As of January 1,
2010, taxpayers with incomes exceeding $100,000 finally have the opportunity to
convert their traditional IRAs and other qualified retirement accounts into a
Roth IRA. Plus, people who convert during 2010 can choose to report all of
the income on their 2010 returns, or can split the
income from the conversion over the following two tax years - 2011 and 2012.
The decision to
convert existing retirement accounts to a Roth IRA carries tax ramifications
that not only affect you now and down the road, but also impact your
beneficiaries who someday stand to inherit your retirement accounts. If you have
existing IRAs (traditional IRAs, rollover IRAs, SEP-IRAs, SIMPLE IRAs) and/or
401(k) or 403(b) accounts held with a former employer (or a current employer
that allows in-service distributions), and are considering converting some or
all of those assets to a Roth IRA, please contact your CPA who can help you work
through a detailed analysis prior to your making a final decision. If you
aren't currently working with a CPA, the closest
MDTAXES CPA can help you out.
Over the past few years, we
wrote a lot of articles about Roth Conversions for our monthly newsletter.
You can find an index of all of our Prior Months' Newsletters on our
EFFICIENT HOME IMPROVEMENTS FOR A $1,500 TAX CREDIT
You only have
through December 31, 2010 to purchase energy efficient improvements for your
home and qualify for a lucrative tax break. The maximum credit is equal to 30%
of the first $5,000 spent on high-efficiency heat pumps, air conditioners, and
water heaters, or energy-efficient windows, doors, insulation materials, and
certain roofs. You can also claim the credit for certain types of asphalt roofs
and for stoves that burn biomass fuel.
Even if you claimed
the $500 tax credit a few years back for energy efficient improvements made to
your home, you can still claim the full $1,500 tax credit for 2009 and 2010 as
long as you make $5,000 worth of qualified energy efficient expenditures during
that two year period.
Please note that the
new rules did increase the standards for an energy efficient purchase to qualify
for this tax credit. Check out the products listed at
see if the energy efficient purchases you made qualify for this tax credit.
USE UDoGood APP TO TRACK DONATIONS OF CLOTHING AND HOUSEHOLD GOODS
your donated clothing and household items has become more important these days.
If you ever get audited, there is a good chance that the IRS will use the new
“good or better” standard as a way to greatly reduce the deduction they will
ultimately allow you to claim.
To help you put a
value on the donated goods, we recommend that you use UDoGood, a new
App for the iPhone and iPod touch now available on the
UDoGood is an
easy (and fun) App for the iPhone and iPod touch that helps you document,
photograph and record your charitable donations of clothing and household
goods. UDoGood includes suggestions to help you determine the fair
market value of your donations. If you have an iPhone, UDoGood also
lets you take photos of your donations to provide a visual record of your
contributions. Plus, with UDoGood, you can e-mail your list of
donated goods to your tax preparer or to yourself.
It's not too late to cut
your 2010 tax bill. Prior to December 31st:
Increase your 401(k)
and 403(b) contributions if you haven't been contributing at the
maximum rate all year. This year you can put up to $16,500 into
your 401(k) or 403(b) plan. Anyone 50 or older by December 31st
can put away an additional $5,500. Contributing to a 401(k) or
403(b) plan at work is one of the best tax shelters available to you
during your working years.
If you’re self-employed, consider setting up a Solo 401(k)
by 12/31. A Solo 401(k) plan lets a self-employed person hit the
$49k retirement plan max with less income than a SEP IRA, and also
allows a person aged 50 or older to put away $54.5k into a retirement
plan for 2010.
Take a look at your
withholdings and instruct your employer to withhold additional taxes
if you haven’t had enough taxes withheld during the year to avoid
getting hit with an underpayment penalty.
Consider selling your
investments held in non-retirement accounts that have decreased in value
since your capital losses can offset other capital gains realized during
the year (including from your mutual funds). Excess losses can
then be used to offset up to $3,000 of wages and other income.
Make sure to wait at least 31 days before buying back a security sold at
a loss, or the IRS will disallow the loss under the "wash sale" rules.
Consider selling your
investments that have increased in value if you are in the lowest tax
since the capital gains rate for you will be 0%, and this rule is slated
to expire on 12/31/10. You can then buy back those
securities, and the "cost-basis" will be the higher amount. This
strategy will save you taxes down the road when you sell these
securities. Just make sure that the capital gains don't push you
out of the 15% tax bracket, or you'll be taxed on those gains that fall
outside that bracket.
Send in your January 2011 mortgage payment early enough so it will be processed prior to
12/31/10. By sending in your payment a few weeks early, you can
deduct the interest portion of that payment a full year earlier.
Clean out your closets
and donate your clothing and household items to a charitable
since "non-cash" contributions are deductible if you itemize.
Don’t forget to get a receipt. And you should make a
list of each
item donated, along with its condition. Remember, only donations
of clothing and household items in "good condition or better" qualify
for a deduction. (To track what you donate, download our
Non-Cash Contribution Worksheet -
Excel Version or the
version, or use the
For gifts of money,
making your donation by credit card before December 31st allows you to
deduct the donation on this year's return, even if you don't pay your
credit card bill until 2011. And you always have the option of
donating appreciated investments to charities. You get to claim your
donation based on the value of the assets donated, without paying any
capital gains taxes on the appreciation.
Pre-pay your projected
state tax shortfall if you'll be itemizing your deductions and not
subject to the alternative minimum tax.
Pre-pay and pay off
your medical bills if your total medical expenses exceed 7.5% of
your income and you itemize.
Evaluate whether you'll
save any taxes by postponing 2010 income or deductions into 2011 or
by accelerating 2011 income or deductions into 2010.
For 2010, the standard deduction for a single individual is $5,700 and
for a married couple is $11,400. A person will benefit by itemizing once
allowable deductions exceed the applicable standard deduction. Itemized
deductions include state and local income taxes (or sales taxes), real estate
taxes, mortgage interest, charitable contributions, and unreimbursed employee
For 2010, the personal exemption is $3,650.
Individuals will claim a personal deduction for themselves, their spouse, and
The maximum earnings subject tosocial security taxes is $106,800
for 2010 and 2011.
The standard mileage rateis $.50 per business mile as of
January 1, 2010, down from $.55 per mile for 2009.
The maximum annual contribution into a 401(k) plan or a
403(b) plan is $16,500 in 2010 and 2011. And if you'll be 50 or
older by December 31st, you can contribute an extra $5,500 into your 401(k) or
403(b) account that year.
The maximum annual contribution to your IRA is $5,000 for 2010. And if you turn 50 by December 31st, you can contribute an extra
$1,000 that year. You have until April 15, 2011 to make your 2010 IRA
In a shocking development, the IRS recently
announced that they will be honoring the FICA tax refunds submitted by
residency programs and individual doctors. The catch is that only FICA
taxes paid prior to 4/1/05 qualify.