SALT LAKE CITY -- Now that Congress has given the go-ahead to extend the Bush Era tax cuts, how will it affect your tax return?
Eric Nuttall, a CPA with Hawkins Cloward & Simister, shared four things taxpayers should do this week to get the most out of their 2010 tax return. Nuttall also discussed the ramifications of the newly passed tax act of 2010 and what it means for your wallet.
Tax act changes
- Tax rates do not rise for two years - 2011 and 2012
- The Child Tax Credit stays at $1,000 per child 16 and under. This is a credit which reduces your taxes dollar for dollar. This credit would have been cut in half without the two-year extension under the new tax act.
- A one-year, 2 percent cut to social security tax means an extra $1,000 during 2011 for someone earning $50,000 a year.
- For seniors, the ability to donate directly to a charity from their IRA has been extended through 2011. Additionally, they can donate through January 2011 and have it count as a distribution for 2010.
- For parents of college students the American Opportunity Tax Credit, which is $2,500 per year per student, has been extended through 2012.
- The most unsung part of the recent tax act but hugely important to Utahns is another patch to the Alternative Minimum Tax Exemption through 2011. Had the AMT exemption been allowed to fall back to its earlier levels, thousands more Utahns would be paying Alternative Minimum Tax because the AMT calculation kicks out deductions for state income taxes and children.
- From the Small Business Jobs Act passed earlier this year, it is now possible to convert funds in a taxable 401k account into a Roth 401k account. Viewers should be asking their employers to make the needed changes in the company pension plans to allow this.
- The Estate Tax will now only affect those with $10 million in assets.
- Due to Congress' delay in passing this latest tax act, those filers who itemize will not be able to electronically file their returns until at least mid-February.
Year-end tax planning ideas:
- Regular IRA to Roth IRA conversion: New for 2010, there is no income limitation on being able to make this conversion. Note that the income limitation is gone not just for 2010, so this conversion can be made at any time
- Pay next semester's tuition, fees and books.
- Pay January's mortgage payment.
- Make a New Year's resolution to increase the amount you put into your 401k or IRA and really consider making these Roth 401k and Roth IRA contributions. These are the biggest and best tax savings techniques available.