There have been many changes to the tax code that will go into effect for tax year 2010. Those which may affect you most have been summarized below. Also listed below are some of the tax changes set to take effect in the next few years. It is important to be aware of upcoming changes in order to be prepared to take advantage of how these changes may affect you. If you wish to receive more information or would like to discuss the specifics of your situation, please call our office and we will be happy to talk with you.

Individuals
Small Business
Looking Forward

• Health Care Reform
  • Beginning September 23, 2010, all renewing health care plans must allow adult children to remain on their parents’ health coverage until they reach age 26. Many employers are choosing to offer this option earlier in the year.
  • Employees can make pre-tax contributions to all types of cafeteria health plans.
  • Read more about health care reform for individuals.
• Converting Traditonal IRAs to Roth IRAs
  • For tax year 2010, there is no income limit for converting a traditional IRA to a Roth IRA. The immediate consequence of such a conversion can be costly, so please consider carefully whether or not this is the right choice for you.
• Deductions and Exclusions No Longer in Effect
  • Educators deduction for out of pocket expenses (previously $250)
  • Sales tax on new car purchases
  • State and local sales tax paid
  • No income phase-outs for personal exemptions and itemized deductions
  • Charitable distributions made directly from and IRA account to a qualified charity will no longer be excluded from your income
  • If you collect unemployment in 2010, there is no longer any exclusion from income for this (previously $2400)
• Tax Credits
  • If you took a New Homebuyer Credit in 2008, you have to start paying it back in 2010
  • The Residential Energy Credit is still in effect for 2010, with a maximum of $1500 for 2009 and 2010 combined.
• Rate Changes
  • Standard deduction amounts remain the same in 2010, except for Head of Household which increases $50 to $8400.
  • Mileage rates for 2010 are $0.50 reimbursement for business miles, $0.165 for medical miles and $0.14 for charitable contribution miles.
• Estate Tax
  • There is currently no estate tax in place for 2010. It may be that legislation will be passed that will apply retroactively and we will all need to wait and see.

• Health Care Reform
  • The Small Business Health Care Credit is worth up to 35% of small business premium costs in 2010 and there are phase-outs on this credit. To qualify, an employer must have no more than the equivalent of 25 full-time workers, pay an annual average wage of less than $50,000 (owner wages must be included here to determine eligibility) and provide at least 50% of the cost of health care coverage for some of its workers based on the single rate.
  • Read more about health care reform for small businesses.
• HIRE Act
  • The federal jobs bill HIRE Act allows employers to exempt up to $6,621 of social security payroll tax when hiring an unemployed worker. It also offers a $1,000 tax credit if the worker remains on the payroll for a year. North Carolina may offer an additional credit of $1,000 for each hiring of an unemployed worker.
• 179 Expense Deductions
  • This expense is limited to $135,000 on the cost of machinery, equipment, furniture, etc. and there are no phase-outs of this deduction.

• Individuals
  • In 2011, the top marginal tax rates are scheduled to increase from 33% and 35% to 36% and 39.6%. This is a return to pre-Economic Growth and Tax Relief Reconciliation Act rates which was passed in 2001.
  • In 2011, the lowest tax rate of 10% will be eliminated.
  • In 2011, the maximum capital gains tax rate will rise from 15% to 20%.
  • In 2011, dividends will again be taxed as ordinary income at the highest marginal tax rate. There will no longer be a qualifying dividends rate.
  • The Child Tax Credit was enhanced for 2009 and 2010 by making the refundable portion of the credit to 15% of earned income above $3,000. There are currently bills pending to maintain this threshold or reduce it even further.
  • In 2011, the estate tax will be reinstated, likely at a higher rate than in the past.
  • In 2013, the deduction for medical expenses must exceed 10% of AGI for those age 64 and younger (previously 7.5%).
  • In 2011, the penalty for improper expenditures paid for through Health Savings Accounts will increase from 10% to 20%.
  • In 2011, there will be no flexible spending account reimbursements for over-the-counter (non-prescription) drugs.
• Small Businesses
  • Health Care Credit - In 2014, the maximum Health Care Credit for small businesses will increase to 50% of business premium costs paid.
  • In 2011, there will be no flexible spending account reimbursements for over-the-counter (non-prescription) drugs.
  • In 2013, salary reduction contributions to health care flexible spending accounts will be limited to $2,500.
  • In 2013, the exclusion for the Medicare Part D subsidy provided to employers will be eliminated.

For further information or to make an appointment, please contact my office.