Tax Time Is Coming!
This has been a year of change and uncertainty. But, one thing's certain - taxes will be upon us soon! I'm writing just before the elections. Congress will meet briefly, and may give new laws. Wait and see. For now, I have news on last-minute law changes along with suggestions on how to trim your tax bill. You still have a little time for savings before 2010 ends. Use it wisely!
No Firm Answers For 2010 Or 2011
Hard to believe. Several helpful rules expired with 2009. Congress insists they'll extend most of them. Yet, little was done by the time they adjourned to hit the campaign trail. We might see some changes after the elections. This uncertainty makes tax planning a risky proposition.
For now, I want to help you get ready for your 20 I 0 tax returns. I'll list areas to help you save on taxes under current law. Then I'll mention some items which might be revived in time to help you.
2010 Tax Savers
College Education. There are different-tax benefits for various situations. Undergraduate study has one set of rules, graduate programs another, and work-related classes yet another. I'll see to it you get the most benefit allowed if you can provide complete information. Please give details on the school, the student, level of study, and costs for the courses. I'll need to know how costs were paid, and whether there was any form of grant or aid. Also, look for costs of books, course materials and supplies. If use of a computer is required, look for on- line fees and special software. For job-related courses. I even need to know about driving to classes.
Have Employees? 2010 has three complex benefits for small employers. They cover new hires, retained employees, and any employer who pays for at least half of health insurance. Figures for total payroll won't be enough. I need to have complete information and history for all employees, and any health plan you may have.
New Home? If you bought this year, there might be a special tax credit. Rather than give all details, I ask you to call me early. If your facts seem to make the credit available, I'll have a long list of extra details you'll need to gather for tax time. This one can be big - as much as $8,000 in your pocket!
Home Energy Credits. A pair of credits are at work.
Conserving Energy. 2010 is the last year. Your insulation, doors, windows, skylights, certain furnaces, air conditioners and water heaters can help. Not for rentals or vacation homes, or to heat a pool or spa. The first $5,000 spent in 2009 and 2010 combined reduces your tax by 30% of what you spent. Spend $2,000- save $600 on taxes, for a net cost of $1,400. Keep manufacturer's flyer saying your items qualify for Federal tax credits. Costs over $5,000 for the two years are ignored.
Generating Energy. Bigger benefits if you install solar heating or generating equipment. 30% of your cost as a tax reduction. No limit on costs. Works for any home you use personally, even a vacation property. Rentals don't qualify. This one won't expire until after 2016.
Other Changes. Check the items below to know whether you are affected by any new rules.
- Mileage Deductions are worth 50¢ for each business mile. Don't miss any!
- Separated Parents. If you claim a child who lives with ex -spouse, you need a signed waiver from ex-spouse. Call me for a copy of the waiver.
- Businesses. Consider placing new equipment in service prior to Dec. 3 L Liberal rules on depreciation were extended.
Gone For Good?
Extend? These expired after ~ 2009, but might be back if Congress acts. Wait and see.
- Teacher Expenses on up to $250 of classroom materials.
- Mortgage .Insurance costs are no longer deductible.
- Charity From Your IRA. Direct gifts from the trustee were removed from income. Gone after 2009.
- Unemployment Income. The first $2,400 was tax-free in 2009. All taxable this year.
- Standard Deduction. We added property tax and sales tax on new cars. No more.
On Tap For 2011
If Congress does not act, several of the "Bush tax cuts" are set to run out on December 31, 2010. If this happens, many ordinary families could see $1,000 - $5,000 of extra taxes for 2011. I'd like to help you anticipate your 2011 tax bill. Right now, this is impossible.
Important scheduled changes:
10% Tax Bracket to become 15%. Single filers lose about $420, couples $835.
Child Credits. Each child under age 17 knocks $1,000 off your tax bill. Set to become $500.
Capital Gain Rates are now 0% for low or moderate incomes, and 15% for higher incomes. These are set to become 10% and 20%.
Dividend Income is now taxed at the same rates as capital gain. In 2011 it will be "ordinary" income. Normal rates apply, starting at 15%.
