TaxTime: 2010 Tax Law Changes.
Posted: January 24th, 2011 | Author: Joe | Filed under: Taxes, Tips | Tags: Tax Returns, Tax Time, Taxes, Tips | No Comments »With all the drama at the end of 2010, it’s easy to lose track of all the changes to the tax code and the result of all the bickering in Washington. Here’s a quick list of the changes to the tax law as well as things that stayed the same.
Income tax brackets.
No changes here until 2012, then rates spike up to 2001 levels.
Taxes on investments.
For tax payers in the 15% income tax bracket: 0%!
For all others: 15%.
These are historically very low, of course more people have access to investments than ever before thanks to the Internet and discount brokers. Investing is no longer just for the rich.
Estate and gift taxes.
The first $5 million of an estate is tax free, the remainder is taxed at 35%, at least until 2012 unless congress changes the law. Again.
The annual exclusion for tax-free gifts stands at $13,000 per donor – you can give unlimited gifts of up to $13,000 to different people before taxes are owed on the gift.
Payroll taxes.
Every worker gets a temporary 2% cut on Social Security taxes until 2011. I guess they’ve given up the pretense of funding Social Security ?
AMT (Alternative Minimum Tax).
This blight on the tax payer still lives, though it’s been held at bay somewhat until 2011. The current exemption goes to $47,450 for individuals and $74,450 for married couples.
Roth IRA Conversions.
There is no longer any income limit for converting an IRA to a Roth IRA, but taxes are due on the amount converted and any taxes due on conversions after 2011 must be paid for the 2011 tax year – the option to defer or split the tax bill over two years no longer exists.
Foreign-Account reporting.
As part of its effort to crack down on the hiding of money in foreign bank accounts, the government has expanded its requirements for reporting foreign income. This new regulation will be required for filing 2011 taxes, and the IRS has not yet released any details. Guess they don’t want to give the crooks any time to shuffle the shells they’re hiding their money under.
Medical expenses.
As part of the new healthcare law (A.K.A. Obamacare) Flexible Spending Accounts (FSAs) can no longer be used for over the counter (OTC) medication. They can be used for many other health related needs, but one wonders for how long? If the purpose of Obamacare was to expand coverage, then why reduce the tax-free power of the FSA, in effect reducing affordable access to medication?
Cost-Basis reporting by brokerages.
I have to say that this is one of the few changes to the tax code that not only make sense to me but that sounds like a good idea! Beginning with 2011, brokers must now track a client’s stock purchase (and other securities as well) and report them to the IRS when a stock is sold. This helps prevent tax fraud on the part of investors, but it should also help clear up one of the trickier tax questions when filing in a year you sold a stock: What do I put for the cost basis when I bought multiple share over a long period?
Energy tax credits for homeowners.
Lastly, a change that doesn’t make sense. The 25(C) tax credit for energy efficient improves has been cut back from $1,500 to $500 and will be ended at the close of 2011. All we keep hearing about is the energy crisis and the need to become more efficient, why not extend the credit all the way?
