2010 Tax Update

FEDERAL

529 Education accounts now include coverage of required computer and technology
Education credits have been expanded and increased
Clients who use only the standard deduction are able to deduct property taxes, sales tax on the purchase of a NEW automobile and disaster losses in addition to their standard deduction
Energy credits continue to be available for solar and efficient energy
First timeHome Buyer Credit is extended to purchases closing by June 30, 2010 and now includes long time owners for a credit up to $6,500.
Roth Conversions: No more income limitations. Can chose to pay the tax in 2010 or split it over 2011 and 2012 Wise for clients who can pay the tax with other funds and will be in a high bracket in retirement – call us to discuss your situation
Charitable contributions continue to require substantiation
Reporting of Foreign accounts is not new, but the IRS has stepped up enforcement.
Retirement distributions: Required Minimum Distributions (RMD) were suspended for 2009. If you took your RMD near year end, you have 60 days from the distribution date to roll it back in and not be taxable to you for 2009.
50% bonus depreciation extended for 2009
Sec 179 first year expensing of fixed assets available for 2009 up to $250K. For 2010, up to $134K.
Net operating losses can be carried back 3, 4 or 5 years (the 5th year with 50% of income limit) and carried forward up to 20 years. Get client written acknowledgement if not carrying back.
There is a current bill in Congress to remove cell phones from listed property.
Real estate professional includes agents as well as broker for passive loss rules Tax Court Summary Opinion.
November 2009 IRS begins new employment tax audits re: classification, fringe benefits, officer comp and reimbursed expenses.

CALIFORNIA

California withholding increased 10% in January 2010. It is voluntary and employee can ask that it not be imposed. Ask us to prepare your W-4/DE-4 to get your withholding right.
Dependant exemption $98 in 2009, prior year was $309.
New jobs credit applies when employer has even one new employee over prior year. Seasonal workers can be included in calculation.
Use tax applies to any internet purchases for individuals and businesses and computer software delivered electronically.
California does NOT CONFORM TO MANY FEDERAL PROVISIONS:
- NOL’s
- 529 plan distributions for computer technology
- Sales tax deductions for new cars
- Kiddie tax for CA applies to kids not yet 14 only.
- Depreciation 50% nor 179
- Cash for Clunkers is taxable for California
Credit card fees for tax payments now deductable
California does conform to Roth Conversions