2010 Tax Highlights

TAX CHANGES FOR 2010

Below are some of the highlights that may affect the preparation of your tax returns:

1)  PERSONAL EXEMPTIONS - Have been increased to $3,650.  The deduction may be reduced or eliminated for higher income taxpayers.

2)  STANDARD DEDUCTION -

3)   TAX RATES - Remain the same, ranging from a low of 10% to a high of 35%.

4)  CHILD TAX CREDIT - Remains the same at $1,000 for each qualifying child younger than 17.  The deduction may be reduced or eliminated for higher income taxpayers.

5)  STANDARD BUSINESS MILEAGE RATE - The rate for 2010 was 50 cents per mile.  The rate for 2011 increases to 51 cents per mile.

6)  401(K) CONTRIBUTION LIMIT – Remains the same at $16,500 for 2010 and also for 2011.  Individuals who attained age 50 by the end of the tax year 2010 are allowed an additional “catch-up” contribution of $5,500 and the same for 2011.

7) SELF-EMPLOYED PLANS (SEP’S) - The lesser of 25% of a special computation used in determining the earned income of the self-employed individual or $49,000.

8) TRADITIONAL & ROTH IRA CONTRIBUTIONS - There is a $5,000 maximum annual contribution.  Individuals 50 or older may contribute $6,000.

9) ALTERNATIVE MINIMUM TAX EXEMPTION -

10) CAPITAL GAINS RATE - The long term capital gains rate remains the same at 15%.

11) DIVIDEND INCOME - Qualified dividends paid are taxed at the capital gains rate not at the ordinary income rate.

12) ADOPTION EXPENSE CREDIT - An income tax credit for qualified adoption expenses of $12,150.  This is subject to AGI limitations.

13) NON-BUSINESS ENERGY PROPERTY CREDIT - A tax credit is available for the installation of exterior doors and windows, insulation, heat pumps, furnaces, central air conditioners and water heaters installed in 2010.  The credit is equal to 30% of the expenditures or a maximum of $1,500.

14) EDUCATOR DEDUCTIONS - A $250 above-the-line deduction for educator expenses to include unreimbursed expenses for books, supplies, computer equipment and supplementary materials used in the classroom.  Any additional costs can be deducted as a miscellaneous deduction if you itemize.

15) CHARITABLE DONATIONS - Recordkeeping requirements have been made tougher for both cash and non-cash charitable donations.  Must have a dated receipt from the charity, cancelled check or credit card statement to prove the donation.  Non-cash donations such as clothing and household items must be in "good" used condition or better.

17) KIDDIE TAX - In 2010, if your child is under the age of 18, first $950 of investment income is tax free, the next $950 is taxed at the child’s rate.  Amounts over $1,900 of investment income will be taxed at the parents' highest rate.

18) HOMEBUYER CREDIT - - If you are a first time homebuyer of a principal residence before May 1, 2010 or after April 30, 2010 and before September 1, 2010 and entered into a binding contract before May 1, 2010 to purchase the property before July 1, 2010, you may qualify for a maximum $8,000 credit. The law was also extended for a “long term resident” credit of up to $6,500. The buyer must have owned and used the same home as a principal or primary residence for at least five consecutive years of the eight year period ending on the date of purchase of a new house as a primary residence.

19) SOCIAL SECURITY TAX CUT FOR EMPLOYEES - For 2011, only the 6.2% tax rate for the employee portion of Social Security tax will decline to 4.2%, a tax saving of up to $2,136 per filer. This replaces the Making Work Pay credit, which provided a maximum tax saving of $400 for single filers and $800 for couples.

If you would like more detailed information or have any questions, please feel free to call me.