Landlords must issue 1099s

Beginning in 2011, landlords must issue 1099s if they pay someone (e.g., a self-employed carpenter or plumber) $600 or more during the year. Previously, landlords were not covered by the 1099 laws.

Some landlords will be exempt if their rental income is very small. The IRS will let us know at a later date (hopefully sometime this year) how much rental income will trigger the 1099 requirement.

Qualified Charitable Distribution

One of the last-minute changes in the new tax law had to do with the option for people over 70 and a half years old to make a charitable donation directly from their IRA without declaring it as income. That provision was supposed to expire as of 12/31/09, but there was some confusion over it during the year, probably because it was almost, but not quite, renewed during the year. Now it has indeed been renewed. And because of the last-minute nature of the renewal, eligible taxpayers have been given the option to make such a distribution in January of 2011 that can be counted as happening in 2010. Contact your IRA administrator.

Tax filing delay

The IRS has announced that it will need some extra time to reprogram their computers in regard to some of the provisions of the new tax law. Therefore returns with certain tax features will not be accepted until mid- to late February. Those situations are:

1. Anyone who files a Schedule A
2. State and local sales tax deduction
3. Tuition and fees deduction for higher education
4. Educator expenses.

The IRS will announce specific dates later.

Estate tax law at last

The new estate tax top rate is 35% on anything above $5 million. Also, a person who dies and leaves everything to his or her spouse, and does not use up the $5M exemption, can also pass on the unused portion of the exemption to the spouse. Formerly this was done by setting up trusts, but the new law may make such trusts less necessary.

For executors and family of a person who died in 2010, the option exists to apply the new law as outlined above, or the law that existed during most of 2010, which was quite different. Under that law there was no estate tax, and the basis of inherited assets was treated differently.

Under the new law, the gift tax also has a $5M exclusion, as opposed to $1 million before.

Unfortunately the new estate tax law expires in 2013, unless Congress acts.

New law same as old

Many of the tax provisions that were scheduled to expire in 2010 or 2011 were revived by Congress in the recently passed tax bill. The specifics of the bill are still hard to come by. If you are viewing this from my web site, you can e-mail me with a question that applies to your tax situation.

Estate Tax, part 8

Now that 2010 is almost over, it seems that there is virtually no chance that the Estate Tax will be changed for this year. (Nothing is impossible, but it does not seem likely.)

There is no estate tax for 2010, but if heirs sell assets they inherit, they could incur a capital gains tax. This is because inherited assets will be valued at their original cost (or other basis) value rather than at the fair market value as of the date of death. However, for most people this will be offset by a $1.3 million step-up in value (up to fair market value) available per estate. Assets inherited by a spouse get an additional $3 million step-up in valuation.

The estate tax for 2011 is yet to be determined. It is scheduled to revert back to 2001 law, but Congress will most likely change that, as no one wants 2001 to come back.

Year-end Planning

Tax planning for the end of 2010 is a bit more difficult this year, because Congress has still not decided what the tax rates will be for 2011. This could be important for some people who can choose to accelerate income or deductions into 2010, or defer them until 2011. Kiplinger is still predicting that the 2010 tax rates will be carried over to 2011. That may be a workable assupmtion for many people, but nothing is certain until it actually happens.

Some of the current tax provisions may be worth reminders. One particularly nice one for those who can benefit from it is that long term capital gains for people in the 10% and 15% brackets are not taxed at all. That's right, 0% tax. The 0% rate applies up to $34,000 of taxable income for single people and $68,000 for married filing jointly.

Just to recap the Standard Deductions for 2010, they are:
$5,700 for Single
$8,400 for Head of Household
$11,400 for Married Filing Jointly
For people 65 and over:
$7,100 for Single
$9,800 for Head of Household
$12,500 for Mariied Filing Jointly


For year-end planning for your individaul situation, contact your tax professional!