Now that you’ve (hopefully) filed your return for 2010, you may have noticed that the bill was higher than you expected. This may be due to some subtle changes to the tax law that affected your return for this year. Listed below are some of the changes that you may have been impacted by:
Social Security taxation: Especially if you had unusual income taxed in 2010, such as a Roth Conversion, you could be subject to as much as 85% taxation of your Social Security benefit.
Alternative Minimum Tax: If you’ve been impacted by this, not only are your ordinary income tax items taxed at a higher rate, but your capital gains and dividends could be taxed at a rate higher than 15% as well. This happens for folks with incomes between $150,000 and $439,800 (or $112,500 and $302,300 for singles) as the AMT exemption phaseout occurs.
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Child Tax Credit: If your income is over $110,000 ($75,000 if filing Single), the Child Tax Credit reduces by $50 for each $1,000 over that limit. This has the effect of increasing the marginal tax rate by 5% for each child, as your income increases.
Passive Loss phaseout for rental realty: If your AGI is greater than $100,000, the deduction of up to $25,000 of losses from rental real estate is phased out up to an AGI of $150,000 when the deduction is eliminated altogether. This can increase the marginal tax rate by 50% ($25,000 credit eliminated as your income increases by $50,000).
There may be other reasons that impact your tax bill, but these are some that have recently come to light as typically occurring.
Sterling Raskie, MSFS, CFP®, ChFC®
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