2010 Tax Planning Seminar. Presented by. Your Firm Name. The clock is ticking on savings …. Tax Rate Forecast. Tax Credits and Deductions. Credits: reduce tax dollar for dollar Deductions: lower your taxable income. 2010 Child Tax Credit $1,000 per child. Education Credits.
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2010 Tax Planning Seminar Presented by Your Firm Name
Tax Credits and Deductions Credits: reduce tax dollar for dollar Deductions: lower your taxable income
Education Credits Hope Scholarship Credit (American Opportunity Tax Credit) = $2,500 maximum Lifetime Learning Credit = $2,000 maximum
Making Work Pay Credit A credit for wage earners and the self-employed • 6.2% of earned income or • $400 a year for single filers • $800 a year for joint filers
Standard Deduction • Single Filers: $5,700 • Joint Filers: $11,400 • Married Filing Separately: $5,700 • Head of Household: $8,400
Itemized Deductions Reduce Taxable Income • Medical expenses • Nonbusiness taxes • Interest expenses • Investment expenses • Professional fees • Charitable contributions
Donating to Charity? • Donations of cash or property to qualified charities are deductible. • Charitable donations are limited to 50% of your adjusted gross income. • Deductions for vehicle donations are limited for vehicles worth more than $500.
Health Insurance • Individual Coverage Mandate begins in 2014. • Subsidies will be provided for the uninsured. • New taxes will be levied to cover the costs of subsidies..
Employer-Sponsored Plans • Defined Benefit Plans • Defined Contribution Plans
401(k) Contribution Limits 2010 Under Age 50: $16,500 Additional “Catch-Up” for those Age 50 and Older: $5,500
The Roth 401(k) • Contributions are made with after-tax dollars. • Earnings grow tax free. • Distributions are tax free in retirement.
Roth IRAs • Make contributions with after-tax dollars • Receive tax-free distributions
Roth IRA Conversions Income limits on conversions have been eliminated in 2010. You will be taxed on the conversion amount. You will not owe a penalty
Tax Tip: IRA savings can be used without penalty for qualified college expenses or to help pay for your first home.
Capital Gains Tax Rates • 15% for investors in the top four brackets • Zero tax through 2010 for investors in the 10% and 15% brackets
WARNING! No Tax Relief for Short-Term Gains!
Capital Gains Advantage Gain Tax Net Cash 11 months $50,000 $17,500 $32,500 12 months $40,000 $ 6,000 $34,000
Other Gains Rates Unchanged Collectibles 28% Real estate depreciation recapture 25%
WARNING! Large Gains Can Trigger the AMT
AMT Danger Zones • Large capital gains • Numerous dependency exemptions • Large state income tax deductions • Large deductions for unreimbursed employee business expenses or miscellaneous expenses • Substantial medical expenses • Incentive stock options
2010 AMT Exemption Amounts (without further reform) • $45,000 for joint filers, down from $70,950 in 2009 • $33,750 for single filers, down from $46,700 in 2009
Tax Tip: Offset gains in your portfolio with losses at the end of the tax year.
Dividend Tax Rates • 15% for investors in the top four brackets • Zero tax through 2010 for investors in the 10% and 15% brackets
Dividend vs. Ordinary Income Ordinary income rates 10% – 35% Dividend rates 0% – 15% Rates apply for both regular tax and AMT.
Qualifying Dividends • Domestic corporations • Certain foreign corporations • Certain mutual fund dividends
Non-Qualifying Dividends • Retirement plans or IRAs • Mutual fund interest and short-term gains • Money market interest • S corporation distributions
15% dividends cannot offset investment interest expense. 15% dividends also cannot offset capital losses.
Ordinary Income Interest 15% Dividends vs.
No 15% rate for dividends in retirement plans Hold stock earning dividends taxed at 15% outside of retirement accounts
Not all stocks are created equal. • Some stocks do not pay dividends. • Choose investments that make sense for you.
Current Income Capital Appreciation vs. Focus on Total Return
Sell appreciated stock anduse the proceeds to… • Buy dividend-paying stock • Diversify investment holdings • Change asset allocations
What is… ? Long-Term
Tax Goals vs. Investing Goals Always consider: • Portfolio balance • Risk tolerance • An investment’s impact on your situation
Plan around the “Kiddie Tax” Applies to children under age 19, or age 24 for full-time students.
Good News for Business Owners • Tax incentives for hiring and retaining workers • Tax breaks for providing health insurance • Increased Section 179 expensing
Hiring Incentives • New Hires: Social Security tax liability is waived through December 31, 2010. • Retained Hires: A $1,000 credit for each qualified new hire who is retained for one year.
Available through 2011 Eligibility expanded through 2010 Work Opportunity Tax Credit (WOTC)
“Green” Business Tax Breaks • Deduction for energy-saving improvements • Renewable energy production credits: • Solar • Biomass • Geothermal • Wind
Health Insurance Reform • No employer requirement • “Pay or Play” rules starting in 2014 • Tax Credit for premiums in 2010
Section 199 Domestic Manufacturing Deduction • 9% of QPAI in 2010 • 50% of wages apply