401(k)s and IRAs
You can contribute up to $16,500 to your 401(k) in 2009 ($22,000
if you are 50 or older). You can contribute up to $5,000 to your traditional IRA or Roth IRA ($6,000 if you are 50 or
older). However, your ability to contribute to a Roth IRA phases out incrementally as your income (MAGI, Modified Adjusted
Gross Income) reaches the range of $105,000 - $120,000 for single filers and $166,000 - $176,000 for married people filing
jointly.
2010 Roth Conversions
Beginning in 2010, there is no income limitation on the
ability to convert a traditional IRA to a Roth IRA, so, even if you make too much to make a deductible IRA contribution or
a Roth contribution in 2009, it may be advantageous to make a non-deductible contribution to a traditional IRA now, before
April 15, 2010, in order to be able to convert the funds to a Roth IRA in 2010.
Tax-Free Gift Giving
You
may give up to $13,000 per gift recipient in tax-free gifts in 2009. A couple may gift up to $26,000 per gift recipient.
1st
Time Homebuyer's Credit
There is a 10% credit (not to exceed $8,000) for the purchase of a home for those
who haven't owned a home in the previous three years. The closing on the home must be completed by June 30, 2010 (the
contract must be entered into by April 30, 2010). For homes purchased before November 6, 2009, there is a phase-out
of the credit for higher income tax payers ($75,000 - $95,000 for Single filers, and $150,000 - $170,000 for MFJ filers).
For homes purchased after November 6, 2009, the phase-out of the credit for higher income tax payers is between $125,000 and
$145,000 for single filers and between $225,000 and $245,000 for joint filers.
New Homebuyer's Credit for
Existing Homeowners
Beginning November 6, 2009, long-time homeowners who buy a replacement principal residence
may also claim a homebuyer's credit of up to $6,500 ($3,250 for single and married filing separately filers). Homeowners
must have lived in the same principal residence for any five-consecutive year period during the eight-year period that ended
on the date the replacement home is purchased.
Long-Term Capital Gains
The long-term
capital gain rate is 15% for 2010 - 2012, and, for those in the 10% or 15% tax brackets, it is 0% . If you are
in these tax brackets and have been waiting to sell appreciated assets due to the tax ramifications, now is a good time to
sell your assets and pay no income tax.
New Energy Credits
You may be eligible to claim
a 30% credit for home energy improvements (the credit is capped at $1,500). This includes energy saving doors, windows,
insulation, roofs, furnaces, air conditioners, and water heaters. There are also credits for solar energy, small wind
energy, and geothermal heat pump property in your principal residence or second home or for installing qualified fuel cell
property in your principal residence.
In addition, there are available vehicle credits for the purchase of electric,
fuel cell, lean-burn, alternate fuel, or hybrid vehicles.
Itemized Deductions
Now
is a good time to decide how much may be deductible in medical expenses based on the 7.5% floor for deductibility. Another
tax consideration is the timing of your real estate tax payments and your charitable contributions. Consider paying
your real estate taxes and making your charitable contributions before December 31, 2009.
Education Credits
and Deductions
The former Hope Credit has been altered and is now the American Opportunity Tax Credit.
It is potentially worth up to $2,500 (100 % of the first $2,000 in tuition and 25% of the next $2,000). It is now available
for the first four years of post-secondary education. It phases out for higher income tax payers ($160,000 - $180,000
MFJ, $80,000 - $90,000 for Single filers). The credit is 40% refundable so that you may receive part of the credit even
if the credit amount is higher than your tax liability.
The Lifetime Learning Credit and the above the line education
deduction are essentially unchanged from 2008.
Section 529 Education Plans Additional Benefit
Computers and computer
technology equipment are now qualified education expenses for Section 529 funds.
Depreciation and Section
179 Expensing
There is a 50% additional depreciation for business property placed in service in 2010 and
2012. Also, there is a 100% expensing allowance for all assets purchased between September 9, 2010 and December 31,
2011. Second, there are higher depreciation limits for business vehicles. Last, the Section 179 expense limit
for 2010 is $500,000 (phased out as purchases exceed $2,000,000).
Business Vehicles
Remember
to record your business vehicle's mileage on December 31, 2010 and to complete your vehicle's mileage log book.
"Making
Work Pay" Tax Credit
There is a maximum $400 credit ($800 MFJ) for those with earned income in 2010.
This will be claimed as a credit on the 2010 tax return. For those receiving Social Security, SSI, VA pension, or disability,
there is a one-time $250 credit.
Earned Income Tax Credit
For working families with three
of more children the earned income tax credit has been increased from 40% of the first $12,570 in income to 45% of the first
$12,570 in income. Also, the threshold for the phase-out of the earned income credit has been increased by $1,880 for
all married couples filing a joint return (regardless of the number of children).
Additional Child Tax Credit
For
lower income families with children, the eligibility for the refundable portion of the tax credit has been increased for 2010.
COBRA
Jobless individuals paying for COBRA insurance who were involuntarily terminated
between Sept. 1, 2008, and March 31, 2010, may receive a federal subsidy of 65% of monthly COBRA premiums for 9 months.
Employers should notify you if you are eligible.
AMT Relief
The AMT exemption amount has
increased to $72,450 for joint filers and $47,450 for individuals.
Insurance Needs
Now
is a good time to stop and consider whether you have sufficient insurance to cover you and your family. Have you considered
long-term care insurance? Have you considered funding an HSA to cover out of pocket medical costs?
