WHAT TO EXPECT FOR YOUR TAXES IN 2010

When President Obama won office in 2008, he ran on a platform of bringing change to Washington. Whether you believe his changes are for the better or for the worse, you have to admit that he has certainly made some changes during his first year in office.

You can count on there being changes to our tax laws as well. What can we expect to see happen to our tax system in 2010? Here are a few things to look for:

Deductions that will expire on 12/31/2009:

· Sales tax deduction for individuals that live in states without a state income tax
· Sales tax deduction for the purchase of a new motor vehicle
· Out of pocket expenses for educators
These changes affect people in states like Texas the most since there is no state income tax to deduct instead of the sales tax. Each of these deductions were originally set to expire in past years, but were extended. Look for potential last-minute extensions of these deductions as Congress gets set to leave for the holiday recess.

Other law changes for 2010:

· The income limit for people who want to convert traditional IRA accounts to Roth IRA accounts will be removed.
· AMT exemptions are dropping to $33,750 (single filers) and $45,000 (joint filers)
· The mileage rate for business miles will decrease to 50 cents per mile.
· Itemized deductions and personal exemptions are no longer subject to phase out for higher-income taxpayers.
· There will be a $2,400 exemption from taxable income for anyone who received unemployment benefits.
· Charitable donations paid directly from an IRA will no longer be excludable from income.
· The 2009 version of the first time homebuyer credit expires on May 1, 2010.
· Also, anyone who took the first time homebuyer credit in 2008 will be required to begin repaying it in 2010.
· For 2010, the estate tax will not exist.
Though each of these items could be neatly summarized in a bullet point, some of them could have huge implications.

· The AMT law is flawed and if it isn’t fixed soon, many middle-class families will find themselves on the receiving end of an AMT tax bill in 2010.
· Removal of the phase outs could mean dramatically lower tax bills for higher-earning families.
· The first-time homebuyer credit has been a big part of the partial rebound of our housing market. People will want to be sure to time any purchases before the deadline to take advantage of the deal before it expires.
· The removal of the estate tax could be the most important item on the list, though. Currently, the top estate tax bracket is almost 50%. That means when someone dies and they have assets in excess of $3 million, the government could end up receiving a large percentage of their net worth instead of their heirs. The one-year repeal of this tax is all the more significant when you consider that in 2011, the tax comes back with even higher rates and lower exemptions than before. Because of this, many tax advisors are (jokingly, I’m sure) advising their wealthy clients to plan to die in 2010 and save a ton of tax. Here, I would not be surprised to see the government pull a ‘bait and switch’ and repeal the repeal.
In addition to the tax law changes listed above – all of which are already on the books – I am sure that there will be other changes to come. Government spending has reached record highs already and if the health care reform package passes, our government will need a significant boost in its revenues to keep up. Since government revenues are generated by tax dollars, it’s a safe bet to say that taxes will be going up in the near future.

The government has also increased compliance requirements for paid tax preparers, including more strenuous oversight and the requirement to electronically file returns. So not only will taxes be going up, but taxpayers should expect to see fees for tax preparation increase as well.
There is no easy way to predict what the government will do with our taxes from year to year. However, knowing what we know will still allow us to plan with our clients to minimize their burden – whatever the government throws at us.

--Dan Musick is the Tax Services Partner at Cook & Associates, a public accounting firm serving clients from offices in San Marcos and San Antonio, TX