TAX YEAR 2010 NEWSLETTER

It is time to think about compiling the tax information needed to file your 2010 tax returns. There are a number of items discussed below that should help you get ready or plan for the future.

Federal Tax Changes and Reminders

Itemize or Take the Standard Deduction

The standard deduction for single filers is $5,700, while those filing a joint return receive a $11,400 write-off; those that qualify for head of household get $8,400. Individuals that are 65 years or older can claim an additional $1,100 each. You can no longer add property taxes to the standard deduction.

First-Time Homebuyer Credit

Qualified first-time homebuyers could be eligible for a refundable tax credit equal to 10% of the purchase price or $8,000, whichever is less. This credit applies to qualified buyers who entered into a written binding contract before May 1, 2010 to purchase a principal residence if the closing date on the purchase occurs before October 1, 2010.

Credit is now allowed to long-term residents. For purchases after November 6, 2009, the credit is no longer restricted to first-time buyers. Long-term residents of a principal residence can also qualify, subject to a lesser credit limit of $6,500.

Making Work Pay Credit

For many employees, the Making Work Pay credit provides a refundable credit in 2009 and 2010 of 6.2% of earned income up to $400 for eligible single persons and $800 for married couples who file jointly. Revised IRS withholding tables reflected the tax reduction in April, 2009. Unfortunately, withholding also decreased for taxable pensions and annuity recipients who did not work.

2011 Payroll Tax Holiday

Payroll taxes for Social Security will be reduced by 2% for 2011. This is temporary and is set to expire December 31, 2011. The cut also applies to those who are self-employed.

Tax Break for IRA GIVING

Effective for 2010 and 2011 individuals aged 70 ½ can make tax free distributions from an IRA to a charity of up to $100,000 per year. He or she cannot deduct the contribution.

Required Minimum Distributions (RMD)

Under the RMD rules, a participant in a traditional IRA and certain other retirement plans must begin receiving distributions from the IRA by April 1 of the year following the year the participant turns age 70 1/2. The RMDs had been suspended for IRAs and pensions for the calendar year 2009. However, this requirement is no longer waived in 2010.

Credit for Non Business Energy Property

You may be able to take this credit for qualifying energy saving items for your home. The credit rate is 30 percent of the cost of all qualifying improvements and the maximum credit is limited to $1,500 for improvements placed in service in 2009 and 2010.

Motor Vehicle Sales Tax Deduction

You are able to deduct state or local sales or excise taxes you paid on the purchase of a new motor vehicle, motor home or motorcycle.

Recapture of First-Time Homebuyer Credit

If you claimed the first-time homebuyer credit for a home you bought in 2008, you generally must begin repaying it in 2010.

Dependency

When children graduate from high school and get jobs or go on to school, at some point they will no longer qualify as dependents. A child must meet the following conditions to be considered a dependent: the child must be under the age of 19, or under age 24 and a full time student for at least 5 months during the year, or permanently and totally disabled at any time during the year; the child must be a US citizen, a resident alien, or a resident of Canada or Mexico; the child must live with the parent for more than half of the year (temporary absences like college are ignored); and the child must not provide more than half of his/her own support. Also, his or her income must be less than $3650 in 2010.

Even though a parent provides a home for the child while in college, the financial aid and loan responsibility may enter into the determination of support provided by the child.

In the year the child graduates for high school or college, it is important to look at the earnings for the entire year to determine support. Even though the child has lived at home and been a fulltime student for 5 months, their total yearly income could be high enough to have provided more than half of their own support.

Kiddie Tax

Kiddie tax is the name for the way of determining the tax a child will pay when the child has unearned income (interest, dividends, capital gains, royalties, etc.) of $1900 or more and is either (a) under the age of 18, or (b) age 18 and did not have earned income more than half of the child's support, or (c) age 19-23 and did not have earned income more than half of the child's support.

Kiddie tax rules apply the parent's tax rate to the excess unearned income of the child over $1900. Since the "kiddie tax" is computed by adding the child's investment income to the income of the parents, it is possible that the child's income will be taxed at a higher rate than that of the parents.

Alternative Minimum Tax

The alternative minimum tax exemption amount in 2010 is increased to $72,450 for married taxpayers filing jointly and $47,450 for single and head of household taxpayers.

Child Tax Credit

The child tax credit for dependent children younger than 17 years old remains at $1,000 through 2011.

Qualified Dividends and Capital Gains

A zero tax rate on qualified dividends and net long-term capital gains are available to taxpayers who are in the 15% or lower income tax brackets. Taxpayers who are in income tax brackets above 15%; their net long-term capital gains are taxed at 15%. The term "net capital gain" means the amount by which your net long-term capital gain for the year is more than your net short-term capital loss.

