2010 is here, and that means dozens of tax law changes. I want to make sure that you are updated on those changes and make sure you don't miss any opportunities to minimize your bill. Let's work together to make sure you don't pay any more in tax than you have to! As always, call us for more information at 402.362.6636 or email me directly at lkopsa@kopsaotte.com.
• Under current law, you pay employment tax of 6.2% up to the "Social Security wage base," which is $106,800 for 2010. You also pay Medicare tax of 1.45% on all your employment income. If you're self-employed, you pay double these amounts. The 2009 stimulus act created a new "Making Work Pay" credit to eliminate the first $400 of that tax ($800 for joint filers). President Obama has also proposed to add a new tax in the 2-4% range on earned income above $250,000. We will keep an eye on this for you and let you know if this becomes a possibility.
• Standard deductions for 2010 are $5,700 for singles and married couples filing separately, $8,400 for heads of households, and $11,400 for joint filers. Taxpayers who are blind or age 65 or older may claim an additional $1,100.
• Personal exemptions for 2010 are $3,650.
• President Obama has proposed to restore the 36% and 39.6% tax rates for individuals earning over $200,000 and families earning over $250,000. These rates would take effect beginning in 2011.
If you expect your 2011 income to be significantly more or less than in 2010 (as may be the case if you retire, buy or sell a business, or sell significant investments), consider timing income and deductions for maximum tax advantage.
If you expect your income to go DOWN in 2011, consider delaying income (to subject it to tax at next year's lower rate) and paying deductible expenses this year, to the extent possible.
If you expect your income to go UP in 2011, consider accelerating income from commissions, bonuses, and qualified plan withdrawals (to subject it to tax at this year's lower rate), and delaying deductible expenses until next year.
• President Obama has proposed creating tax credits to make healthcare more affordable. As the healthcare debate goes on in Washington, we'll keep you posted on the latest developments.
• Congress has not yet extended the Alternative Minimum Tax (AMT) "fix" to avoid a last-minute scramble, like the one that created havoc a couple of years ago, to prevent it from penalizing more middle-income taxpayers. The AMT exemption amount for the 2010 tax year is now $45,000 for joint filers; if it's "fixed" it will rise to $70,950.
• In 2000 the IRS audit odds for audit were 1 in 200. The latest numbers we now have are in 2008 and the odds have doubled to 1 in 100. But your chance of getting audited is still minimal. Don't take low audit rates as an invitation to cheat! But don't let fear of an audit stop you from taking every legitimate deduction you're entitled to.
• If you have withholding from your pay check, make sure to review your withholding any time your tax picture changes. Do this as soon as possible if you get married or divorced, have a baby, take a new job, get a significant raise, buy or sell your home, or you sell appreciated property.
• Remember that the IRS has tightened rules for substantiating charitable gifts. Now you'll need a canceled check, bank record, or other receipt listing the charity's name, the date of the donation, and amount of the contribution.
• The IRS has imposed new rules for charitable gifts of property. You can't claim deductions for used clothing and household items unless they're in "good" condition. You'll need a qualified appraisal for any item valued at $500 or more, and there are new restrictions on automobile donations. Don't let the new rules stop you from giving! But be aware that you'll need the right substantiation to sustain your deduction.
