Tax Changes 2010
Standard Mileage Rate
The 2010 standard mileage rate allowed for business use of a vehicle will be $0.50 per mile. The rate for use of your vehicle to get medical care or for figuring deductible moving expenses will be $0.165 per mile. The mileage rate for charitable purposes will be $0.14 per mile.
Cancellation of Debt Income
Taxpayers can make an election to defer COD income arising from a cancellation, reacquisition or modification of a business debt occurring after December 31, 2008 and before January 11, 2011, and to include the COD income ratably over a five-year period beginning in 2014.
ROTH IRA Conversions
For tax years beginning after 2009, the $100,000 modified AGI limit for conversions has been eliminated. In addition, taxpayers with a filing status of married filed separately, who have previously been precluded from making such elections will be able to do so. For conversions made in 2010 only, none of the income from the conversion will be recognized in that year. The income will be recognized in two equal parts in 2011 and 2012. If the taxpayer elects to do so, they may recognize 100% of the income in 2010 instead.
Makes sense to consider if:
The taxpayer is able to pay the tax due on the conversion from outside funds (if the taxpayer must withdraw funds from the IRA to pay the tax there will be less in the account to grow tax free). The taxpayer has a number of years to retirement. This allows more time for the money to grow tax free and offsets the fact that the tax is being paid up front.
It is expected that the taxpayer's future marginal rates will be higher than they are now, either because their income will be higher at that time or because rates in general will be higher. The taxpayer does not forsee a need to live on IRA withdrawals. Because Roth IRAs have no minimum distribution requirements, they can grow tax free even after the taxpayers turns 70 1/2.
Child Tax Credit
The amount remains at $1,000 per dependent child under the age of 17. The refundable portion is increased for 2009 and 2010. Specifically, the child tax credit is refundable to the extent of 15% of the taxpayer's earned income in excess of $3,000.
Residential Energy Credits
You may be able to claim a nonbusiness energy property credit of 30% of the cost of certain energy-efficient property or improvements you placed in service in 2010. This property can include high-efficiency heat pumps, air conditioners, and water heaters. It also may include energy-efficient windows, doors, insulation materials, and certain roofs. The credit has been expanded to include certain asphalt roofs and stoves that burn biomass fuel.
The total amount of credit you can claim in 2009 and 2010 is limited to $1,500.
Beginning in 2009, there is no limitation on the credit amount for qualified solar electric property costs, qualified solar water heating property costs, qualified small wind energy property costs, and qualified geothermal heat pump property costs. The limitation on the credit amount for qualified fuel cell property costs remains the same.