Overview of Key provisions in the 2010 Tax Relief Act

Here’s an overview of the key provisions in the law:

 

Tax rates. The existing tax rates established in the 2001 and 2003 tax laws will continue for all taxpayers through 2012. This means the top tax rate for 2011 and 2012 will remain at 35% instead of reverting to 39.6% as it would have done had the 2010 Tax Relief Act not passed.

Capital gains and dividends. The top rate for long-term capital gains will remain at 15% for taxpayers in all but the two lowest ordinary income brackets; those taxpayers will continue to have a 0% rate on capital gains. Dividends will continue to be taxed at the 15% and 0% rates instead of reverting to ordinary income rates as high as 39.6%.

Itemized deductions and personal exemptions. Higher-income taxpayers will not have their itemized deductions limited and their personal exemptions phased out.

Education tax breaks. The law extends the American Opportunity Tax Credit through 2012. The income exclusion for up to $5,250 of employer-provided education assistance to employees is continued for two years. The higher contribution limit of $2,000 and other enhancements to Coverdell Education Savings Accounts were extended for two years.

Alternative minimum tax (AMT). The AMT was given another “patch” for 2010 and 2011, a move that will keep the tax from hitting millions more taxpayers. For 2010, the exemption amount is $47,450 for individuals and $72,450 for married couples filing joint returns. For 2011, the exemption is $48,450 for singles and $74,450 for couples. Without this adjustment, the exemption amounts for 2010 and 2011 would have been $33,750 for singles and $45,000 for couples.

Payroll tax. A new tax break is created for workers who pay social security taxes. For 2011, the employee rate for social security tax is cut from 6.2% to 4.2% on wages up to $106,800. Self-employed individuals will pay 10.4% on self-employment income up to $106,800. Employers will continue to pay 6.2% on employee wages. This payroll tax rate cut does not affect the Medicare portion of payroll taxes for either employees or employers.

Extenders. Tax breaks that have come to be called “extenders” because they’re typically extended retroactively every year, but just for a year, are again extended by the new law.

Effective for 2010 and 2011 returns, taxpayers have the option of deducting state and local sales taxes instead of state and local income taxes. The deduction for up to $4,000 of higher education expenses and the deduction for teachers who buy classroom supplies are extended. Those age 70½ or older may again contribute up to $100,000 tax-free from an IRA to a charity. Note that the deduction for real estate taxes paid by nonitemizers was not extended.

Business provisions. The law extends the research tax credit for 2010 and 2011, and it extends the work opportunity tax credit through 2011. Bonus depreciation is increased from 50% to 100% for qualified business purchases made from September 9, 2010, through December 31, 2011. 50% bonus depreciation will be available in 2012.

Estate tax. The estate tax was perhaps the most contentious issue in the law, and it came close to unraveling the deal. The compromise that was agreed upon restores the estate tax retroactive to January 1, 2010, and continues it through December 31, 2012. It establishes a top rate of 35% and an exclusion amount of $5 million ($10 million for married couples). Estates of persons who died in 2010 have the option of applying the estate tax and receiving a step-up in basis on property passing to heirs or having no estate tax but using a carryover of the decedent’s basis in property.

The 2010 Tax Relief Act also provides an additional 13 months of benefits to the unemployed.

Most of the provisions in the new law will probably go unnoticed by the majority of taxpayers since the law basically keeps things as they were for another two years. However, there are several significant changes that are likely to affect you or your business. For more information and planning guidance as you begin sorting out your tax situation for 2011, contact our office.

Maris & Associates, CPA's 

10512 19th Ave SE #101

Everett, WA 98208

425-338-0414

www.mariscpa.com

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There's still time to make 2010 tax-free gifts

The tax code allows you to give away up to $13,000 each year to as many people as you want, without triggering gift tax. If you and your spouse "split" your gifts, you can double this $13,000 annual gift-tax exclusion and give $26,000 per recipient.

If you're thinking of sharing your wealth, here are some important gift-giving considerations.

* All gifts during the year, including birthday and holiday presents, count toward the $13,000 (or $26,000) annual gift tax exclusion. For example, say you give a $500 birthday present to your grandchild. You may give another $12,500 to that grandchild during the year without triggering the need for a gift tax return.

* A gift made by check isn't complete until the recipient actually deposits or cashes the check. Plan accordingly when making year-end gifts, especially if you want such gifts to be counted toward this year's gift tax exclusion.

* For a gift to be valid, you must part with ownership. Pay special attention to gifts of stock in the family business or gifts of your personal residence.

* Three types of gifts are exempt from the $13,000 limit. You can make unlimited gifts for tuition expenses or medical expenses on behalf of any person, provided you make the payments directly to the educational institution or health care provider. You can also make unlimited gifts to your spouse.

If you would like to discuss the benefits of making tax-free gifts, please contact our office.

Maris & Associates, CPA's

10512 19th Ave SE #101

Everett, WA 98208

425-338-0414

info@mariscpa.com

Act fast if you want to cut your 2010 taxes

1. Tax rates are likely to go higher in 2011, so you might benefit from shifting income into 2010 and delaying deductions until 2011. It’s always a matter of personal circumstances, so analyze the two-year results of shifting income and deductions before you do anything.

