Final Tax Bill 2010

First off, I need to give credit where credit is due: The President demonstrated real leadership by corralling the ENTIRE Congress into doing the right thing this time. It was remarkable to watch as I watched it unfold, recovering from emergency surgery. We should hope that this continues.

The tax extensions we've been waiting on for over a year have now been passed. The news articles are fairly accurate, so I'll keep this short and simple, since most of the changes are indeed pretty simple. Some filings will be delayed while IRS reprograms now.

First off, a correction from my Dec. newsletter. The energy credits are available for heating/AC units INCLUDING the installation. You're still limited to a max of $1500/30% credit. Nothing else can include installation.

Basically, all that has been under the tax law is extended for two years: rates, exemptions, deductions, cap gains, etc. And the energy credit for your home is extended for one more year, but reduced to $500/10% credit for those of us who had something we wanted to do, but haven't yet!

Changes include a reduction of the employee share of SS/SE tax of 2%, which is basically in lieu of the Making Work Pay Credit that we've had. So you'll see increases in your net pay for those on payroll, beginning 1/1/11. The tuition DEDUCTION has been increased from $2000 to $4000 for those eligible to take it and can't take the credits. We have a new bonus depreciation for businesses for one year, of 100% of the cost of the asset. (This does not apply to cars.) Now the really aware might wonder, what's the difference between that and Sec. 179 where we write the whole thing off anyway? The difference is that to use the 179, we must have a profit, or it carries over to later years. The bonus depreciation allows the write off even if there is a loss, which can then offset other income from W2's, etc. The estate tax is reinstated for 2010 retroactively, at the $5 mil level, or you can opt for the pre-existing 2010 rules where there was no tax but you had to adjust basis of inherited assets. (Call it the Steinbrenner rule.) And there is now the opportunity for spouses to double that $5 mil when the second spouse dies. It requires filing an estate return for the first spouse, even when unnecessary otherwise, so some planning and updating with your estate tax attorney is advisable.

Finally, in IL, without any notice, fanfare, or news from the media, there is an AUTOMATIC presumption that you owe some use tax for web purchases out of state, and everyone will pay a few bucks based on an income table. It is literally only a few bucks, usually less than $20, and hopefully the property tax credit will offset it for the retirees who likely don't even use the internet to buy stuff!

And...my world is getting complicated. The IRS is really forcing accountants into some very difficult positions as we're expected to police you, without compensation, of course. The penalties that they are leveling against preparers are scary: $500 or $1000 per return, depending on the mood of the auditor, BECAUSE WE SHOULD HAVE KNOWN SOMETHING YOU DIDN'T TELL US! And the penalty is non-appealable! We must go to court to have it rescinded. So the auditors now have power beyond belief. While preparing an audit is expressly NOT an audit by the rules, they're taking a mid position that we need to be asking more questions and not ignoring things that the IRS thinks are obvious. Example, you're self employed, and show me net profit of $15k, your wife doesn't work, yet you manage to make mortgage payments, eat food, and clothe the kids. That's pretty clear that something's up! But when it comes to mileage, charity, entertainment, and many others, you really need to provide me the info and have documentation to back it up. If I have any reason to suspect that you might not, I have to leave it out. Don't make me do that! I'll be asking more questions now, make sure you have the right answers.