2010 -2011 Tax Guide

Capital Gains:

The tax rate on capital gains and dividends remains at zero percent for 2010, unless your tax bracket is 25% or over. You will be allowed to receive dividends and take profit on the sale of long-term assets without paying capital gains if your tax bracket is 10% or 15%. For 2010 the 25% tax bracket starts at taxable incomes greater than $67,900 for married filing jointly and $33,950 for single filers. When your taxable income exceeds these amounts your dividends and long-term capital gains will be taxed at 15%. Short-term and long-term gains do not qualify for these special rates.

Standard IRA to Roth Conversions:

In 2010, individuals with any amount of income will be able to convert a traditional IRA to a Roth IRA. Conversions are not subject to the 10% early withdrawal penalty. Income recognized from conversion can be taxed on your 2010 tax return or averaged over two years.

Use Tax Refunds to Purchase Savings Bonds:

The Treasury Department is allowing a new option for your "direct deposit" refund that puchases U.S. Series I Savings Bonds. I Bonds are a low-risk, interest bearing bonds that are puchased at face value, and they earn a standard rate of interest that is adjusted for inflation.

New Hiring Incentives:

During 2010 the (HIRE) Act gives employers a financial incentive to hire new employees by combining forgiveness for employer paid Social Security taxes along with an additional tax credit if the new employee stays on the payroll for 52 weeks.

How Long Do I Need to Keep My Tax Records?

The first step to being prepared is to organize the records at the time you're preparing the return and then keep them with your return. Records you should keep include bills, credit card and other receipts, invoices, mileage logs, canceled, imaged or substitute checks, proofs of payment, and any other records to support deductions or credits you claim. The general rule, which follows the statute of limitations, is to keep your tax records a minimum of three years.

New Law Eases Cell Phone Reporting:

Starting in 2010, cell phones and similar telecommunication devices used for business are no longer subject to the "listed property" reporting requirements.

Phase-Outs Eliminated in 2010:

The high income phase-outs for itemized deductions and personal exemptions have been repealed for 2010.

American Opportunity credit replaces the Hope credit:

The new education credit modifies and expands the Hope credit for tax years 2010 and 2011. The plan is to make the credit permanent and index it for inflation.

New Reporting for Rental Property Expenses:

Starting January 1, 2011, payments of $600 or more during the calendar year will require an information return be sent to the IRS and the vendor providing the service.

First-time Home buyer Credit Extended in to 2010:

Under the new rules, long-time residents may be eligible for a reduced credit. You must have lived in your old residence for any five consecutive year period during the last eight years. The time to purchase your home has also been extended to April 30, 2010. The new law raises the income threshold for which the credit is phased out...under the new law the phase-out begins at $125,000. For married taxpayers the phase-out begins at $225,000.

Making Work Pay Credit:

The Making Work Pay Credit allows a dollar for dollar reduction of your taxes equal to 6.2 percent of your wages up to a maximum credit of $400 for single filers, $800 if you're married and file jointly. The credit will be available for 2009 and 2010, through the end of 2010.

Can't pay taxes?

If you cannot pay your taxes, you may request a payment agreement.

New Law Increases Form 1099 Reporting:

Under the new law, effective for payments beginning in 2012, businesses that pay amounts greater than $600 during the year to both corporate and on corporate taxpayers, for either services or product purchases, will be required to file a Form 1099 Information Report to each taxpayer and with the IRS.

Increased Start-Up Expense Deduction Available for 2010:

The Small Business Jobs Act of 2010 has doubled the first year write-off to $10,000. The first year deduction is also limited by the amount the total start-up costs exceed a phase-out threshold of $60,000.

Sec. 179 Expensing Gets Expansion:

The benefits of the Code Section 179 election have increased. Under the new law the maximum deduction has been increased to $500,000. In 2009, the deduction began to phase out dollar for dollar after reaching $800,000 in total equipment purchases. Under the new law this limit is increased to $2 million. There is an additional benefit under the law. The definition of "qualiftying property' has been expanded to include qualified real property, which includes qualified leasehold improvement porperty, qualified restaurant property and qualified retail improvement property.

Another Year of Bonus Depreciation:

In September 2010, President Obama signed into law an extension of the 50 percent depreciation. The bonus depreciation is an addition to the regular depreciation.

Health Insurance Deduction for Self-employed in 2010:

In 2010, self-employed individuals may deduct the cost of health insurance premiums paid for the taxpayer and their immediate family as an expense when computing self-employment taxes.

Tax Planning Ideas for 2011 and Beyond:

A very basic way to save on taxes is to shift income and deductions between two adjacent years. The following tax planning ideas may help in reducing or postponing your taxes: 1. Donate highly appreciated stock instead of selling the stock and donating the cash. 2. Postpone December billing by waiting until January to send your customers bills. 3. Bunch itemized deductions between years. 4. Use tax-free investments 5. Consider filing separately, it may reduce your overall tax liability. 6. Use a home equity line of credit to convert nondeductible credit card interest into a deductible mortgage interest deduction. 7. One of the better tax shelters still available is your retirement plan. Qualified contributions to your 401K, Profit sharing, KEOGH, Simple, IRA or other types of plans are still fully deductible from income and grow each year tax-free.

Tax Topics

Recordkeeping Requirements

How long should you keep tax records? If your attic is getting filled up with old records, perhaps this will help.

Individual Return Key Filing Dates

Key Federal filing dates for Individuals are listed here.

Smart Finance

Smart Banking