January 5, 2011
RE: 2010 Tax Update
Happy New Year and we trust you are ready for tax time and all the fun it brings. The political landscape has provided three substantial Tax Bills passed during 2010 for us to consider this year and beyond. The last Bill passed only applies up through December 31, 2012 then we go through the gyrations all over again. The Tax year 2013 will have some important tax increases to those who have adjusted gross incomes greater than $250,000 and you are married. This may not affect you now but you may know those who it does for have family which these things impact.
The 2008 first-time home buyer credit will be required to be paid back 1/15 per year or $500. This will be done through the 2010 tax return.
The real estate tax deduction for non-itemizers has been repealed and will not apply for 2010.
The Making Work Pay Credit goes away in 2011. The credit was for up to $800 for marrieds and $400 for singles. Many employees will notice their checks will actually shrink beginning January 2011. In its place there will be a 2% payroll tax holiday for employees and self-employeds. For self-employeds the tax rebate of 2% comes on the back end when you file in 2012. This is a nice break.
A new tuition credit is now available called the American Opportunity Education Credit. The maximum credit is now $2500 per year and applies to all four years of college. This replaces the Hope Credit and part is now refundable if the taxpayer qualifies. This credit also has AGI limitations as well. Planning for this is recommended.
The standard mileage rates for 2010 have decreased. The rate for business mileage is 50¢. The rate for medical and moving mileage is 16.5¢. Congress sets the charitable mileage and it remains at 14¢ a mile. Parking and tolls are in addition to mileage.
The standard mileage rates for 2011 have increased. The rate for business mileage is 51¢. The rate for medical and moving mileage is 19¢. Congress sets the charitable mileage and it remains at 14¢ a mile. Parking and tolls are in addition to mileage.
Beginning in 2011 all rental property owners (landlords) will need to file a 1099 for goods or services paid in cumulative total greater than $600. This means you will need to obtain name, addresses and identifying numbers and keep track. The 1099s will need to be filed electronically by 2/28/12. Evidently credit card payments are exempt as they are reported by the card issuers themselves.
The Health Care and Reconciliation Act of 2010 codified the Economic Substance Doctrine regarding taxpayer’s motives for engaging in transactions reported on business and rental property tax returns. This means the taxpayer’s economic position must change in a meaningful way with a business purpose for every transaction. Violations could result in penalty amounts between 20-40% of the transaction.
Please don’t hesitate to call or send an e-mail if you have any questions for us or want further analysis on the information above. We look forward to visiting with you and preparing the best possible return for you in 2011!
Lawrence R. Yoder, CPA