November is an ideal time of the year to begin preparing yourself for the 2010 tax season. As is the case every year, there are a few fine points to pay attention to in order to keep from paying too much – or, in some cases, facing penalties that could have been easily avoided. This year also saw six new tax laws enacted by Congress, compared with just two in 2009.
Here’s a summary of what you should know.
HomeBuyer Tax Credit: Congress extended the 2008 tax credit of $8,000 for first-time homebuyers and $6,500 for existing homeowners.
- First-time homebuyers who purchased and closed on a primary residence before Sept. 30, 2010, can qualify for a tax credit of 10 percent of the purchase price up to $8,000. To be eligible, homebuyers must not have owned a U.S.-based residence in the previous three years.
- Existing homebuyers are eligible to receive a tax credit of 10 percent of the purchase price up to $6,500 if they bought and closed on a replacement home by Sept. 30, 2010. To be eligible for the credit, homeowners must have lived in the same principal residence for five consecutive years during the past eight years. While not required to sell or dispose of their current home, the new home must be their principal residence.
There are also several other requirements and limitations. For example, the credit is refundable to the extent it exceeds your regular tax liability, so anyone whose tax liability is lower than the credit will receive a refund check. However, the credit does not offset the Alternative Minimum Tax.
New Medicare Tax: Although this change is not effective until 2013, the new 3.8 percent Medicare tax applicable at an adjusted gross income of $250,000 should be on your radar. This tax applies to unearned income – including interest, dividends, royalties, annuities, rents and most capital gains. Profit on the sale of a principal home above $250,000 for individuals, or $500,000 for couples, is also subject to the tax.
Adoption Tax Credit: Congress extended the adoption tax credit to more parents, so anyone who adopts children in 2010 might be entitled to the full adoption tax credit of $13,170. If you owe less than $13,170 in federal tax, you won’t have to defer part of the credit to the following year. Taxpayers who owe no tax can look forward to receiving a check for the entire amount of the adoption credit.
Medical Insurance for Employees: Four million small businesses could qualify for a tax credit under the Patient Protection and Affordable Care Act of March 2010. The act offers a tax credit on a sliding scale to small businesses that provide employees with health insurance. Under certain circumstances, a company that pays half the cost of an employee health plan can recoup up to 35 percent.
Employment Tax Incentives: The Hiring Incentives to Restore Employment Act exempts employers from paying their 6.2 percent share of the Social Security payroll tax on new hires who meet specific criteria. Businesses can also get up to a $1,000 tax credit for every qualified new-hire a company retains for 52 consecutive weeks.
As is always the case, there are many other incentives for taxpayers, especially small businesses. For example, companies can pay for $230 a month of tax-free parking for employees. The cap on tax-free transit passes is the same at $230 a month.
Your accountant or tax advisor is a great source for any information as it relates to minimizing your tax bill. It’s always best to consult a professional to ensure you are fully aware of all incentives.