Highlights of 2010 Tax
| Bush tax provisions extended: (1) 10% tax bracket for individuals and the other tax brackets to 25%, 28%, 33%, and 35%; (2) The 15% tax rate for capital gains (0% for taxpayers in the 10% and 15% tax brackets)
Itemized deduction limitation: The limitation is repealed.
Personal exemption limitation: The limitation is repealed.
Alternative Minimum Tax exemption: $47,450 for unmarried individuals and $72,450 for married individuals filing jointly.
First-time homebuyer credit: The credit is allowed for eligible “first-time homebuyers” and “long-time residents” who purchased their home through 4/30/2010. If you claimed a credit for a 2008 home purchase, repayment in 15 installments starts with your 2010 tax return.
Small business health tax credit: Employers that pay at least 50% of the health insurance premiums for their employees in 2010 may be able to claim 35% credit, but eligibility rules apply.
Self-employment tax and health insurance: A self-employed taxpayer may reduce net earnings by deducting health insurance premiums when figuring self-employment tax liability for 2010.
Startup expenses: The deduction for trade or business startup expenses from $5,000 to $10,000 for tax years for 2010 and 2011. The start of the limitation on the deduction is increased from $50,000 to $60,000. So for 2010 and 2011 the amount of the deduction is the lesser of (1) the amount of the startup expenses or (2) $10,000, reduced (but not below zero) by the amount by which the startup expenditures exceed $60,000.
Bonus depreciation: 100% of the cost of business property acquired after Sept. 8, 2010, and before Jan. 1, 2012, and placed in service before Jan. 1, 2012 (or before Jan. 1, 2013, in the case of certain property). For property place in service between 1/1/2010 and 9/8/2010 is 50%.
Vehicle depreciation limits: Max depreciation for a car placed in service in 2010 is $11,060, if bonus depreciation applies; otherwise $3,060. For a light truck and van, $11,160 and $3,160, respectively.
Sec 179 for heavy SUVs: Maximum $25,000 Sec 179 expense is allowed.
Roth IRA conversion: A conversion to a Roth IRA in 2010 is allowed regardless of income and filing status. However, a rollover itself is taxable unless attributable to after-tax contributions.
|Foreign earned income exclusion: $91,500 for 2010.
List of Various Tax Provisions Extended:
The $1,000 child tax credit amount continues for two years, instead of reverting to $500;
The increased starting and ending points for the earned income credit would continue for two years;
The $3,000 amount for the child and dependent care credit, which was scheduled to revert to $2,400 after 2010, continues for two years;
The American opportunity tax credit is continued for two years, so that the credit can be claimed for qualified expenses paid for any of the first four years of post-secondary education and 40% of the credit is refundable;
Educator’s expense deduction for up to $250;
State and local sale taxes can be elected to deduct in Schedule A for 2010 and 2011, but sales tax for a new car and property tax paid are not includible to standard deduction anymore;
Tuition and fees deduction for qualified higher education expense for 2010 and 2011;
IRS needs time to modify its systems to reflect those changes; you may need to wait until mid-February to file your tax return.
Standard Mileage Rates
50 cents per mile for business
16.5 cents per mile for medical reasons
16.5 cents per mile for moving expenses
14 cents per mile for charitable service
Cellular phones: Strict substantiation rules and deduction limits apply to listed property described in Section 280F. Cell phones and similar telecommunications equipment are no longer included in the definition of listed property.
Haiti Relief Contribution made in 2010: No double claim is allowed in case a taxpayer already claimed this contribution in 2009 return.
All Charitable Contributions require evidence: IRS is very strict with substantiation requirement for charitable contribution deduction. Make sure you keep receipts, acknowledgment letter, etc. For this purpose, if you donate cash, write a check.
Recordkeeping: Keeping well-organized tax record is strongly recommended. Especially, many taxpayers tend to forget keeping mileage logs for automobiles.