To prepare for the upcoming tax-time busy season, we typically use the November and December period to touch base with our clients to inquire about their individual tax scenarios. We’re interested in knowing if there have been any changes to their current-year income and if any tax-motivated transactions should be executed before December 31. The 2010 tax year has been a challenge to plan for, since there has been so much speculation as to what will actually become tax law following the mid-term elections.
The Economic Growth and Tax Relief Reconciliation Act of 2001 “sunsets” on December 31, 2010, and more than 60 provisions contained in that bill expire with it. Ordinary income tax rates, qualified dividends and capital gains rates, child tax credit, dependent care credit, limits on itemized deductions and exemptions, etc. will all see changes as these provisions revert to 2001 tax law.
Another uncertainty exists regarding a possible Extender Bill. We saw 22 provisions expire on December 31, 2009. We expect some of those to be extended. Which ones, and when, would be a guess at this time. The following is a list of expired provisions:
- First-time home buyer credit, which was extended to April 30, 2010
- Research and experiment credit
- AMT reduced by nonrefundable credits
- AMT exemption amount
- $250 educator deduction
- $500/$1,000 property tax deduction added to standard deduction
- $2,400 unemployment compensation treated as tax-free
- Sales tax in lieu of state/local income tax deduction
- Sales tax on vehicle purchase added to standard deduction
- Casualty loss floor increased from $100 to $500
- Disaster loss not subject to 10% AGI limits
- 15-year recovery period for leasehold improvements and restaurant improvements
- First-year additional depreciation, which was extended for new purchases to December 31, 2010
- Enhanced deduction for corporate contributions of scientific property to schools
- Enhanced deduction for business contributions of food, books and inventory
- Tuition deduction
- Moratorium on required minimum distributions
- IRA transfers to charity
- Two investment transfers allowed (IRC §529)
- $3.5 million estate tax exemption ended December 31, 2009. No estate tax for 2010. Reverts to old rules January 1, 2011.
- COBRA subsidies for laid-off employees, which was extended to May, 31, 2010
- 90% prior-year safe harbor for estimated taxes of qualified small business owners
We expect some clarity, if there is such a thing in tax law, soon. We will be monitoring and will pass along which provisions have been extended and how that might affect your individual tax scenario for 2010.
As always, if you have any questions, please feel free to contact DJ Loughran at firstname.lastname@example.org at any time.
Schneider Downs provides accounting, tax, wealth management, technology and business advisory services through innovative thought leaders who deliver the expertise to meet the individual needs of each client. Our offices are located in Pittsburgh, PA and Columbus, OH.
This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax-related matter.