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There were many changes made to the tax laws with the passage of the American Recovery and Reinvestment Act.  While most changes appeared to impact large financial institutions and the auto industry, there were significant benefits applicable to individuals and small businesses.  While most of the changes to the tax laws affect this year, there are many benefits that taxpayers can utilize in the 2010 tax year. We are available to offer you our services and provide you with the assistance, interpretations, and clarifications you may need.

Below is a synopsis of some of the changes:

  • Roth IRA Conversion: Starting January 1, 2010 the income limit that prevented many Americans from converting to a Roth IRA will disappear.  If your household income is more that $100,000 (the current limit) converting your traditional IRA to a Roth IRA will become an option for the first time.  Why convert?  By doing so you can potentially put some or all of your retirement savings out of the reach of tomorrows’ tax collectors.  Additionally, converting allows you to avoid the IRS required minimum distribution once reaching the age of 701/2.  Of course,  there are   exceptions. 

  • Sales Tax Deduction: Special sales tax deduction for cars purchases available through December 31, 2009.  The deduction is limited to sales and excise taxes and similar fees paid on up to $49,500 of the purchase price of certain new vehicles.  There are certain income limitations.  The sales tax deduction is available regardless of whether taxpayers itemize deduction on their tax returns.  .

  • Energy incentive for individual taxpayers:  The new law increases the energy tax credit for homeowners who make energy efficient improvements to their existing homes.  The credit is 30 percent of the cost of all qualifying improvements and raises the maximum credit limit to $1,500.00 for improvements placed in service in 2009 and 2010.

  • First Time Home Buyers Tax Credit:  Taxpayers who enter into a binding contract by  not later than April 15, 2010 to buy their principal residence  and close on or before June 30,2010 are entitled to a deduction. There are certain income limitations.   

  • Credit for higher education expenses:  The new tax law modified the existing Hope credit for tax years 2009 and 2010, making it available to a broader range of taxpayers, including many with higher incomes and those who owe no tax.  It also adds required course materials to the list of qualifying expenses.  Many of those eligible will qualify for the maximum annual credit of $2,500 per student, an increase of $500 more than the previous maximum credit.

  • Section 529 Plans:  For tax years 2009 and 2010, funds from section 529 college savings plans can be used to pay for computers without triggering a taxable distribution. However, the computers must be used for college work.

  • Additional Child Tax Credit:  The child tax credit has been amended to increase eligibility for the refundable portion of the child tax credit for 2009 and 2010.  For both years, the refundable portion of the child tax credit is calculated based on 15% of the taxpayer’s earned income in excess of $3,000. 

Additional  Suggestions
These tips may assist you to reduce your tax bill come tax time next year. Here are two simple ones; others may be added on an ongoing basis.

Delay invoicing for goods or services until January and/or pay all bills due by December 31. You must be a cash basis taxpayer to do this.

Sell securities in which you are experiencing a loss. For the tax year 2009 you may write off up to $3000 securities loss against income.

Please contact our staff to discuss these changes with you and, within the constraints of the applicable laws, apply them to benefit your particular situation.