Starting in 2010 the income cap for converting a traditional IRA to a Roth IRA is eliminated. Now anyone can do a Roth conversion. If the conversion is done in 2010, taxpayers can spread the income tax attributable to it over two years: 2011 and 2012. Note that while the income cap is removed for purposes of qualifying for the conversion of a traditional IRA to a Roth IRA, there remains an income cap on regular contributions to a Roth IRA. The income phase-out begins at $167,000 for joint filers.

New vehicle sales tax

Individuals will no longer be able to take an itemized deduction or increase the standard deduction for the sales tax on the purchase of a new motor vehicle. Vehicles had to be purchased after Feb. 16, 2009, and before Jan. 1, 2010, to qualify for the deduction.

Sales tax

The choice to deduct state sales tax payments instead of deducting state and local income taxes is gone. This provision was very important for taxpayers in such states as Florida, where there is no income tax.  THIS IS REALLY UNFAIR TO LOW TAX STATES.

End to phaseouts

In 2010 there will be no phaseout of itemized deductions and personal exemptions for higher-income taxpayers. This will greatly benefit high earners.

Teachers’ deduction

The $250 deduction for teachers who buy classroom supplies with their own money is eliminated.

Tuition and fees

The $4,000 deduction for college tuition and fees expires after 2009. This deduction was permitted “above the line,” meaning it could be taken even if the taxpayers didn’t itemize.

Contribution from IRAs

IRA owners older than 70½ who make contributions from their IRAs directly to charity will no longer be able to exclude these withdrawals from income.

Property tax deduction

Non-itemizers will no longer be able to deduct up to $1000 in property taxes paid. This provision had been a help to homeowners who had no mortgage so that there was no interest deduction to help make itemization worthwhile.

AMT exemptions

The Alterative Minimum Tax exemption levels fall back to $45,000 for married filing jointly and $33,750 for singles and heads of household. (In 2009 the exemption was $70,950 for married filing jointly and 46,700 for singles and heads of household.) Some commentators say that as many as 1 in 5 taxpayers will be subject to the AMT in 2010.

Unemployment benefits

The first $2,400 of unemployment benefits will no longer be tax-free.

Energy credit reduced

The 30 percent tax credit for the cost of energy-saving home improvements is reduced to 19 percent and is capped at $500.

Section 179 expensing

The maximum amount of equipment that can be expensed (instead of depreciated) is reduced to $135,000 from $250,000. Businesses can no longer claim 50 precent bonus depreciation on assets placed in service in 2010.

Tax on dividends

For taxpayers in brackets higher than 15 percent, qualified dividends are taxed at a maximum rate of 15 percent through Dec. 31, 2010. For taxpayers in the 10 percent and 15 percent brackets, qualified dividends are taxed at 0 percent through Dec. 31, 2010. The provisions sunset at the end of the year, and dividend taxation reverts to former 2002 rates.

Mileage reimbursement

The mileage rates in 2010 are 50 cents for business, 16½ cents for medical and 14 cents for charitable purposes.

Home buyers credit

If you used the home buyers credit in 2008, you must start paying it back in 2010. The qualification period for first-time home buyers to purchase a home and qualify for the credit continues through May 1.

Retirement accounts

Remember you have until April 15 to contribute to a traditional or a Roth IRA. If you have Keogh or SEP and you get a filing extension for your 2009 return until Oct. 5, you have until that date to make contributions.

No estate tax

The federal estate tax is repealed for individuals who die in 2010.

Wild cards

If the Senate and House eventually hammer out a health care bill that becomes law, there are various provisions in the current legislation on how to pay for it. The House bill includes a 5.4 percent surtax on high earners and would curtail flexible spending accounts. The Senate bill includes a 40 percent surtax on high-end employer-sponsored health plans that provide health coverage valued at more than $8,500 for individuals and $23,000 for families (they call them “Cadillac plans”) and increases the Medicare payroll tax. Hold on to your wallet.

Article Source: http://articles.lancasteronline.com/local/4/247022

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