HSA

Health Savings Accounts are becoming an increasingly popular choice for individuals and companies seeking medical coverage. The savings account is available to taxpayers who have an HSA qualified high deductible medical plan. These plans generally offer health insurance at a more affordable rate. Once the insurance plan is in place, a savings account (HSA) may be obtained. The HSA allows the taxpayer to contribute a certain dollar amount each year through which medical expenses not covered by insurance can be paid. The tax savings feature is that the contribution is currently deductible even if it has not been spent yet. The account will grow tax free as long as the monies in the account are spent for medical expenses. If a taxpayer reaches age 65, the monies may be withdrawn for nonmedical purposes like an IRA without penalty. Like the IRA, the taxpayer will pay taxes at that time on the amount not used for medical care.

The maximum that may be contributed in 2010 for a family plan is $6,150 and $3050 for a single plan. In addition, the year the plan begins, the maximum contribution may be made regardless of what part of the year the account is opened.

Retirement Decisions

As the end of the year approaches you are asked to make pension contribution decisions as well as flex spending, cafeteria, dependent care, and other deferral decisions. Congress has made permanent the increases in pension and IRA amounts. This year you may contribute up to $5,000 ($6,000 for any individual who is age 50 or older) into a regular or a Roth IRA. The maximum amount that can be contributed to a 401k for 2010 is $16,500 ($22,000 if you are age 50 or over).

In 2010, the maximum annual contribution for qualified plans, including SEP and Keogh plan are $49,000.

Estate and Gift Tax Limits

In 2010, the estate tax exemptions increases to $5 million and the annual gift tax exclusion increases to $13,000.

Information Disclosure

IRS rules are pretty specific. They prohibit disclosure of your tax return information to anyone other than you UNLESS you have authorized the release. This includes sharing your tax return information with one of your children, your lawyer, a mortgage company, etc.

This is the law and was passed to protect your privacy and prohibit any unauthorized disclosures. If you want your tax return information shared with anyone, you will need to provide written authorization. The authorization should specifically authorize the disclosure of TAX information, the applicable years, who it is to be disclosed to, who is disclosing the information, and contain your signature. A general authorization to disclose financial information may not be sufficient, so please specify the tax information. Caution - once the requested information is disclosed to the person or company you authorized to receive it, there is no control over what the person or company does with the information. Again these IRS restrictions on disclosure are for your protection.

Tax Appointment Worksheet

	√	Event	Documents or Information Needed
1		Married or divorced in 2010	Married - prior year return of both spouses Divorced - copy of the divorce decree
2		Birth or Adoption	Social Security cards and adoption papers
3		Death of child or spouse	Date of death -
4		Additional members of household	Date of occupancy and relationship
5		Job change	Name of new employer - W-2s from new and old employers
6		Unemployment	Unemployment Form
7		Retirement contribution	Type of plan - Amount of contribution -
8		Retirement distributions	Form 1099-R
9		Social Security Benefits	Form 1099-SSA
10		Sale of stocks, bonds, etc.	Form 1099-B or other sale documents; basis or original costs
11		Purchase of stocks, bonds, etc., personal residence, or other real estate	Purchase documents; closing papers
12		Inheritance	Will; K-1 from the estate
13		Trade any property	Date of trade, property given up and property received, basis and FMV; Qualified intermediary sales agreements or closing papers
14		Start or end a small business	Formation or termination dates; Property contributions or distributions
15		Lawsuit settlements	Date received; reason for the settlement; 1099-MISC
16		Rental property	Income; expenses; new property purchased
17		Prizes	Form 1099-MISC; value of prizes not included on Form 1099-MISC
18		Lottery or gambling winnings	Total amount won whether on W-2Gs or not ; total amount of losses
19		Health insurance, medical, dental, or drug expenses	Health insurance premiums; post-taxed payments; totals of other medical, dental, and drug expenses. If the health insurance is pre-taxed (i.e. cafeteria plan, §125, POP) premiums have already been deducted from the wage.
		Medical Miles (16.5 cents per mile)	Total miles driven
20		State income or property taxes paid	Prior year's income tax return; property tax bills; closing papers from the purchase or sale of property; letter from the state regarding any change in a prior filed return
21		Purchase or refinance a home	Closing papers from purchase; Forms 1098
22		Charitable contributions of money, property, or out of pocket expenses	Date and type of contributions, knowledge that receipts from the organizations have been received; mileage log for charitable work
		Charitable Miles (14 cents per mile)	Total miles driven
		Transfer of IRA to charity	Brokerage statement showing transfer
23		Job related expenses	Meals, lodging, and miscellaneous expense amounts for items related to employment
		Business miles (50 cents per mile)	Total miles driven, business miles driven per vehicle
24		Educational or student loan interest expenses	Form 1098-T for parents or children; Interest record for student loans; If the child is a student, the form will come to the child.
25		Child or disabled spouse care	The name, address, and ID number of the day care provider; the amount paid to the provider; if the provider comes into your home a W-2 may be required.
26		Energy credit	Information regarding the purchase of qualifying vehicle, windows, doors, furnace, solar or other energy upgrades.