2. Remember that required minimum distributions from retirement plans are back this year. If you’re over 70½, your 2010 distribution must be taken by December 31 or a 50% penalty may apply. If you turn 70½ this year, you could wait until April 1, 2011, to take your first distribution. In deciding, consider the likelihood of higher tax rates next year and the fact that a delay means you'll have two taxable distributions for 2011.

3. With the $100,000 income limit dropped for converting a traditional IRA to a Roth, consider doing a conversion before year-end. You can elect to pay the tax over two years’ tax returns, 2011 and 2012, or pay in full on your 2010 return.

4. Consider buying needed equipment for your business to benefit from the first-year $500,000 expensing option and 50% bonus depreciation.

5. If you’re planning to add employees soon, do so before January 1, 2011. If you hire someone who has been unemployed for a while, you might qualify for an exemption from social security payroll taxes on the new hire’s wages. Keep the new worker for at least a year and you could also qualify for a tax credit of up to $1,000.

6. Start a pension plan for your small business. You may be entitled to a credit of up to $500 in each of the plan’s first three years.

7. Review your portfolio and start thinking about offsetting gains and losses for the year. You can deduct $3,000 of losses against ordinary income.
Call us to discuss your tax situation and what we can do to help.

Maris & Associates, CPA's

10512 19th Ave SE #101

Everett, WA 98208

425-338-0414

info@mariscpa.com

HIRE employees before January

If you're planning to add employees in your business, consider doing so before January 1, 2011. Under the "HIRE Act" passed earlier this year, you could qualify for an exemption from social security payroll taxes on wages paid a new worker who had been unemployed for the previous 60 days or more. Keep the new worker for at least a year, and you could also qualify for a tax credit of up to $1,000.

New law raises insurance coverage on bank accounts

For years, bank accounts were FDIC-insured up to $100,000. Then during the recent financial crisis, the insurance limit was increased to $250,000. But this increase was only temporary; it was scheduled to drop back to $100,000 in 2014.

The good news is that the financial reform law just signed permanently sets the FDIC insurance limit at $250,000 per account, per depositor, per bank. The $250,000 coverage applies for each of four categories of ownership: individual, joint, retirement, and trust accounts.

Maris & Associates, CPA's

10512 19th Ave SE #101

Everett, WA 98208

425-338-0414

info@mariscpa.com

Tax credit for small business

 

Look into this new 2010 tax credit for your small business

When small business owners think about the recent health care reform, they may be thinking only of its long-term implications. But the legislation actually provides an immediate tax break for qualified small businesses and nonprofit organizations. Beginning this year, the "Patient Protection and Affordable Care Act" offers a tax credit of up to 35% of employer-paid health care costs. Does your business qualify? The answer lies in a little math. We can help with that.

* First, you must have fewer than 25 full-time employees. Keep in mind that owners and their family members who draw a salary are not counted in the total. Neither are seasonal employees working 120 days or less per year. The term "full-time employee" is actually a bit of a misnomer; the IRS is really counting full-time equivalents, or FTEs. To figure your FTEs, add up the annual hours you paid to non-owner, nonseasonal employees (full-time or part-time) and divide by 2,080. If the result is less than 25, you're ready to move to the next step.

* Next calculate your employees' average wages. Just as in the calculation of full-time workers, you don't count wages paid to owners, family members, or seasonal workers. After subtracting out the above pay, divide the net figure by the number of FTEs above, and if the result is less than $50,000, you are still in the running for the credit.

* To meet requirement number three, your business must cover at least 50% of the cost of employees' health insurance. For 2010, you need only pay 50% or more of the single coverage premium even if the employee is enrolled in a family plan. Next year this special rule goes away.

From now through the year 2013, the maximum tax credit is 35% of the employer's share of the premiums. But only businesses with 10 or fewer full-time employees and average wages of $25,000 or less actually get this rate. The percentage drops as the number of employees or the average pay increases. Another little wrinkle: Beginning in 2014, the maximum credit rises to 50%, but the tax break becomes available only to those businesses that purchase their health insurance through a state exchange. And even then, you can only claim the credit for two years.

If you're a small business owner, look into this tax perk as soon as possible. For help in running the numbers, just give us a call.

Maris & Associates CPA's  

10512 19^th Ave SE #101, Everett, WA  98208 ~ 425-338-0414 begin_of_the_skype_highlighting              425-338-0414      end_of_the_skype_highlighting ~  info@mariscpa.com  
Visit our Website www.mariscpa.com for more resources and information.
 

Don't fall for a health care reform scams

The new health care law is confusing to many, and the con artists are wasting no time in taking advantage of people's uncertainty about the new rules. State insurance commissioners warn that con artists are calling, e-mailing, and even showing up at people's doors trying to sell insurance policies they say are required under the new law.

The facts are that the requirement to have health insurance doesn't begin until 2014, and there is no jail sentence involved for those who don't carry insurance.

Scam artists are preying on people who are uninformed or confused about the new health care law. To protect yourself, become familiar with the main provisions in the law. And be sure to follow the general guidelines to avoid becoming a victim of fraud: Don't give your credit card, bank account, or social security numbers to anyone you don't know, and don't sign up for anything without checking its legitimacy.