A lot is changing in the tax world. Many of the changes are intended to improve the state of the U.S economy. While next year’s tax return should not look very different from this year’s, there are a few changes in particular which taxpayers should be aware of and prepare for throughout the year. To help my readers looking for some tax planning tips for 2010, I have compiled the following list.
1. Stay Organized
Although being aware of tax changes will certainly serve you well, the information will do you little good without the receipts and documentation. Throughout 2010, keep a filing folder or cabinet neatly organized with important receipts, documents, and tax information, which will be needed, come tax time.
2. Childcare Tax Credit
The childcare tax credit is currently set to $1,000 for each qualifying child, provided guardians do not exceed the income limits. However, President Obama recently said, at his State if the Union address, that he was planned to double the childcare tax credit to make life easier on struggling parents given the rough economy. While it is too soon to tell when or if this proposal will go in to place, it is definitely a credit for parents to look out for.
3. Estate Tax Changes
If you had a loved one, who would normally be subject to estate taxes, pass away in 2010, it is important to know that these taxes will not apply this year. If you are the heir or one of the heirs, it will lie on you to make the proper tax moves with the inheritance. On the other hand, if you have a will, you may want to make temporary changes to your will for the year if you planned donate a larger portion to charity or avoid over taxation, which you would normally be subject to. Remember to reverse the changes next year, as the estate tax will be higher than ever when it returns. These changes are quite drastic and if you are confused, you may want to consider hiring an estate tax attorney to make sure you make the right choices.
4. Making Work Pay Errors
When the Obama administration instituted the making work pay credit last year, many working Americans were happy to receive an additional $400 by the end of 2009 on their pay stubs. However, a major error was overlooked in the distribution, and some taxpayers who had more than one job and received the $400 for each job. The credit is was intended to apply to only one job. Taxpayers who experienced this error will be required to fill out a schedule M form in 2010 to return any overages. The credit will also be given this year, but the error is unlikely to repeat itself. However, whereas last year’s credit was distributed over 9 months, this year’s credit will be distributed over 12 months, so expect a smaller bump to your paycheck.
5. Roth IRA Changes
With the income limits for converting an IRA to a Roth IRA eliminated for 2010, a great potential retirement saving move has been opened to many Americans who did not qualify for it before. However, be aware of conversion costs in the form of previously untaxed amounts. Luckily though, when the change was made, lawmakers put some thought into this and are allowing taxpayers to pay half of the conversion costs in 2011, and the other half in 2012.
6. Energy Efficient Upgrades
If you were planning on making energy efficient upgrades to your home, you may want to do so now, as the tax savings approved in last year’s stimulus bill are set to expire at the end of the year. The highly beneficial changes allow you to claim up to $1,500 in credits, and possibly even more if you plan to install solar panels to your home.
7. Health Care Changes
Although President Obama had hoped to have healthcare legislation passed last year, the bills are still on the table and no decisions have been made just yet. However, legislation is supposed to be passed in coming months, and some tax changes may come with it. While most changes effecting tax law will not be put in to affect until months or years later, a few tax changes could be streamlined and affect your next tax return. Be on the lookout for these changes, and make the appropriate tax moves to offset any big changes.
8. Homebuyers Tax Credits
The recently expanded homebuyer’s tax credit is still eligible for another few months. If you were hoping to buy your first home in 2010, entering in to a binding contract by or before April 30, 2010 will allow you to take the $8,000 tax credit on either your 2009 or 2010 tax return. The sale will need to be settled by June 30, 2010 in order to fully qualify for the tax credit. In addition to the first time homebuyer’s credit, a long-time resident credit was added, in the amount of $6,500 for taxpayers who purchased a second primary home. The requirements for the long-time resident credit are that the taxpayer must have owned and lived in the first home for five consecutive years out of the past eight years.
9. Required Minimum Distribution Returns
Taxpayers who are over the age of 70-1/2 and hold certain savings plans such as a traditional IRA caught a break in 2009, when the required minimum distribution (RMD) was dropped for the year. However, RMDs have been re-instituted for 2010, and taxpayers who are required to pay them will need to take out the minimum amount to avoid being penalized.
10. Stay Updated
As you can see, several potential tax changes will occur 2010. In order to avoid being left uninformed come tax time 2011, stay updated on tax changes throughout the year. Check the IRS newsroom occasionally to see if they have any tax announcements that pertain to you. Also check out my tax center’s Tax Help Blog as well as my personal blog for daily tax tips and news—I try my best to stay on top of the newest tax news and as soon as I know, I will post the information to my blogs.
