Your Taxes: 2010 Tax Law: TBD
Now that April 15th has come and gone, it’s time to start thinking about your 2010 taxes. If you’re like most taxpayers, you want to put off thinking about taxes until next year, but I am a firm believer that the best way to save money on taxes is to make tax planning a year-round effort. I would love to fill this column with tips for 2010, but unfortunately Congress has yet to finalize many important tax laws that are hanging in the balance, and tax planning is more challenging than ever right now. Let’s back up a bit. At the end of each year, Congress is expected to vote on several tax laws that expire from year to year, or require dollar amount adjustments. Tax geeks like me wait anxiously for the news before Congress takes their holiday break, the figures are published, and we all move forward with advice for our clients. But, with the push for health insurance passage this year, Congress never got around to voting on the necessary issues before year end, and we’re now at the end of April and still anxiously awaiting decisions. What hangs in the balance, and how does it affect you? For starters, over 50 tax provisions expired on 12/31/09. The most commonly seen provisions from this package include the standard deduction for real estate taxes, the option to deduct sales tax instead of state and local taxes, tuition deductions, and the $250 deduction for educators. These provisions were expected to be renewed at the end of 2009 for 2010, but that never happened. The Alternative Minimum Tax, a tricky tax penalty on high income earners with big deductions, is also set to strike if Congress doesn’t take action. While I would need to write a book to fully explain the AMT, it was basically a tax penalty put into place decades ago to prevent uber-wealthy individuals from taking so many deductions that they didn’t have to pay a fair share of taxes. When taxpayers with high incomes also had large itemized deductions, the AMT was an additional tax added to their bottom line to force them to pay the tax they would’ve paid without the benefit of the large deductions. The problem is, when the AMT was first put into place, uber-wealthy meant income above $150,000. Each year, Congress passed patches to effectively increase the income level considered subject to AMT. But, without a patch passed in December of 2009, the AMT is set to affect almost 40 percent of married couples in the US. To put it in perspective, in 2009 several million taxpayers will be forced to pay higher taxes due to the AMT, but according to the Congressional Budget Office this figure jumps to over 30 million taxpayers in 2010 if a patch is not put into place.As if the 50 tax provisions and AMT aren’t enough, the elephant in the room is the Estate Tax. To summarize a highly complex issue, as of January 1st, the estate tax disappeared. If your loved one died on December 31st, 2009, their estate would owe 45 percent tax on any assets greater than $3.5 million. If that same loved one passed away on January 1st, 2010, their estate wouldn’t owe a penny of estate tax. While the leading proposals in Washington range from a 35-45 percent tax on any assets great then $3.5 to $5 million, no legislation has been passed at this point.It’s hard to believe the first quarter of the year has come and gone with no resolution on these issues. For now, the best advice I can give is to make sure that your 2009 returns are filed correctly, and to hang on tight for 2010! Will all three be passed and made retroactive to January 1? Will these provisions be passed with a July 1 effective date, causing unimaginable complications for 2010 tax returns? Or, will Congress avoid making any big tax cuts during an election year and allow these taxes to remain unchanged until 2011? As tax laws are determined for the year, I will make every effort to publish them in this column, but until the new tax rates and tax laws are set, the best you can do is keep paying your taxes and keeping an eye on the news as it comes out of Washington. Michele Knight, owner of Knight Accounting & Technology, is a CPA and QuickBooks ProAdvisor based in Dillon. Please visit http://www.cpamichele.com for tax tricks & tips, including a blog to keep you up to date on the ever-changing tax world. Always remember, this advice is not all-inclusive, and you should consult with your tax advisor regarding your personal situation.
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