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WHAT'S NEW IN 2010?

WHAT'S NEW IN 2010?. What we are going to cover: 2010 Tax Relief Act - New tax provisions in 2010 and 2011 Extenders for 2010 Items affecting tax preparation in 2010 and beyond Continuing ARRA provisions. BUSH TAX RATES CONTINUED*. The 2010 Tax Relief Act:

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WHAT'S NEW IN 2010?

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  1. WHAT'S NEW IN 2010? What we are going to cover: • 2010 Tax Relief Act - New tax provisions in 2010 and 2011 • Extenders for 2010 • Items affecting tax preparation in 2010 and beyond • Continuing ARRA provisions

  2. BUSH TAX RATES CONTINUED* • The 2010 Tax Relief Act: • Extends all individual rates at 10, 15, 25, 28, 33 and 35 percent • Continues for two years – through December 31, 2012 * Affects 2010 tax returns

  3. PAYROLL TAX CUT • The 2010 Tax Relief Act reduces the employee-share of Social Security taxes from 6.2% percent to 4.2% • The change is for wages earned in calendar year 2011 up to the taxable wage base of $106,800 • Self-employed individuals will pay 10.4% on self-employment income up to the threshold • Employer’s share of OASDI remains at 6.2%.

  4. IMPACT OF EXTENDED TAX RATES AND PAYROLL TAX CUTS • Example of the impact of extended tax rates and cut in payroll taxes: • Individual earning $50,000 in 2011 will: • Have approximate tax savings in income tax & payroll tax rate reductions of $890 and $1000 respectively • Thus have an approximate total in tax savings of $1,890 over what was scheduled under the EGTRRA sunset

  5. QUALIFIED CAPITAL GAINS AND DIVIDENDS* • Qualified capital gains and dividends currently are taxed at a maximum rate of 15 percent (zero percent for taxpayers in the 10 and 15 percent income tax brackets) • The 2010 Tax Relief Act continues for two years – until December 31, 2012 * Affects 2010 tax returns

  6. MARRIAGE PENALTY RELIEF • The 2010 Tax Relief Act extends marriage penalty relief for two years, through December 31, 2012. • The 2011 standard deduction for married couples filing jointly (originally to be $9,650) will be $11,600 for 2011 • This compares to $11,400 for 2010

  7. CHILD TAX CREDIT • The 2010 Tax Relief Act extends the $1,000 child tax credit for two years, through December 31, 2012. • The qualifying child must be under age 17 at the close of the year and satisfy relationship, residency, support, citizenship, and dependent tests. • Under EGTRRA’s sunset rules, the child credit was scheduled to revert to $500 per child

  8. EITC AND DEPENDENT CARE • Extends the enhanced EITC for two years (i.e., three or more qualifiying children) • Extends the enhanced dependent care credit and eligible expenses for two years • From $2,400 to $3,000 and $4,800 to $6,000 for more than one qualifying individual • Maximum credit from 30% to 35 % of qualifying expenses

  9. MORTGAGE PREMIUM INSURANCE • Under current law, taxpayers may deduct certain premiums paid for qualified mortgage insurance during the tax year on a qualified residence. • The deduction is subject to phase-out based on a taxpayer’s income. • The 2010 Tax Relief Act extends the deduction for one year subject to some limitations.

  10. EDUCATION CREDIT • The 2009 Recovery Act enhanced and renamed the Hope education credit as the American Opportunity Tax Credit (AOTC) for 2009 and 2010. • The 2010 Tax Relief Act extends the AOTC for two years, through December 31, 2012.

  11. STUDENT LOAN INTEREST • Originally the law eliminated a 60-month rule for the $2,500 above-the-line student loan interest deduction and expanded the modified AGI range for phase-out. This treatment was scheduled to expire after December 31, 2010. • The 2010 Tax Relief Act extends the enhancements for two years, through December 31, 2012.

  12. AMT PATCH* • The 2010 Tax Relief Act increases the exemption amounts for 2010: • $47,450 for individual taxpayers • $72,450 for married taxpayers filing jointly and surviving spouses • $36,225 for married couples filing separately. * Affects 2010 tax returns

  13. EXTENDERS: 2010 & 2011* • State and local sales tax deduction • Higher education tuition deduction • Teacher’s classroom expense deduction • Charitable contribution of IRA proceeds • Charitable contributions of appreciated property for conservation purpose • Additional standard deduction for real property taxes NOT extended to 2010 * Affects 2010 tax returns

  14. ESTATE TAX COMPROMISE* • The 2010 Tax Relief Act revives the estate tax for decedents dying after December 31, 2009, but at a higher applicable exclusion amount and lower tax rate • The maximum estate tax rate is 35% with an applicable exclusion amount of $5 million • This new estate tax is temporary and is scheduled to sunset on December 31, 2012. * Affects 2010 tax returns

  15. OPTIONS FOR 2010 ESTATE* • 2010 Tax Relief Act gives estates of 2010 decedents option to use 2010 or 2011 rules: • Carryover basis under 2010 rules • Stepped-up basis under 2010 rules with no estate tax (small estates) • Stepped-up basis under 2011 rules with estate tax • Election revocable only with IRS consent * Affects 2010 tax returns: out of scope

  16. IRS IN-SCOPE CHANGES FOR VITA-TCE • Schedule C – up to $10,000 expenses – same rules as Schedule CEZ (no losses, no employees, no inventory) • Schedule K-1 - royalties • Two new “on-line” training modules and tests: • HSA – Health Savings Accounts • COD – Cancellation of Debt

  17. ECONOMIC RECOVERY PAYMENT • Some SS recipients may have received $250 ERP in 2010 (overlooked in 2009): • Did not receive in 2009 when first eligible • Same eligibility rules as in 2009: social security, SSI, railroad retirement, or veterans disability benefits in November 2008, December 2008, or January 2009 • Any Making Work Pay Credit in 2010 will be reduced by this 2010 payment

  18. OTHER 2010 ARRA PROVISIONS • First time homebuyer credit (FTHBC) – extended closing on purchase of home to 9/30/10, if purchased by 4/30/10 • Repayment of 2008 FTHBC – at least 1/15th (up to $500) must be repaid • New motor vehicle purchased in 2009 (after 2/16/09) but did not pay sales taxes until 2010 – are eligible to deduct the amount paid in 2010

  19. SAVINGS BONDS FROM REFUND • For 2010, in addition to direct deposits, can use refund to purchase savings bonds • Can purchase up to three I bonds • Can purchase for selves, beneficiaries, or co-owners, or other persons, other than selves; • Use Form 8888

  20. QUALIFIED CHARITABLE DISTRIBUTIONS* • Extends exclusion for qualified charitable distributions made in 2010 and 2011 • Qualified charitable distributions made in January 2011 can be treated as having been made on December 31, 2010, to satisfy the taxpayer’s minimum distribution requirement for 2010. * Affects 2010 tax returns

  21. EXPIRED TAX BENEFITS* Waiver of Minimum Required Distributions from IRAs and defined benefit plans $2400 unemployment compensation exclusion Standard Deduction increase for real estate taxes and disaster losses Standard/Itemized Deduction increase for sales taxes for purchase of new motor vehicle Certain tax benefits for Midwest disaster areas * Affects 2010 tax returns

  22. WHAT’S NEW IN 2010 QUESTIONS? COMMENTS?

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