8 New Tax Rules

Every year brings with it some changes to our ridiculously complex tax code. (Sometimes we could swear the IRS is in cahoots with tax preparers, constantly changing the tax code in order to keep them steadily employed!) 2010 saw its fair share of changes, especially "thanks" to the surprising end-of-the-year compromise between the White House and Republicans that resulted in the 2010 Tax Relief Act.

So, before you start preparing your 2010 taxes, let’s be sure you know about all of the important new tax rules–big and small–that could impact your tax return.

Let’s start with something basic to get warmed up…

New Tax Rule #1: New Mileage Deductions

Deducting miles driven for work or other purposes can be a huge tax break and save you significant money. Too bad the IRS cut the standard mileage deduction rates for 2010. Here are the new rules:

·The deduction for business mileage is 50 cents per mile (a 9% cut!)

·The deduction for medical and moving purposes is 16.5 cents per mile

·The deduction for miles driven related to charitable work stays at 14 cents per mile (OK, so maybe the IRS doesn’t have a heart made of stone).

New Tax Rule #2: New Existing and First-time Home Buyer Credits

In order to help stimulate the housing market, the government created a special credit for first-time homebuyers. The program rules have changed every year since.

In 2010, President Obama extended the $8,000 credit through September 2010. In order to qualify for the 2010 credit, you must NOT have owned a home in the United States in the three years prior to buying this home.

In addition, there is a tax credit for existing homebuyers for 2010. Eligible homebuyers receive a tax credit of 10% of the purchase price up to $6,500. In order to qualify for this credit, you must have lived in the same residence for five consecutive years at some point in the past eight years.

Both credits apply to homes that had a signed contract by April 20, 2010 and closed on by September 30, 2010.

There are income limits and other special rules, so be sure to ask your tax advisor or do your research to learn all the details.

New Tax Rule #3: Three New College Costs Rules

The Hope Credit has been replaced with a new credit called the American Opportunity Tax Credit. You can now get a $2,500 "higher education tax credit" available for each student for the first four years of college. The credit is based on 100% of the first $2,000 of tuition and related expenses, including books, paid during the tax year and 25% of the next $2000 of tuition and related expenses paid during the tax year (subject to income phase-outs starting at $80,000 for singles and $160,000 for joint filers).

The December tax compromise included a new deduction for families with college costs. Every family can deduct up to $4,000 of college tuition and fees in 2010 and 2011. NOTE: The new form for taking this deduction will be available from the IRS in February.

Also, for anyone with a "529″ college savings plan…computers and Internet access qualify as "qualified education expense" for the 2010 tax year, so you can pay for them tax-free.

New Tax Rule #4: Energy and Appliance Tax Credit

If you made any energy efficiency improvements to your home in 2010, you may be eligible for a tax credit.

You can deduct up to 30% of the cost–up to $1,500–for many energy improvements to your existing home. The credit does NOT apply to rental properties or new homes.

Approved improvements include new windows, insulation, high efficiency furnaces, water heaters and air-conditioning. It also covers alternative energy such as solar equipment, small wind turbines and fuel cells.

New Tax Rule #5: Roth IRA Conversion Rules

As of January 1, 2010, anyone with a traditional IRA could convert it to a Roth IRA. The income threshold for converting an existing IRA to a Roth IRA–which was $100,000–has been eliminated.

If you converted in 2010, you owe taxes now on those proceeds now at your current tax rate. But for 2010 only, you can spread the tax due over two years. Half the conversion is taxed on your 2011 return and half on your 2012 return.

Speaking of IRAs, anyone age 70 or older can now donate up to $100,000 of their IRA to charity and not have to report the withdrawal as income. Even better, you also get to deduct the donation to charity! The donation also counts as part of your required minimum distribution for the year. Three benefits in one good deed!

New Tax Rule #6: New Employment and Unemployment Rules

·The payroll "tax holiday" is still in effect for 2010. That means that workers get a tax credit of 6.2% on their earned income–but the credit maxes out at $400 for single filers and $800 for joint filers. The credit is, of course, subject to income limits and starts phasing out at $75,000 for singles and $150,000 for joint filers.

·The first $2,400 of unemployment benefits you receive in 2010 is no longer tax-deductible.

·Employer’s can now pay for up to $230 a month in parking fees and/or transit passes tax-free.

New Tax Rule #7: Keeping the Alternative Minimum Tax at Bay

The dreaded alternative minimum tax (AMT) is snaring more and more taxpayers each year…as many as 28,000,000 families in 2010. Congress doesn’t seem inclined to actually do anything to FIX the long-term problem here, but they do keep putting new bandages on the situation.

To hold the number of taxpayers subject to the AMT at bay, the new law increases AMT exemptions for 2010 to $47,450 for individuals and $72,450 for joint returns.

You can now also use personal tax credits against the AMT.

New Tax Rule #8: BIG Changes to Estate Taxes

This is one time we were happy to see Congress not get something done! Because Washington was too dysfunctional to enact new legislation, there is NO estate tax for 2010.

The estate tax was re-instated for 2011 as part of the year-end 2010 Tax Relief Act. The new rules for 2011 include a maximum 35% tax rate on anything you pass on to your loved ones after the $5,000,000 exemption. That’s up from $3.5 million in 2009, so if you should be so fortunate to have a large estate, you can pass along more of your wealth before the estate tax kicks in.

Plus, the annual gift exclusion is $13,000 per individual per year. That means if you are lucky enough to have money you wish to pass along to your heirs (or anyone!), you can give each individual up to $13,000 tax-free each year.

Smart estate planning is key to keeping your hard-earned wealth in your family’s hands–NOT Uncle Sam’s–when you pass.

The more things change, the more they stay the same

For all of the changes to the tax code, some things didn’t change in 2010.

·The maximum contributions for qualified retirement plans such as IRAs and 401(k)s haven’t budged for 2010. You can still contribute $5,000 to your IRA if you are less than 50 years old. Those of us age 50 and over get to contribute $6,000. The 2010 maximum contribution for 401(k), 403(b) and 457 plans also stays the same at $16,500. If you are age 50 and over, it’s $22,000.

See, age does have its benefits!

·Each personal exemption you claim is still worth $3,650.

·The standard deduction for married couples filing joint returns is still $11,400.

Conclusion

So there you have it – some of the most significant tax changes you need to know. We admit not as much fun as reading PEOPLE magazine or Sports Illustrated, but nonetheless important information to help minimize your taxes.

President Obama has promised to simplify our tax code. We’ll believe it when we see it! In the meantime, don’t wait for the government to lower your taxes. Take control and use our tips for cutting your taxes now.