Couples lose big. Their 25% bracket starts at $67,900 of taxable income. It's set to drop by more than $10,000 in 2011. Cost - over $1,000! Couples using the standard deduction subtract $11,400 of income before figuring tax. It's likely to drop to $9,500. That's an extra $285 in taxes.
Alternative Minimum Tax is a complex monster. Today only 4%- 5% of us face it. Unless it's repaired, nearly 30% of us will pay extra tax.
On Top Of the expired provisions mentioned on the previous page, many of us could face serious tax increases. Will it really happen?
As of Election Day, it's the LAW!
Looking For Work?
With unemployment at such high levels, many of you may be looking for work. There might be valuable deductions from a job search. It's not always true, for there are a couple of steps involved:
1) Itemize. You need to be able to itemize your deductions. If you don't have enough other deductions, your job search won't help.
2) Same "trade or business". You must be seeking employment within a field where you have a job history. A career change, or finding a new line of work, won't count.
Keep A Log. You need to track phone numbers, dates, and potential employers while you look for work. Keep a complete written record of the process. Pay attention to any costs, contacts, driving, and approximate times spent on your pursuit. I'll help you get all possible tax benefits.
Direct Costs. Watch for fees to an employment agency, cost of resumes, copying, postage, telephone, travel or driving for interviews.
Indirect Costs. Depending on the extent of your activity, we might make a good case for part of your on- line fees, special computer software, excess telephone costs, meals with a friend who provided a useful tip. The secret is in how well your log describes your activity.
Got The Job? If your efforts were successful, look for costs of starting work. Special tools, setting up the desk or work space. Keep records!
Moving? Perhaps you even had to relocate. If so, the costs of moving over 50 miles can be deducted. Any costs to relocate your family, pets, vehicles, and possessions count. Movers, packing, shipping, truck rental, storage, and any other direct costs of the move must be tracked.
I hope you find a great job, but let's keep your taxes as low as possible.
Expect Higher Withholding in 2011
Withholding taxes will change for 2011. As of early November, figures are still uncertain. Two law changes are at work here. One is certain, the other might still change. IRS says they'll delay issuing new tables until mid- December. Employers expect a mad rush to be ready for January payrolls.
1) $400/$800 Credit Expires. In 2009 and 2010 workers got a special tax reduction as a part ofthe "Economic Stimulus" package. Single workers got $400, couples got $800. Rather than waiting to file your taxes, Congress told IRS to adjust withholding tables to make the money available quickly. Most single filers got their $400 this way. Couples had a little planning problem, as they got $600 via withholding. If both worked, they got a little too much, if only one worked, they claimed the extra on their tax return.
This "Making Work Pay" credit expires this year, so IRS must adjust the withholding tables. Single folks will see $400 more withholding in 2011, married persons will see $600 additional.
Retirees - Extra Problem. Retirees didn't get a credit - only workers. But, their withholding uses the tables. Some custodians cut withholding, some didn't. It started in Mid-2009. Do you know what you did? Watch your January-check carefully. We may need to-adjust your withholding.
2) "Bush Tax Cuts" - Will They Expire? Tax rates are set to go up in 2011. The 10% bracket will become a 15% bracket. Congress keeps saying they expect to extend the old rates for at least a year. No action yet. If the law is not changed, you can expect another increase in withholding. Most single workers will see a $418 increase for 2011. Most married workers will see $837 in additional withholding.
Both Changes! - Look Out! If both measures are reflected in the new tables, you can expect a noticeable drop in take-home pay. Single workers earning up to about $40,000 can expect a little more than $800 additional withholding. That's about $65 monthly! Married workers earning up to about $65,000 would see withholding go up by $1437 for the year, or a full $120 monthly! Married workers earning over $65,000 will see even bigger increases to reflect the lower starting point of their 25% tax bracket.
Watch January's Checks! Please pay careful attention to changes in your first couple of paychecks.
Maybe I Can Help - Maybe I Can't! I always try to help you foresee changes in your taxes. This will be a difficult year. If we see late law changes, they'll come at my busiest time of the year. Extending a familiar rule is one thing. I've applied the rule and understand its impact on you. When we see completely new laws, it often takes weeks to learn how the rules work. During my busy "tax season" I simply don't have the extra time. We could be forced to simply "pick up the pieces" later on.
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