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2010 Income Tax Law Changes

• The IRS passed an extension of the AMT patch
• The $250 credit for educator expenses was passed
• The Tuition and Fees deduction from the front of form 1040 was extended
• The Child Tax Credit will stay at $1000 this year, but is scheduled to drop to $500 next year
• There is a one year drop in the social security tax from 6.2% to 4.2% in your paychecks
• The Making Work Pay Credit will be on the 2010 returns then is set to expire for 2011
• Unemployment is fully taxable in 2010, unlike 2009 when the first $2400 was excluded from tax
• The increased standard deduction for Real Estate Taxes will not be on the 2010 tax return this year, they will have to be included in itemized deductions only
• The Required Minimum Distribution rules are now back in full force. There is no waiver any more
• Sales taxes deductions on new car purchases has been dropped for 2010
• The 10% tax bracket has been kept in place at least for 2010
• The deduction for Private Mortgage Insurance (PMI) has been extended for 2010
• The Sales Tax Deduction on Schedule A has also been extended for 2010
• The 3rd Child bracket for the Earned Income Tax Credit has also been extended
• Self Employed Health Insurance will be a Schedule C deduction in 2010 to allow a reduction of self employment tax
• The Patient Protection and Affordable Care Act of 2010 makes a credit available to small employers who pay at least 50% of the cost of qualifying health care coverage for their employees
• The Adoption Credit is raised from $12,150 to $13,170 and will now be a refundable credit
• 50% bonus depreciation has been extended
• $8000 auto depreciation limit has been extended
• Standard mileage rate was increased to 51 cents per mile
• American Opportunity Tax Credit provides up to $2500 per student in college
• Child Tax Credits are available with income down to $3000
• First time home buyers who received the $7500 credit must begin repayment at the rate of $500 per year starting with the 2010 tax year
• The amount of laws and rules related to the new health care requirements is far more than I can list here. Just be aware that the cost and the requirements will effect everyone in this country. Just be prepared!!!!

The IRS has started to Regulate Income Tax Preparers

• Anyone who prepares tax returns for a fee, must have a tax preparer identification number. All preparers will have to pass a competency testing and get continuing education credits every year.
• The IRS has also mandated electronic filing. Most of our clients already do this, but we are now required to do this. If you wish to file a paper tax return it is possible but you have to request to “opt out.”.
• The IRS is trying to eliminate Refund Anticipation Loans (Fast Refunds). Most of the banks that used to provide these products are no longer going to provide that service. We will not be able to offer these products this year because we did not prepare enough RALs last year. We also need to offer words of warning to anyone looking for a Fast Refund. Several larger companies will be offering these products but buyer beware. Fees are going up dramatically and the amount of people who qualify will be going down. The two banks that offer these loans will only be offering loans up to $1500. The only good news is that the IRS is working towards providing faster direct deposit processing times, so it will start taking less and less time to get your refunds.

How To Choose a Tax Professional

Having to fill our taxes is becoming more and more difficult every year. With the growing tax burden being placed on us by Congress, figuring out how to complete your tax returns correctly is becoming more and more important. These are basically four ways to get your taxes done: self preparation, enrolled agents, certified public accounts and unenrolled tax professionals.

1: Self preparation - This method involves you completing the forms by hand or using over the counter software. According to the IRS, it takes an average of 26.4 hours to prepare your taxes. Using software usually adds an extra 10 hours to the preparation time. Software is very good, but the result is only as good as the information that you put into it. They are good at addition and figuring the taxes, but if you enter something incorrectly or leave something off, the results will be incorrect.

2: Enrolled Agents (EA's) - are tax specialist who have passed an exam admistered by IRS, been through a background check and maintain continuing education credits in taxation and ethics in order to keep their certification. EA's as well as CPA's & attorneys are qualified to represent taxpayers in audits before IRS. They are the only tax practitioners that are licensed to practice by the IRS and they are covered by Circular 230 of the IRS code.

3: Certified Public Accountants (CPA's) - have a degree in accounting and have passed a state certification exam. They can specialize in auditing financial records, certifying financial statements and preparing tax returns. They maintain their credentials with continuing educations credits and can represent taxpayers before the IRS, just like EA's.

4: Unenrolled taxes preparers can be very qualified and reputable, but they do not carry a designation from IRS or the State. Look for preparers who have been preparing returns for several years. Large national chains use a very high percentage of first year preparers. This can be fine for very simple returns, but caution is urged.

The type of firm that you select can be very important as well.

• Large national chains are usually fairly expensive, charge you for insurance that guarantees their quality, are staffed with a high percentage of first year preparers and are usually closed during the off season periods.
• High end accounting firms are wonderful for very complex returns, but the average American doesnÕt need the expertise of a CPA. They also charge very high fees, even for simple returns. They want you to drop your information off, a data entry person performs most of the work on the return, an accountant will review the work, and then a secretary will call you to come and pick up the finished return. Meeting with the accountant is usually difficult and can cost extra. CPAÕs are very qualified accountants, but being a CPA doesnÕt ensure tax expertise. They can specialize in audit work, financial analysis or tax preparation.
• Money lenders and car lots often advertise tax preparation. Do not trust your financial records with this type of operation. They are usually not qualified to fill out tax returns and do not stay current with tax laws and requirements. When problems arise they either can't or won't help you.
• Your best bet is a smaller local accountant/tax professional that who does the work themselves and is concerned with their reputation in the area. They will offer more personal service. You will be able to meet face to face with your preparer. They should be open year round to help with any problems that arise. Look for firms that have been in business for several years.

Things to watch out for:

• Guarantees of large refunds
• Preparers who don't sign their returns (they may mark them as self prepared
• Charges that are based on a percentage of the refund
• Preparers who can't or won't explain any entry on a return
• Firms that close after April 15th.

Questions to ask:

• What is your education or experience?
• What credentials do you have?
• How do you stay current with tax law changes?
• How long have you been in business?
• Who will prepare my taxes?
• How do you charge and will you give an estimate?
• What are your hours during the off season?

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