As you are likely aware, two major bills enacting tax cuts for individuals will expire at the end of 2010: the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA); and the Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA). The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (Tax Act 2010) extends quite a few provisions from EGTRRA and JGTRRA for an additional two years, most through 2012. It also extends a number of provisions enacted as part of EGTRRA that were modified in the American Recovery and Reinvestment Act of 2009 (ARRA). fyi – you can find the technical explanation at jct.gov – in the document JCX-55-10. Below is a summary of some of the more important provisions that will be extended: Reduction in Employee Payroll Tax The 2010 Tax Act provides for a temporary reduction, for 2011 only, of the employee-paid Social […]
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Charitable Contributions From Your IRA in 2010 and 2011
With the passage of the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (Tax Act 2010 or 2010 Tax Act), Congress retroactively reinstated the ability to make direct qualified charitable distributions (QCDs) from your IRA, in amounts up to $100,000 by IRA owners who are at least age 70½ years of age. This provision expired at the end of 2009, but is once again available, retroactive to January 1, 2010, through December 31, 2011. The provision allows the individual, age 70½ and thus subject to Required Minimum Distributions (RMDs), to make contributions directly from an IRA to a Qualified Charity, in an amount of up to $100,000 per year. Since the 2010 Tax Act was passed so late in the year, there is a special provision for 2010 only, which allows the IRA owner to make such a QCD for the 2010 tax year as late as […]
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Was BP Just Being Nice?
Remember back when the oil spill first started to get really ugly, and BP announced their efforts to start the cleanup, by whatever means were necessary? BP even went so far as to hire some 2,000 people to assist with the effort – 2,000 people who lived in the gulf coast area. BP also very publicly announced that they’d only consider people who had been out of work for 60 days or more – under the auspices that they were altruistically working to improve the lot of these folks who had been impacted by the economy, and further by the spill itself. I’m not going to address the spill or the cleanup, this has been discussed in many forums to great length. Regardless of the effort put in and the emotional ramifications of BP’s cleanup effort – I found it interesting that BP specifically indicated they’d only consider folks who […]
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New Opportunities to “Roth”
Recently one of the tenets of the Small Business Jobs Act of 2010 came into effect, providing you with additional opportunities to set aside funds in a Roth account – not a Roth IRA, but rather a “designated Roth account”, often referred to as a Roth 401(k) or Roth 403(b). Designated Roth accounts are also often referred to as DRACs – just to keep the acronym train rolling. The way the new law works is that, if you have a 401(k) or 403(b) (the traditional kind), you can roll over or convert some of your funds to a DRAC while the account is still active – as long as your plan is set up to allow in-plan distributions of this variety. The eligible rollover distribution (ERD) must be made: after September 27, 2010; from a non-designated Roth account in the same plan, meaning your traditional 401(k) or 403(b); because of […]
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Expanded Adoption Credit Available for Tax Year 2010
The Affordable Care Act raises the maximum adoption credit to $13,170 per child, up from $12,150 in 2009. It also makes the credit refundable, meaning that eligible taxpayers can get it even if they owe no tax for that year. In general, the credit is based upon the reasonable and necessary expenses related to a legal adoption, including adoption fees, court costs, attorney’s fees and travel expenses. Income limits and other special rules apply. In addition to filling our Form 8839, Qualified Adoption Expenses, eligible taxpayers must include with their 2010 tax returns one or more adoption-related documents, detailed in the guidance from the IRS. The documentation requirements, designed to ensure that taxpayers properly claim the credit, mean that taxpayers claiming the credit will have to file paper tax returns. Normally, it takes six to eight weeks to get a refund claimed on a complete and accurate paper return where […]
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Guidance from the IRS on Flex Spending Plans
Here’s one of the opening salvos, brought to you by the Affordable Care Act of 2010: the IRS has now issued guidance regarding changes to Flex-Spending plans (or Flex Spending Arrangements, FSAs), which has changed things for folks who use these plans – specifically the medical expense reimbursements. In the past, these plans have been eligible to reimburse the owner of the account for a myriad of medical expenses, not only physician expenses, prescription drugs, and other health care expenditures, but also over-the-counter medicines or drugs (not controlled by prescription). Beginning in 2011, due to the Affordable Care Act, over-the-counter drugs and medicines that are not ordered by prescription will no longer be eligible for reimbursement from a medical Flex-Spending plan. The change does not affect insulin, even if purchased without a prescription, or other health care expenses such as medical devices, eye glasses and contact lenses, co-pays and deductibles. […]
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Tax Scams You Need to Know About
Each year, the IRS produces a list of tax scams that they have uncovered – which they call the Dirty Dozen. Unfortunately, this Dirty Dozen doesn’t star Lee Marvin (or any of the others), and it’s nowhere near as much fun to help you while away a Sunday afternoon. No, these are illegal activities that you need to be aware of, because you can be caught off-guard by some of these, as they can be quite sophisticated, appearing to be legitimate and above-board. As with all situations, if it seems too good to be true, it probably is. The list below is copied in toto from IRS’ Notice IR-2010-32. Return Preparer Fraud Dishonest return preparers can cause trouble for taxpayers who fall victim to their ploys. Such preparers derive financial gain by skimming a portion of their clients’ refunds, charging inflated fees for return preparation services and attracting new clients […]
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Tax Credits for Home Improvement
