A little less taxing
Ready for tax season? You may not be, but your accountant is, although several last minute changes have left the IRS scrambling to deal with Congress”™ December changes to some Bush-era tax cuts.
The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010Â ”“ better known as the 2010 Tax Relief Act ”“ may have met with resistance early in December, but it passed before Congress left for the end of the session, extending some essential tax breaks for business owners and their employees.
Timothy Flanagan, a certified public accountant with Vanacore, DeBenedictus, DiGovanni & Weddell, presented some cost-saving measures to members of the New Paltz Regional Chamber of Commerce last week at the Ship”™s Lantern Inn in Milton.
The new law gives taxpayers a degree of certainty in planning for the next two years, especially for individual income tax rates, capital gains and dividend tax rates and estate taxes, although they are a temporary measure.
Several tax extenders were included in the new legislation: individual tax rates had been scheduled to increase, but will remain at 10, 15, 29, 33 and 35 percent through Dec. 31, 2012; qualified capital gains and dividends currently taxed at a maximum of 15 percent (zero percent for those in the 10 and 15 percent bracket) will also remain at the current rate; the $1,000 child care tax credit; extension of the alternative minimum tax benefit: the credit is allowed against the alternative minimum tax (AMT) and refundable portion is not reduced by the AMT. All will be extended for two more years and end Dec. 31, 2012.
The 2010 Tax Relief Act increases the exemption amounts for 2010 to $47,450 for individual taxpayers, $72,459 for married taxpayers filing joint returns and surviving spouses; and is set at $36,225 for couples filing separately. Flanagan said the AMT, originally aimed at taxing the higher tier earners, is now affecting the middle-class wage group. Whether Congress will take the tax burden off those lower wage earners remains to be determined. “The extenders will no doubt be a substantive part of the next election,” said Flanagan, who says it unintentionally has affected lower wage earners negatively.
Many employees will see more money in their paychecks as a result of the reduction of their portion of Social Security withholding, which has been lowered from 6.2 percent to 4.2 percent for 2011, a move Flanagan said the administration hopes will help put some spending money into Americans”™ pockets. Employers will still contribute 6.2 percent into the fund. For those earning over a base salary of $106,800, the reduction does not apply.
Since the Internet has made telecommuting and satellite offices desirable and economical for employers, the employee who works exclusively out of their home office should take advantage of the tax breaks it offers, Flanagan said. “Many are worried that it will affect them, but in reality, if anyone is working exclusively out of their home on a dedicated computer for their company and has an office from which it conducts business for the company 100 percent, they should take advantage of the deduction, which includes a portion of the electricity, heating and other expenses that a person would ordinarily have if they had an outside office.”
The Work Opportunity Tax Credit hopes to encourage employers to hire those out of work for at least 52 weeks. “There are some modifications to the WOTC, so check with your accountant,” Flanagan said. The 2010 Tax Relief Act extends the end date of the program to Jan. 1, 2012, again, said Flanagan, with some modifications.
Charitable giving must be receipted and can be timed to benefit the giver, Flanagan said.  Estate taxes are also affected by the new Tax Act, and for those who have lost a loved one in 2009 or 2010, there are options for dealing with taxes. “Again, check with your accountant or do your homework if you are doing your own taxes.”
Good news for those who have adopted a child in 2010: A $13,750 credit is available. And for those who have children working for the family business, “encourage them to set up a Roth IRA so they can learn the value of saving at a young age,” he said.
Vanacore also announced they have consolidated with the Tarrytown firm of Lesnick and Paradie in Tarrytown and will now have locations in Dutchess, Orange and Westchester.