Due to the major tax changes in the United States of America designed to encourage economic growth and development, the year 2010 is on track as a busy tax planning year for the businesses and individuals. This essay discusses the most recent Tax Law Changes in America.
2010 Tax Law Changes
The following are the 2010 tax laws that would affect the citizen of the United States of America and which were scheduled to take effect in 2010.
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i. Repealing of GSTT
The estate tax and generation skipping transfer tax (GSTT) have been repealed for the year 2010. GSTT is a tax paid on properties that are inherited from parents to their children in form of a trust or a will. It is sometimes levied on properties that are given to the unrelated people. Currently, the estate tax is zero percent. The congress needs to act before the year 2010 comes to an end. The action of the congress implies that the estate tax and the generation skipping transfer tax are going to be returned in the year 2011. There is a consensus that the congress restores the estate laws to levels which were there in the year 2009 hence allowing an exemption of $3.5 million for the estate tax and the generation skipping transfer tax with a 45 percent tax rate. In case the congresses do not respond, the 2011 GSTT exemption amount will be $1 million the tax rate will be 55% (Swinton Estate Planning & Elder Law Firm).
ii. Changes in federal gift tax rate
The federal gift tax rate changes from 45% to 35% for the year 2010. This tax plays an important role of preventing the American citizens from federal estate tax by giving away money before death. This tax is normally given by the gift giver. The tax on gifts exists in the year 2010 and it is exempted to an amount of one million dollars. Those people who give gifts of less than one million dollars are not affected by the gift tax. Beyond the one million dollars level, one would actually have to pay a gift tax (Monroe Bank).
iii. Changes in higher education tuition deductions
In the year 2010, many deductions such as higher education tuition deductions are not available but they existed in 2009 where some tax payers took an above the line college tuition and expenses deductions. In 2009, those with AGI of 65000 dollars or less were limited to 4000 dollars deductions. Those with AGI of 80000 dollars could get deduction of 2000 dollars. This changed in the 2010 which happens to be a unique year in the tax code of the United States of America. The amount of the interest exclusion is removed if one's adjusted gross income is between 105100 and 135000 dollars (Internal Revenue Service).
iv. Inclusion of unemployment benefits in the taxable income
No more excluding unemployment benefits from the taxable income. In the year 2oo9, one could exclude up to 2400 dollars of the unemployment benefits. In the year 2010, the tax breaks for the unemployment benefits do not exist.
v. Changes in the alternative minimum tax (AMT)
This is an extra tax that the citizens are supposed to pay in addition to their regular incomes. It was started with the aim of preventing high income earners from using the special tax benefits to avoid paying the taxes or pay less tax. This tax follows a formula subtracting and adding some adjustments to one's gross income. Then, the tax is assessed such that if the tax is higher than one's tax liability, then one is forced to pay the difference. This tax has extended its reach to those who earn less income. Therefore it calls for the action of the congress to ensure that the low income earners are excluded from this tax. In the year 2009, this tax levels were adjusted by president Obama's administration. In 2010, the alternative minimum tax amounts are as follows; household head: 33,750 dollars, the married filing separately: 22500 dollars, the married filing jointly: 45000 dollars and the singles: 33750 dollars (TurboTax®)
vi. Replacement of step up basis rules by the carryover basis rules
In the year 2010, all the assets that are found within an estate are subjected to the capital gain taxes instead of step up as at the death date. This avoids the act of double taxation that emerges as a result of subjecting the assets to estate tax at the descendant's death and later to the income tax when the asset is sold by the respective beneficially after the death of the descendant. If these assets were bought aver a time period of about twenty years, one will be forced to look for a paper trail to determine his/her cost basis. The one may be forced to pay the capital gains tax on the appreciation in case the estate involved is very large (Law Offices of David L. Silverman, J.D., LL.M). Every estate is supposed to exempt 1.3 million dollars of the gains from the carryover rule and an addition of 3 million dollars applies to all assets that are inherited from a spouse. Therefore, in the year 2010, about 4.3 million dollars of an estate can be able to retain a step up.
vii. Removal of income limits on the Roth IRA conversions
Since the year 2006, there have been significant changes in the tax laws that involve the conversion of traditional IRA to a new Roth IRA. An opportunity has come up in 2010 whereby every citizen is allowed to convert his/her traditional IRA to Roth IRA. Traditional IRA is a savings plan where people set aside some money for retirement and the Roth IRA is the individual planning tool that is offered today. Roth IRA provides the benefits that cannot be found in other retirement plans and it does not give the investor with the federal tax deductions for their contributions. In 2010, one is eligible to make contributions to the Roth IRA when his/her AGI satisfies the following conditions. AGI must be less than 177000 dollars for married couples filing jointly, 10000 dollars for married couples filing separately, 120000 for household head and singles. In 2010, the Roth IRA laws allows the citizens of 50 years or above to make catch up contributions. This conversion is a major benefit in the year 2010 as one can have gets an option to pay his/her taxes that result from the conversion over the years 2011 and 2012 (Money-zine.com).
viii. Decrease of business mileage deduction rates
The mileage allowance for vans, pickups and trucks is 50¢ per mile for business travel after was reduced in 2010. This has been reduced from the 55¢ allowance the mileage during the year 2009. Also, the rate for using an auto to access any medical care is reduced to16.5¢ per mile down from 24¢ per mile allowance for the year 2009. These deductions replace the separate deductions on repairs, maintenance, oil, license and insurance (SurfWax).
This new mileage rate is do not apply in case the purchased car was depreciated in the past using a method that is different from the straight-line for its useful life, a Code Sec. 179 expensing deduction was claimed for the car or the car is used for hire. This rate is not used in computing the deductable expenses of more cars that are owned by a taxpayer.
The advantages of using this mileage rate include; the record of the place, time, the business purpose and the number of the miles traveled and the method may yield larger deductions than the expense method for the high mileage models (SurfWax).
ix. Tax Credit of Up to$6,500 for Existing Homeowners and $8,000 for First-Time Homebuyers
In 2010, the congress extended and expanded the 2008 first-time tax credit for the homebuyers and the limits in income were increased which made more people eligible. The existing homebuyers are eligible to get a tax credit of 10 percent of the total purchase price up to $6,500. This was applicable if only they were able to buy a home by September 30, 2010. For the citizens to access this credit, they must have been living in the same principal residence for the last five consecutive years. These homeowners are not required to dispose off their current homes, but the new homes become their principal residence.
In the case where one purchased and closed on a primary residence before September 2010 and he/she is a first time buyer, he/she eligible for a tax credit of 10 percent of the buying price of up to $8,000 and one must have had a home in the United States of America in the past three years. Also, the income limits were increased from earlier versions of the credit. The homebuyers who file as single taxpayers are allowed to claim the full credit in case their modified adjusted gross income is less than 125,000 dollars. The income limit for the married couples filing a joint return is 225000 dollars The Single taxpayers who earn between 125,000 and 145,000 dollars, and the married couples earning between 225,000 and 245,000 dollars are eligible to get a partial credit which is cannot be accessed by the single taxpayers whose modified adjusted gross income is greater than 145,000 dollars. In addition, the homes that cost more than 800,000 dollars are not eligible for credit (TurboTax®).
x. Change in domestic production activities
In 2010, the deduction for the domestic production activities reaches the full deduction amount of 9 percent. All the manufactures that might have gone through this calculation when it was being phased in at 6 percent may benefit more at 9 percent.
The above tax changes implies that the planning is made more urgent during the year 2010.these changes have taken place in order to stimulate the economy recovery in the united states of America.