Tuesday, December 29, 2009

Federal tax update and final tax tips as we close out 2009

As we enter the final days of 2009, many federal income tax issues remain unresolved at the federal level due to the Senate's focus on the healthcare bill. The following tax issues and expiring tax breaks are still "to be determined":

1) Federal Estate and Gift Tax - under current law, the federal estate tax is to expire for 2010 and then reappear in 2011 with a top rate of 60% and only a $1 million exemption. The generation-skipping tax will also end for a year, but the gift tax will continue with a top rate of 35%. This issue will definitely be dealt with during 2010, so stay tuned.

2) Expiring "write-offs" - Business R & D credit, college tuition deduction (NOT the Hope or Lifetime Learning Credits), direct donations of IRA distributions - these should all be extended retroactive to 1/1/2010, but it may take a little time to get this done, so stay tuned on these as well. However, the suspending of the mandatory annual IRA payout that was put into law for 2009 will most likely NOT be extended due to the general market recovery.

3) Raising of the Alternative Minimum Tax (AMT) exemptions - this is something that has now been dealt with on an annual basis for the last several years so as not to have the unintended consequences of affecting "the average joe/jane" by subjecting him/her to the alternative minimum tax that was meant for "high incomers" with a large percentage of itemized deductions. Congress has avoided overhauling this section of the tax code and will probably continue to volley this around for the next year or two.

4) Bush tax cuts set to expire - This will be a contentious issue due to the expanding federal deficit and Washington politics, especially as it relates to the top individual tax rate. At this point, we can probably expect to maintain the current tax rates for low and middle-income taxpayers, but an increase to the pre-2001 top tax rate of 39.6% from the current 35% is the most likely scenario.

5) Home Buyer's Credit - This break was extended and expanded. For all of the details, check out the official IRS release at www.irs.gov

For year-end tax tips, please see our Nov. 5 blog entry titled "Some Tax Planning Strategies as We Near the End of 2009".

For all of your tax preparation needs as we enter the 2009 filing season, please visit www.taxsmarty.com We are offering a new and improved CompleteTax® online filing program with four different levels, including a free filing option. Happy New Year!


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