TAX TOPICS FOR 2010 – by Kevin G. Wick, Esq. The new year brings with it yet another tax season as well. Here are a few thoughts to consider as you begin your yearly tax preparation: Tax Savings Opportunities: The new and expanded tax deductions and credits instituted in 2009 are the subject of IRS Fact Sheet 2010-4 published on January 4. The document offers an in-depth review of an education credit, known as the American Opportunity Credit, and two expanded home energy tax credits: (i) the non-business energy property credit and (ii) the residential energy efficient property credit. The fact sheet also discusses the incentive for the purchase of a new vehicle, increased tax credits for low and moderate income workers, increases in the standard deduction for most taxpayers, and an increase in the alternative minimum tax exemption. In addition, it provides information on changes in other areas, including the following: the standard mileage rate for business use of a car, van, pick-up or panel truck; the value of each personal and dependency exemption; the amount of taxable investment income a child can have without it being taxed at the parent’s rate; the definition of a qualifying child; a rule applying to the noncustodial parent in situations where a couple is divorced or legally separated after 2008; the taxability of a voucher or payment made for a voucher under the “cash for clunkers” program; and the treatment of unemployment benefits received in 2009. The Fact Sheet can be view on the IRS website at: irs.gov/newsroom, then click on the “2010 Fact Sheet” link. RMDs Return for 2010: The federal government’s reaction to the stock market crash of 2008 featured a number of tax relief measures, including an unprecedented waiver – for 2009 only – of required minimum distributions (“RMDs”) from qualified retirement plans and IRAs. Now that the waiver has expired, you need to be informed about how RMDs for 2010 will be affected by the skipped year of payouts. Under the Worker, Retiree, and Employer Recovery Act (“WRERA”), no RMD was required for calendar year 2009 from IRAs and employer-provided qualified retirement plans that are defined contribution plans. The relief applied both to required lifetime distributions to employees and IRA owners and after-death distributions to beneficiaries. The change was made to help taxpayers who otherwise would have been forced to sell stock or mutual fund shares (most of which had declined in value) held by their IRAs or retirement plan accounts in order to fund the RMDs. Now that the RMD waiver for 2009 is over, taxpayers will be affected by restarted RMDs for 2010. For example: (i) Taxpayers who reached age 70 1/2 before 2009: The RMD for 2010 for these taxpayers is based on IRA or retirement plan account values as of December 31, 2009, and the life expectancy factor set forth in the IRS regulations. The skipped year of RMDs doesn’t affect the method of calculating RMDs for 2010, although it likely will affect the amount (the account value as of the end of 2009 should be larger because of the skipped payouts, and the partial market recovery). (ii) Taxpayers who attained age 70 1/2 in 2009: A taxpayer’s required beginning date is determined without regard to the 2009 temporary waiver rule for RMDs, for purposes of applying the RMD rules after 2009. Beware of Scams: The new tax filing season is likely to bring with it an increase in online scams. The IRS has cautioned individuals, businesses and charities to beware of online identity theft and other scams that tend to increase during the filing season and then continue thereafter. Such scams may be dressed to appear as communications coming from IRS or the Treasury Department. Most scams appearing to involve the IRS are identity theft schemes, according to IRS Fact Sheet 2010-9. The aim is to trick recipients into revealing personal and financial information, such as passwords, PINs, as well as Social Security, bank account and credit card numbers. The fact sheet discusses the most frequent or recent scams, including the following: a refund scam, in which a bogus email claiming to come from IRS informs the recipient that he or she is eligible to receive a tax refund for a certain amount; a lottery winnings or cash consignment scam, in which emails supposedly coming from Treasury notify recipients that they will receive a large sum of money if they provide certain personal information; and a scam involving Form W-8BEN (Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding). While many email scams have some level of sophistication and may be hard to detect, there are often signs that suggest a scam. People should pay special attention to emails that request detailed or an unusual amount of personal and/or financial information, dangle “bait” to encourage a response, threaten a consequence for not responding to the email, use an incorrect name for the IRS or other federal agencies, and use incorrect grammar or odd phrasing. Recipients of questionable emails are warned to avoid opening any attachments or clicking on any links contained in the communication. The Fact Sheet can be view on the IRS website at: irs.gov/newsroom, then click on the “2010 Fact Sheet” link. As always, please feel free to call our office or consult your tax advisor with additional questions or clarification on these items and how they may affect you and your family.
Tax Topics for 2010