Posts Tagged ‘2010 Tax Laws’

Gifts To Others, Gift Taxes, & Gift Tax Returns

Tuesday, March 29th, 2011

The Federal tax laws permit the tax-free giving of “gifts” to others throughout the year, subject to the annual exclusion amount limitations.  “Gifts” in this article are not the same as ”charitable contributions” or donations.  For example, you can not deduct amounts which are given to politcal organizations as a “charitable donation” but a “gift”  to that organization can be made.

The 2010 annual gift exclusion limitation was $13,000.00 per recipient.  A husband and wife will have a $26,000.00 annual limitation, but read the requirements for “gift splitting” below.   It is also important to understand when a United States Gift (and Generation-Skipping Transfer) Tax Return (Federal Form 709) is required to be filed.   Unless the U.S. Congress changes the annual limits, the same annual exclusion amounts are applicable for 2011.    The IRS website provides information for Frequently Asked Questions (FAQs) on this subject.  (more…)

2010 IRA Contributions

Monday, March 28th, 2011

There is still time remaining if you wish to make a contribution to your Individual Retirement Arrangements (IRA) account.  However, these contributions are subject to annual limitations and other requirements.  See IRS Publication 590.  Additionally, be sure to inform your financial advisor that your contribution is for 2010 and not 2011.  This important for the appropriate reporting of your contributions.  (more…)

Adoption Expenses

Thursday, February 17th, 2011

If you had expenses in 2010 that were related to the adoption of a qualified child (under the age of 18 or someone who is physically or mentally incapable of taking care of themself), you may be elibigle for a refundable tax credit of up to $13,170.00 per qualified child or person.  “Refundable” means that you will receive the credit even if you do not have a tax liability.  For example, if your tax liability is $10,000 and your credit is $12,000, with a nonrefundable adoption credit the tax credit would reduce your tax liability to $ 0.00 and you would be required to carry the remaining $2,000 tax credit forward for your tax return next year.  In the same situation with a refundable adoption tax credit, your tax liability would be reduced to zero, but you will also receive a tax refund for $2,000.00 which is the amount  by which your tax credit amount exceeds your tax return liability.

If you believe that your 2010 adoption expenses will qualify, you’ll need to complete Form 8839 (Qualified Adoption Expenses) and attach the completed form to your 2010 Federal tax return.  Be sure to review your state income tax return instructions to determine if your state follows the Federal law.  Written documentation is required to support your claim.  Therefore, you can not e-file.  Instead, you will  have to paper-file your 2010 tax return.

Qualified adoption expenses are reasonable and necessary adoption fees. They include:

  • court costs,
  • attorney fees,
  • traveling expenses (including amounts spent for meals and lodging while away from home), and
  • other expenses directly related to the legal adoption of an eligible child.

There are additional points to be considered:

  • The instructions for Form 8839 are only eight pages in length.  Links to the form itself, the instructions, and “Frequently Asked Questions” (FAQs) are provided below;
  • The full amount of the adoption tax credit will begin to be reduced if your total “modified adjusted gross income” reaches $182,252.00 and will be completely eliminated at the $222,520.00 income level;
  • The tax credit must be reduced (offset) by employer provided adoption benefits;
  • Adoption expenses associated with the adoption of your spouse’s children or a surrogate parenting arrangement are not eligible to be included;
  • Expenses which are associated with a foreign adoption (where the child was not a U.S. citizen or resident at the time the adoption process began) will qualify but only if you actually adopted the child.

(more…)

2010 Tax Law Changes (Summary)

Tuesday, February 15th, 2011

Important Tax Law Changes for 2010

Taxpayers should make sure they are aware of many important changes to the tax law before they complete their 2010 federal income tax return.

Here are several important changes that the IRS wants you to keep in mind when you file your 2010 federal income tax return in 2011.

Health Insurance Deduction Reduces Self Employment Tax  In 2010, eligible self-employed individuals can use the self-employed health insurance deduction to reduce their social security self-employment tax liability in addition to their income tax liability. As in the past, eligible taxpayers claim this deduction on Form 1040 Line 29. But in 2010, eligible taxpayers can also enter this amount on Schedule SE Line 3, thus reducing net earnings from self-employment subject to the 15.3 percent social security self-employment tax.

Premiums paid for health insurance covering the taxpayer, spouse and dependents generally qualify for this deduction. Premiums paid for coverage of an adult child under age 27 at the end of the year, for the time period beginning on or after March 30, 2010, also qualify for this deduction, even if the child is not the taxpayer’s dependent.

As before, the insurance plan must be set up under the taxpayer’s business, and the taxpayer cannot be eligible to participate in an employer-sponsored health plan. Details, including a worksheet, are in the instructions to Form 1040.

First-time homebuyer credit You must meet the required deadlines to be eligible to claim the credit.  You must have bought — or entered into a binding contract to buy — a principal residence on or before April 30, 2010. If you entered into a binding contract by April 30, 2010, you must have closed or gone to settlement on the home on or before Sept. 30, 2010.   Because of the documentation requirements for claiming the credit, taxpayers who claim the credit on their 2010 tax return must file a paper — not electronic — return and attach Form 5405, First-Time Homebuyer Credit and Repayment of the Credit, and a properly executed copy of a settlement statement used to complete the purchase.

