As we come racing towards the end of 2010, it's time for all of us to do a little tax planning before New Years Day. To help with that, I have put together a quick list of some of the tax changes for 2010 and a peak at some of the changes that come into effect in 2011. With a month and a half left in the year, we have some time to take care of any loose ends for tax purposes so here we go:
- The American Opportunity Credit - This credit replaces the Hope credit from prior years. It provides up to a $2,500 per student per year credit for all four years of college. The nice thing about this credit versus what we've seen in the past is that is includes the cost of books and not just tuition. If the credit exceeds your income tax liability for 2010, then 40% it will be refundable anyway.
- 401(k) Contribution Limits - The maximum employee contribution to a 401(k) plan for 2010 is $16,500. However, employees that are age 50 or older can contribute an additional $5,500 for a total for them of $22,000.
- Alternative Minimum Tax - The exemption level for alternative minimum tax drops to $45,000 for a married couple and $33,750 for single filers for 2010. Relief from the lower AMT limits was passed for 2009 but hasn't been addressed yet by Congress. Hopefully, this will be taken care of in the lame duck session. But, if it isn't addressed, many taxpayers are going to find themselves victims of AMT. In general, there are certain tax benefits that are allowed under the regular tax calculation that are not allowed or are reduced in the AMT tax calculation. Also, you income, if AMT applies is taxed at 26% for income up to $175,000 and 28% for income over $175,000. AMT doesn't use the standard graduated rate schedules with rates from 10% up to 35%. When tax is calculated for AMT purposes, it is compared to the regular tax calculation and you pay the higher amount.
- Sales Tax on Vehicles - For 2010, sales tax on the purchase of a vehicle can no longer be taken in addition to the standard deduction if a taxpayer does not itemize. For 2009, a taxpayer could deduct the sales tax attributable to the first $49,500 of the cost of a vehicle even if they did not itemize. However, the one year tax relief disappears this year.
- The Estate Tax ("Death Tax") - The estate tax is completely repealed for 2010. However, if a person happens to live an extra month or two into 2011, the tax will revert to 50% for estate values over $1 million dollars.
- Increased Depreciation for Equipment Purchases - The Small Business Jobs and Credit Act of 2010 provided for bonus depreciation of 50% of the cost of qualified small business equipment and other fixed assets purchased and put into service in 2010. Taxpayers who purchase equipment in a few specific categories may also be allowed to actually deduct the full cost of the equipment up to $500,000. These types of equipment may qualify:
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- Construction
- Manufacturing
- Medical
- Agriculture
- Office and Technology Equipment
- Trucks
- Trailers
- Printing Presses
- Corporate Aircraft
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- Residential Energy Tax Credits - For 2010 there is a 30% tax credit for the cost of certain qualifying energy efficient home improvements. The credit is capped at $1,500 combined for 2009 and 2010. http://www.energystar.gov/index.cfm?c=tax_credits.tx_index provides a great list of the property allowable in each category. For 2011, the credit reverts to 10% and the cap is reduced to $500.
This is a quick taste of some of the most important changes. Now is a great time to get in touch with your tax preparer and see if this will impact you and what information you need to be getting together before year end. Good luck this tax season!
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