There were some changes made to the tax law regarding energy efficient improvements to your home, as a part of the ARRA of 2009. This credit is known as the Nonbusiness Energy Property Credit, and it increased some of the tax credits you could receive for making energy efficient home improvements. The credit is available for improvements made during the calendar years 2009 and 2010 – after that the credit will revert to the old rules (unless another change is made to the law). Here are seven things that the IRS wants you to know about the Nonbusiness Energy Property Credit, as written about in the IRS Summertime Tax Tip 2010-16: The new law increases the credit rate to 30% of the cost of all qualifying improvements and raises the maximum credit limit to $1,500 claimed for 2009 and 2010. The credit applies to improvements such as adding insulation, energy-efficient […]
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Capital Gains and Losses and Your Taxes
If you own taxable investment accounts, real estate, collectibles, or literally any item that can appreciate or depreciate in value, you’ve likely had to deal with capital gains or losses on your tax return. (Actually, only if you’ve sold the item.) But how much do you really know about capital gains and losses? The IRS has published Tax Tip 2010-35 listing 10 Facts About Capital Gains and Losses – detailing what the IRS deems important about gains and losses and how they could effect your tax situation. Following below the IRS’ list is some additional detail on treatment of capital gains and losses. 10 Facts About Capital Gains and Losses Almost everything you own and use for personal purposes, pleasure or investment is a capital asset. When you sell a capital asset, the difference between the amount you sell it for and your basis – which is usually what you […]
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Tax Benefits for College
When faced with the high cost of college, you want to find and take advantage of every opportunity that you can to cut down on your out-of-pocket expenses, before you give in and take out loans. So after you’ve applied for all of the grants, scholarships, and other non-loan financial aid that you can, it’s time to consider what sorts of tax benefits may help out with your situation. Credits There are two different kinds of tax credits currently available in tax year 2010 and 2011: American Opportunity Credit – This credit is available for students (and parents of students) that are in their first four years in a degree program at college. The credit is a maximum of $2,500, and is calculated as: 100% of the first $2,000, and 25% of the next $2,000 of Qualified Higher Education Expenses (QHEE) paid for that student. QHEE is limited to tuition, […]
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Charitable Contributions From Your IRA – 2010 and Beyond
12/19/2010 – with the passage of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, the provision for an IRA owner who is at least age 70½ to make a direct charitable contribution of up to $100,000 from his or her IRA has been extended through the end of 2011. Such a direct contribution can be used to satisfy the IRA owner’s Required Minimum Distribution. See the article Charitable Contributions from Your IRA in 2010 and 2011 for more details. Photo by mikebaird
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Hiring Incentives to Restore Employment Act (HIRE Act) of 2010
I’ve just released, in the Legislation section of this site, a review of the HIRE Act 2010’s primary provisions. The primary benefits of this Act are 1) the exemption from OASDI (Social Security) withholding tax for the remainder of 2010 for employers who hire folks who have been unemployed for 60 days prior to their hiring; plus 2) a tax credit for retaining those same employees for at least 52 consecutive weeks at the same level of pay or more. The Act also extended one of the expired provisions from last year – known as a Section 179 expense limit, which is a special method of accounting for otherwise depreciable items via direct expense in the first year. This provision simply extended the more liberal limit from the previous year. As always, consult your tax advisor for more information. Photo by jay
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Real Estate Investing in Your IRA
From time to time this question comes up: why can’t I use my IRA account to purchase a retirement home? After all, for many folks, the IRA represents a pretty large account, possibly even enough to purchase a retirement home outright – so why not? No Personal Use This is a thorny question, because there are lots of restrictions around this sort of purchase with an IRA account. First of all, you need to understand that you cannot use the real estate personally, if it is owned by your IRA. Specifically, you, your spouse, heirs, and any other linear relatives can not use such a piece of real estate while your IRA owns it. That factor in itself should answer the question for a lot of folks. So, for example you could not – purchase a home in a sunny clime and use it for your own purposes two months […]
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7 Tips About the First-Time Homebuyer Credit
The First-Time Homebuyer Income Tax Credit has been really popular with lots of folks – and there is still time to take advantage of it. As you may be aware, the name of the credit is misleading – it’s been expanded to include folks who owned a house for a significant period of time and have purchased a new home during the prescribed period as well. Like all tax provisions, this is one that you have to pay particular attention to the details, otherwise you could miss out on the credit. Following are seven facts that the IRS wants you to know about claiming the credit (IRS Tax Tip 2010-27). Seven Important Facts About Claiming the First-Time Homebuyer Credit You must buy – or enter into a binding contract to buy – a principal residence located in the United States on or before April 30, 2010. If you have entered […]
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IRS Guidance Regarding Filing Status
The IRS recently issued Tax Tip 2010-03, which provides taxpayers with guidance on determining filing status for 2009 tax returns. For additional information, you can review IRS Publication 501. The text of IRS Tax Tip 2010-03 follows. Eight Facts About Filing Status Everyone who files a federal tax return must determine which filing status applies to them. It’s important you choose your correct filing status as it determines your standard deduction, the amount of tax you owe and ultimately, any refund owed to you. Here are eight facts about the five filing status options the IRS wants you to know in order to choose the correct filing status for your situation. Your marital status on the last day of the year determines your marital status for the entire year. If more than one filing status applies to you, choose the one that gives you the lowest tax obligation. Single filing […]
Sterling Raskie, MSFS, CFP®, ChFC®
The latest in our Owner’s Manual series, A 401(k) Owner’s Manual, was published in January 2020 and is available on 
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