Prior year laws change the tax rules for 2010

March 30, 2010

There are many changes in the tax rules this year, with the promise of much more to come. Here are some of the 2010 changes that could affect you.

* Deductions. The 2001 tax law gradually restored the full deduction for personal exemptions and itemized deductions for higher-income taxpayers. Effective this year, high-income taxpayers are entitled to the full $3,650 deduction for each personal exemption they take, and there will be no income-based reduction in their total itemized deductions.

As with most other provisions in the 2001 tax law, this change ends after December 31, 2010, and itemized deductions and personal exemptions will again be limited for high-incomers in 2011.

* RMDs. For 2010, annual minimum distributions from most retirement plans are once again required for those aged 70½ and older. In 2009, these required minimum distributions (RMDs) were suspended.

2010 distributions must be taken by December 31, 2010. Taxpayers who turn 70½ in 2010 may choose to delay taking their first distribution until April 1, 2011.

* Roth conversions. Prior to this year, taxpayers with adjusted gross income over $100,000 were not allowed to convert a traditional IRA to a Roth IRA. A provision from a 2006 law went into effect January 1, 2010, repealing the income limit for Roth conversions.

Roth IRAs have two major benefits over the traditional IRA. Qualifying distributions are tax-free, and no annual distributions are required once you reach age 70½.

The major drawback to converting a traditional IRA to a Roth IRA is the fact that the conversion is taxable. But if you convert in 2010, you can elect to report half of the income on your 2011 tax return and half on your 2012 tax return.

Leave a Comment » | March 2010 | Tagged: , , , | Permalink
Posted by gillilandcpa

New credit card rules go into effect

March 23, 2010

The new “Credit Card Accountability, Responsibility and Disclosure Act of 2009″ (CARD), which is designed to protect consumers from unfair credit practices, generally took effect on February 22, 2010. Here’s a summary of several key provisions.

* Introductory rates offered by credit card companies must remain in effect for at least one year (six months for promotional offers). Consumers must receive at least 45 days’ notice (instead of the current 15 days) before a rate hike. (This provision became effective August 20, 2009.)

* Companies will be required to mail credit card statements at least 21 days before the due date (seven days longer than before).

* Issuers can’t raise rates on an existing balance unless you’re late by 60 days or more.

* Credit card payments will be applied to debt with the highest interest first.

* Double-billing cycles, the practice of basing finance charges on both the current and previous balance, are banned.

* To reduce “over-the-limit” fees, companies must obtain a cardholder’s permission to process transactions above their personal limit.

 * Consumers must be notified how long it will take and how much it will cost to eliminate debt through minimum monthly payments.

 * Applicants under age 21 won’t qualify for a credit card without showing an ability to pay or a co-signer.

 * Statements must prominently display fees paid to-date as well as explanations for those fees.

Leave a Comment » | March 2010 | Tagged: , , , | Permalink
Posted by gillilandcpa

Tips to get the most from an IRA

March 16, 2010

* There is still time for a 2009 IRA. If you didn’t make contributions to an IRA in 2009, you can still set up and contribute to an IRA for 2009. The deadline for doing so is April 15, 2010. An IRA is a great way to save for your retirement while you cut your current tax bill.

 * If your 2009 IRA wasn’t fully funded by December 31, 2009, and you make any IRA contributions prior to April 15, 2010, designate to the bank or trustee that these 2010 contributions are for 2009 (up to the maximum allowed). You can then deduct these amounts on your 2009 income tax return for a quicker tax benefit.

 * Make your 2010 IRA contributions as early this year as possible to maximize the time you have for tax-deferred growth in the fund.

 * Consider converting a traditional IRA to a Roth IRA this year. The previous rule that excluded taxpayers with incomes over $100,000 from doing a conversion to a Roth is eliminated as of January 1, 2010. You’ll have to pay tax on the amount converted, but qualifying distributions from the Roth IRA are tax-free thereafter. Furthermore, you won’t have to take annual distributions from your Roth IRA when you reach age 70½ if you don’t want to.

Leave a Comment » | March 2010 | Tagged: , , , , | Permalink
Posted by gillilandcpa

Business Alert: IRS to conduct employment audits

March 9, 2010

The IRS is launching a three-year auditing project that will examine about 6,000 U.S. companies for compliance with employment tax obligations. The project is the first of its kind in 25 years, and its primary objective is to collect data to identify areas of noncompliance across all industry sizes and sectors, including nonprofits and governmental entities.

Among the issues the audits will look at:

* Classification of workers as employees or independent contractors, including executives rehired as consultants, dual status employees, and employee leasing arrangements.

* Fringe benefits, including expense reimbursement arrangements and noncash benefits.

* Executive compensation and fringe benefits, executive retirement contracts, golden parachutes, and stock options.

The project will target 2,000 employers each year, with the first audit letters scheduled to go out this month or next.

Leave a Comment » | March 2010 | Tagged: , , , , | Permalink
Posted by gillilandcpa

President Obama posts his health care proposal

March 2, 2010

On February 22, just prior to the start of a White House health care summit scheduled for February 25, President Obama released his version of health reform.

 The 11-page plan uses as its base the bill passed by the Senate in December 2009 (the “Patient Protection and Affordable Care Act of 2009″).

 Obama’s proposal includes the tax on so-called “Cadillac” plans, but raises the threshold at which the tax would apply from the Senate’s $23,000 for families to $27,500. The tax would not go into effect until 2018. 

 Among the other revenue provisions in President Obama’s proposal is a .9% increase in Medicare tax for singles with incomes over $200,000 and couples filing jointly with incomes over $250,000. A 2.9% Medicare tax would apply to the unearned income (such as interest, dividends, annuities, royalties, and rents) of these high-income taxpayers.

 According to the White House communication director, President Obama’s proposal was “the opening bid for the health meeting” on February 25.

 For more information about the Obama proposal, go to the White House website at http://www.whitehouse.gov/health-care-meeting/proposal

Leave a Comment » | March 2010 | Tagged: , , , | Permalink
Posted by gillilandcpa

Follow

Get every new post delivered to your Inbox.

%d bloggers like this: