ABC Taxes, Tips & Tools

Did you get a huge tax refund this year?  Most people feel pretty good about that until they realize they gave the government an interest free loan of all that money they just got back. 

If you received several thousand dollars back from the IRS this year, you may want to consider completing a new W-4 (including the worksheet), and increase your allowances. Take that “extra money,” stuff it in an interest bearing savings account and maybe you can earn some interest and build that nest egg at the same time. 

Conversely if you owed the government money you may want to make adjustments as well, especially if you paid a penalty for underpayment of taxes over the year. 

So far the tax brackets are very similar to last year.  Also the standard deduction is the same except for a modest $50 increase for Head of Household filers.  The amount for each exemption is also unchanged. 

As in the past the brackets for the Earned Income Credit have been adjusted for inflation and increased slightly.  The maximum credit is the same for taxpayers with no children and increased a few dollars for people with children. 

There are some tax breaks that have expired in 2010.

• The exclusion of the first $2400 in unemployment income has expired at the end of 2009.  Be sure to include it in your estimated tax calculations for 2010.
• The sales tax/excise tax dedution for the purchase of a new automobile purchase expired too.
• So did the increase in the standard deduction for real-estate taxes and losses in a federally declared disaster area. 
• Time has run out for those wishing to obtain the First Time home-buyer credit.  Only taxpayers that entered into a binding contract by April 30, 2010 can take the credit IF they close by June 30, 2010.  If a taxpayer takes the credit for a 2010 purchase on your 2009 taxes, they may not take it again in 2010. 

Those who got in on the First Time HomeBuyer Credit when it was a $7500 interest-free loan from the government instead of the tax credit it is today, will have to start paying it back this year (the original “credit” is paid back $500/year for 15 years).  Be sure to include this extra $500 tax into your calculations for withholding or estimated tax payments for 2010. 

Tax credit that are still around for 2010?

• The American Opportunity Credit for education. The credit (up to $2,500 on the first $4000 of educational expenses in the first 4 years of school),  is not just for tuition anymore, but has been expanded to include books and supplies too. 
• Energy credit for efficient doors and windows. The tax credit 30% of the cost of the new qualified doors and windows to a maximum $1,500 over the 2-year 2009-2010 tax year period.  If you took the full credit in 2009, you can’t take it in 2010. 
• Energy credit for alternative energy such as wind and solar is still 30% of the expenditure, but there is no cap.  You will need to check with the manufacturer to be sure their equipment qualifies. 
• There is the plug in electric drive vehicle credit for qualified electric vehicles purchased after December 31, 2009 running through 2104.  The credit disappears after the first 200,000 vehicles per manufacturer have been sold. 
• Hybrid Vehicle Tax Credits are still available through the end of this year. Several manufactures have not yet sold 60,000 cars so they are still available for this tax credit.  Toyota, Ford and Honda already have sold 60,000 hybrids and are NOT eligible for the credit anymore.

The maximum pre-tax contributions to various retirement plans is unchanged, but there is a big change with respect to Roth IRAs.  People can convert from a traditional IRA to a Roth IRA regardless of income in 2010.  Furthermore they can spread the tax resulting from the conversion  over 2 years if they chose to do so.   For more information about pros and cons of a Roth Conversion, please read the blog, Traditional IRA to Roth Conversion in 2010.

There are certain items that have changed in 2010 over the 2009 tax year.  Remember Congress has the rest of the year to act on these items and probably will. 

• The estate tax has been repealed.  But you can’t really plan on dying this year anyway… 
• The AMT patch has not been passed yet; be aware if congress doesn’t act then AMT will drop back down to pre-2001 levels 33,750 (45,000 Married Filing Joint). 
• The phase out  itemized deductions and exemptions for higher income earners has vanished. 

As always, small business services and taxation are our business.  If you need help Please give Art & Business Consulting a call.  We would love to engage you as a client.

The usual disclaimers: Although ABC has made every effort to insure the accuracy of Taxes, Tips and Tools, misinformation, disinformation, changes, mistakes, typos and hackers happen, therefore Art & Business Consulting LLC takes no responsibility for any action taken or results based on the information supplied here in. The content of this blog generally applies to business and individual taxation in the United States of America.  Internal Revenue Service Circular 230 Disclosure:  As provided for in Treasury regulations, advice (if any) relating to federal taxes that is contained in this communication (including attachments) is not intended or written to be used, and cannot be used for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any plan or arrangement address herein.  Art & Business Consulting LLC currently does not have a certified public accountant, human resource specialist, or an attorney on staff; this information is purely for educational purposes and not to be construed as legal or financial advice. Art & Business Consulting LLC and its employees, members and associates are not engage to practice law; you always should discuss legal matters with your attorney before talking to anyone else.