Taxpayers who claimed the first-time homebuyer credit for a home bought in 2008 must generally begin repaying it on the 2010 return. In most cases, the credit must be repaid over a 15-year period. Many of those affected by this requirement received reminder letters from the IRS.

A repayment requirement also applies to a taxpayer who claimed the credit on either their 2008 or 2009 return and then sold it or stopped using the home as their main home in 2010. Use Form 5405 to report the repayment.

In addition, certain members of the armed forces and some other taxpayers still have time to buy a home and take the credit. See Form 5405 and its instructions for details.

Standard Mileage Rates for 2010 The standard mileage rate for business use of a car, van, pick-up or panel truck is 50 cents for each mile driven. The rate for the cost of operating a vehicle for medical reasons or as part of a deductible move is 16.5 cents per mile. The rate for using a car to provide services to charitable organizations is set by law and remains at 14 cents a mile.

Tax Breaks Extended Several tax breaks that expired at the end of 2009 were renewed and can be claimed on 2010 returns. They include:

  • State and local general sales tax deduction, primarily benefiting people living in areas without state and local income taxes. Claim on Schedule A, Line 5.
  • Higher education tuition and fees deduction benefiting parents and students. Claim on Form 8917.
  • Educator expense deduction for kindergarten through grade 12 educators with out-of-pocket classroom expenses of up to $250, Claim on Form 1040, Line 23 or Form 1040A Line 16.
  • District of Columbia first-time homebuyer credit. Claim on Form 8859

For further information about these changes visit the IRS website at http://www.irs.gov or call 1-(800) 829-1040.

Tax Deductions for the Business Use of A Car

Saturday, February 12th, 2011

If you  are using your personal automobile for business purposes, either as an employee or a business owner, you should understand the requirements for claiming this deduction.  IRS Publication 463 (“Travel, Entertainment, Gift and Car Expenses”) provides all of the important guidelines.  You can also use your search engine or go to the IRS website (http://www.irs.gov) and search using “car expenses” to obtain a list of Tax Topics that will provide additonal information and guidance.  Among the important topics to review, depending on your situation, are:

  • Local and travel and travel away from your business home
  • Categories of travel – personal, commuting, and business
  • Standard mileage rate vs. actual expenses (including the major expense categories for the deduction)
  • Leasing a car (special rules apply)
  • Disposition (sale, trade, etc) of the car
  •  Parking fees and tolls, tax credits
  • Advertising on the car
  •  Transporting tools and instruments
  •  Union member’s trips from the union hall
  •  Work location (temporary, multiple, no regular place, Armed Forces reservists)
  •  Car pools
  •  Office in the home
  •  Requirements for car expenses

Insofar as the acceptable deduction expense methods are concerned, you are allowed to use either 1) the actual expenses which were incurred during the tax year or 2) the IRS standard mileage rate ( $ .51/mile in 2011).  This rate is applicable for any and all automobiles.

There are two methods which can be used to determnine the deduction for your business driving costs: the actual expense method or an IRS-set standard mileage rate.    

  • Actual expense method.  You should keep accurate receipts and records for all of your automobile expenses.   Business  costs must be kept separate from personal and commute costs;  
  • Standard mileage rate. If accurate recordkeeping is too difficult you may also use this method to determine your deductible costs. The standard mileage rate replaces the “actual expense method” for determining the costs of gasoline, oil, repairs, lease payments (if you lease), depreciation (if you own), and other car-related expenses.

 However, if you meet the recordkeeping requirements, you are allowed to use the method which provides the highest tax deduction.  However, there are seven situations in which you can not use the standard mileage method – (See “Standard Mileage Rate Not Allowed at http://www.irs.gov/publications/p463/ch04.html#en_US_publink100033930)  

Tax Tips:

  1. If you want to use the standard mileage rate for a car you own, you must choose to use it in the first year the car is available for use in your business. Then in later years, you can choose to use either the standard mileage rate or actual expenses.
  2.   If you want to use the standard mileage rate for a car you lease, you must use it for the entire lease period. For leases that began on or before December 31, 1997, the standard mileage rate must be used for the entire portion of the lease period (including renewals) that is after 1997. 
  3.   You must make the choice to use the standard mileage rate by the due date (including extensions) of your return. You cannot revoke the choice. However, in later years, you can switch from the standard mileage rate to the actual expenses method. If you change to the actual expenses method in a later year, but before your car is fully depreciated, you have to estimate the remaining useful life of the car and use straight line depreciation.
  4. Documentation – Your automobile and vehicle records should be created (updated) during the actual time that you are on a trip.  You may use a handritten vehicle trip log, Excel spreadsheet, special purpose form etc.  However, be sure that your information includes, at a minimum,  all of the following:
  • The date of the trip
  • The odometer reading (both beginning and ending)
  • The business purpose of the trip
  • The destination to which you traveled

 Keep all of your records for at least three years after the due date of your tax return.  If you file your tax return early,  the clock will still start on the original statutory due date (usually March 15th for certain businesses or April 15th for individuals and other entities).  If you requested a six-month automatic extension of the time to file, then the clock will start at the later date (September 15th or October 15th).

Questions?  Contact the IRS (1-800-829-1040),  your tax preparer,  or your CPA.