Big Changes in Store for 2010 Tax Season
By Rafique S. M. Ahmed
The Obama Administration made massive tax law changes both in volume and complexity creating enormous confusion for taxpayers and preparers alike. Tax return preparation process will take longer than usual this year since there is so much out there for tax professionals to master and taxpayers to deal with. Needless to say, all the new tax laws are focused and geared on improving the faltering economy to work its way out of the worst recession in US history.
The US Congress passed two significant pieces of tax legislation during 2009. The American Recovery and Reinvestment Act, signed into law in February ‘09, contains nearly $300 billion in tax and relief assistance to 95% of all taxpayers. The second piece of legislation passed in November, the Worker, Homeownership, and Business Assistance Act, was revenue neutral and focused on extending some crucial benefits which were set to expire.
The Internal Revenue Service kicked off the 2010 tax filing season by proposing to streamline new registration, testing and continuing education of tax return preparers. With more than 80% of American households using tax preparers to help them prepare and file their taxes, higher standards for the tax preparer community will significantly enhance protections and service for taxpayers, increase confidence in the tax system and result in greater compliance with tax laws over the long term. “The decisions announced today represent a monumental shift in the way the IRS will oversee tax preparers,” said IRS Commissioner Doug Shulman. “Our proposals will help ensure taxpayers receive competent, ethical service from qualified professionals and strengthen the integrity of the nation’s tax system.”
The following are the significant changes that may affect your 2009 tax returns:
- Education is one of the top priorities of the current Administration. American Opportunity Credit modifying the existing Hope Credit will pay for first four years of college tuition and related qualified course materials including books which were previously not qualified expenses. Amount of credit increased to a maximum of $2,500 from $1,800 per student per year. You can receive a refund of 40% of the credit ($1,000) for 2009 and 2010 even though you owe no tax. The credit can be claimed by either a non-dependent taxpayer student or a parent of a qualifying student.
- Student loan interest deduction increased to $2,500 with increased Modified Adjusted Gross Income phase out.
- The maximum earned income credit for low and moderate income taxpayers with children increased to $5,028 for two and $5,657 for three children.
- Standard deduction increased for most taxpayers.
- AMT exemption increased for one year.
- New car sales and excise tax deduction allowed for purchases after February 17, 2009 and before January 1, 2010 and is limited to the portion attributable to the first $49,500 of the purchase price.
- Gift tax exclusion increased to $13,500 while exclusion for gift to spouse who is not a US Citizen increased to $133,000.
- Foreign Earned Income exclusion increased to $91,400.
- Qualified transportation fringe benefits exclusion for transit passes and van pooling increased to $230 per month. Qualified parking is tax-free up to $230 per month. The employer must have a written plan to qualify for these exclusions.
- The first year 50% Bonus Depreciation on capital purchases was extended until December 31, 2009.
- Residential Energy Property Credit was increased from 10% to 30% of the cost of all qualifying improvements eliminating the $500 lifetime cap.
- Dues are deductible for business organizations like professional and trade associations, civic and public service organizations such as Rotary, Kiwanis and the Lions Club.
- 401(K) Contribution limits were increased.
- Personal exemption amount increased to $3,650 and is subject to phase out for high income taxpayers.
- The maximum amount of wages subject to social security tax for 2009 increased to $106,800.
- The standard mileage rates for operating your car, van or pickup, for moving and medical reasons and for charitable causes were increased for 2009.
- Electronic filing for 2009 tax returns will commence on January 15, 2010.
(Rafique S.M. Ahmed is a professional Tax Accountant and has been providing accounting and tax services in California for more than thirty-five years. He is also an Authorized IRS Electronic Filing Provider, located at 1109 Via Verde, San Dimas, California 91773 and can be reached at (909) 599-1412 or 1414.)