WHAT'S NEW IN 2010?

1NTTC TRAINING 2010

WHAT'S NEW IN 2010?

What we are going to cover: 2010 Tax Relief Act - New tax

provisions in 2010 and 2011 Extenders for 2010 Items affecting tax preparation in

2010 and beyond Continuing ARRA provisions

2NTTC TRAINING 2010

BUSH TAX RATES CONTINUED*

The 2010 Tax Relief Act: Extends all individual rates at 10, 15, 25,

28, 33 and 35 percent Continues for two years – through

December 31, 2012

* Affects 2010 tax returns

3NTTC TRAINING 2010

PAYROLL TAX CUT

The 2010 Tax Relief Act reduces the employee-share of Social Security taxes from 6.2% percent to 4.2%

The change is for wages earned in calendar year 2011 up to the taxable wage base of $106,800

Self-employed individuals will pay 10.4% on self-employment income up to the threshold

Employer’s share of OASDI remains at 6.2%.

4NTTC TRAINING 2010

IMPACT OF EXTENDED TAX RATES AND PAYROLL TAX CUTS

Example of the impact of extended tax rates and cut in payroll taxes: Individual earning $50,000 in 2011 will:

Have approximate tax savings in income tax & payroll tax rate reductions of $890 and $1000 respectively

Thus have an approximate total in tax savings of $1,890 over what was scheduled under the EGTRRA sunset

5NTTC TRAINING 2010

QUALIFIED CAPITAL GAINS AND DIVIDENDS*

Qualified capital gains and dividends currently are taxed at a maximum rate of 15 percent (zero percent for taxpayers in the 10 and 15 percent income tax brackets)

The 2010 Tax Relief Act continues for two years – until December 31, 2012


6NTTC TRAINING 2010

MARRIAGE PENALTY RELIEF

The 2010 Tax Relief Act extends marriage penalty relief for two years, through December 31, 2012.

The 2011 standard deduction for married couples filing jointly (originally to be $9,650) will be $11,600 for 2011 This compares to $11,400 for 2010

7NTTC TRAINING 2010

CHILD TAX CREDIT

The 2010 Tax Relief Act extends the $1,000 child tax credit for two years, through December 31, 2012.

The qualifying child must be under age 17 at the close of the year and satisfy relationship, residency, support, citizenship, and dependent tests.

Under EGTRRA’s sunset rules, the child credit was scheduled to revert to $500 per child

8NTTC TRAINING 2010

EITC AND DEPENDENT CARE

Extends the enhanced EITC for two years (i.e., three or more qualifiying children)

Extends the enhanced dependent care credit and eligible expenses for two years From $2,400 to $3,000 and $4,800 to

$6,000 for more than one qualifying individual

Maximum credit from 30% to 35 % of qualifying expenses

9NTTC TRAINING 2010

MORTGAGE PREMIUM INSURANCE

Under current law, taxpayers may deduct certain premiums paid for qualified mortgage insurance during the tax year on a qualified residence.

The deduction is subject to phase-out based on a taxpayer’s income.

The 2010 Tax Relief Act extends the deduction for one year subject to some limitations.

10NTTC TRAINING 2010

EDUCATION CREDIT

The 2009 Recovery Act enhanced and renamed the Hope education credit as the American Opportunity Tax Credit (AOTC) for 2009 and 2010.

The 2010 Tax Relief Act extends the AOTC for two years, through December 31, 2012.


STUDENT LOAN INTEREST

Originally the law eliminated a 60-month rule for the $2,500 above-the-line student loan interest deduction and expanded the modified AGI range for phase-out. This treatment was scheduled to expire after December 31, 2010.

The 2010 Tax Relief Act extends the enhancements for two years, through December 31, 2012.


AMT PATCH*

The 2010 Tax Relief Act increases the exemption amounts for 2010: $47,450 for individual taxpayers $72,450 for married taxpayers filing

jointly and surviving spouses $36,225 for married couples filing

separately.



EXTENDERS: 2010 & 2011*

State and local sales tax deduction Higher education tuition deduction Teacher’s classroom expense deduction Charitable contribution of IRA proceeds Charitable contributions of appreciated

property for conservation purpose Additional standard deduction for real property

taxes NOT extended to 2010



ESTATE TAX COMPROMISE*

The 2010 Tax Relief Act revives the estate tax for decedents dying after December 31, 2009, but at a higher applicable exclusion amount and lower tax rate

The maximum estate tax rate is 35% with an applicable exclusion amount of $5 million

This new estate tax is temporary and is scheduled to sunset on December 31, 2012.



OPTIONS FOR 2010 ESTATE*

2010 Tax Relief Act gives estates of 2010 decedents option to use 2010 or 2011 rules:1. Carryover basis under 2010 rules2. Stepped-up basis under 2010 rules with no

estate tax (small estates) 3. Stepped-up basis under 2011 rules with

estate tax Election revocable only with IRS consent

* Affects 2010 tax returns: out of scope


IRS IN-SCOPE CHANGES FOR VITA-TCE

Schedule C – up to $10,000 expenses – same rules as Schedule CEZ (no losses, no employees, no inventory)

Schedule K-1 - royalties Two new “on-line” training modules and

tests: HSA – Health Savings Accounts COD – Cancellation of Debt


ECONOMIC RECOVERY PAYMENT

Some SS recipients may have received $250 ERP in 2010 (overlooked in 2009): Did not receive in 2009 when first eligible Same eligibility rules as in 2009: social

security, SSI, railroad retirement, or veterans disability benefits in November 2008, December 2008, or January 2009

Any Making Work Pay Credit in 2010 will be reduced by this 2010 payment


OTHER 2010 ARRA PROVISIONS

First time homebuyer credit (FTHBC) – extended closing on purchase of home to 9/30/10, if purchased by 4/30/10

Repayment of 2008 FTHBC – at least 1/15th (up to $500) must be repaid

New motor vehicle purchased in 2009 (after 2/16/09) but did not pay sales taxes until 2010 – are eligible to deduct the amount paid in 2010


SAVINGS BONDS FROM REFUND

For 2010, in addition to direct deposits, can use refund to purchase savings bonds Can purchase up to three I bonds Can purchase for selves, beneficiaries, or

co-owners, or other persons, other than selves;

Use Form 8888


QUALIFIED CHARITABLE DISTRIBUTIONS*

Extends exclusion for qualified charitable distributions made in 2010 and 2011

Qualified charitable distributions made in January 2011 can be treated as having been made on December 31, 2010, to satisfy the taxpayer’s minimum distribution requirement for 2010.



EXPIRED TAX BENEFITS*

Waiver of Minimum Required Distributions from IRAs and defined benefit plans

$2400 unemployment compensation exclusion Standard Deduction increase for real estate

taxes and disaster losses Standard/Itemized Deduction increase for

sales taxes for purchase of new motor vehicle Certain tax benefits for Midwest disaster areas



WHAT’S NEW IN 2010

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WHAT'S NEW IN 2010?