01/07/2010

• REQUIRED MINIMUM DISTRIBUTIONS from Traditional, SEP and SIMPLE IRAs as well as employer qualified contribution plans (ie 401k’s, 403b’s) must be made during 2010 for those over age 70.5 or those receiving distributions from a decedent IRA. During 2009, there was a hiatus, but that is finished – so don’t forget to take your distributions. If you will be reaching age 70.5 in 2010, you will be required to withdraw money from these types of plans. The minimum withdrawals are based on IRS actuarial tables. There are penalties for failure to withdraw at least the minimum. Seek help from your investment advisor.
• ROTH IRA CONVERSIONS are now available for everyone. See Entry below for more details.
• HIGHER INCOME TAXPAYERS get some help in 2010—really. Adjusted Gross Income related reductions of itemized deductions and personal exemptions are repealed. However, the reductions are still in effect for your 2009 return (but not as extreme as in past years). This was a stealthy way for many years/many administrations for more tax to be extracted from higher income taxpayers WITHOUT raising tax rates (taxpayers with around $160K and upward household income). Up to around 20% of some itemized deductions and up to 100% of personal exemptions simply evaporated as adjusted gross income increased. No one complained much – frog in hot water syndrome. For 2009, personal exemptions will still face reductions—but not to zero, and the burden is lighter on itemized deductions as well.
• THE 2008 HOMEBUYER CREDIT/LOAN must be repaid starting in 2010. This is NOT the 2009/2010 homebuyer’s credit that will never be repaid. This is the “ugly stepsister predecessor” — which I thought was a pretty good idea: a zero interest long term loan compliments of the taxpaying public, instead of (dare I say it) a giveaway. For the 2008 credit, you must repay the amount of credit taken over 15 years unless you sell the house or along the way it stops being your primary residence (ie you move and convert it to a rental property). The balance of the credit must then be paid in full. I know, it isn’t fair.
• ESTATE TAX IS REPEALED FOR ONE YEAR. But before you rejoice, there may be some unpleasant consequences. AND the Senate might get around to legislation that would be retroactive. I will address this issue in a separate entry next week.
• UNEMPLOYMENT INCOME is fully taxable again in 2010. For 2009, $2,400 was exempt from federal taxation.
• ZERO PERCENT RATE for dividends of taxpayers in the 10 percent and 15 percent brackets remains in effect through 2010. Except for Kiddie Tax — affecting your dependent kids up to age 24, so income shifting will not work. Sigh.
• CONVERSION OF A SECOND RESIDENCE TO A PRIMARY RESIDENCE may have tax consequences starting in 2009. More on this later.