Whether your income level is high, low or somewhere in the middle, everyone will be impacted by the newly signed Healthcare Reform Bill. With so much confusion and misinformation, it’s hard to know what the changes will do to your bottom line.
One of the most important things to know is that the revisions will roll out gradually over a span of 10 years, so you will have time to adjust slowly.
The first round of changes will impact your 2010 tax return:
• Medicare D Gap Closure Step One: A tax exempt, one-time only $250 payment for those taxpayers, 65 or older, who are affected by the Medicare Part D payment gap, commonly referred to as the "donut hole." The check will be sent automatically by Medicare as soon as the taxpayer hits the donut hole.
• Tanning Tax: As of July 1, 2010, there is now a 10% tax on the tanning service charge for individuals who use ultraviolet indoor tanning services.
• Revised Adoption Credit: The maximum credit will increase from $12,150 to $13,170 per eligible child. The increase is retroactive to January 1, 2010, so you may be able to claim the increase credit on your 2010 tax return if you adopted a child after January 1st. There are more details about the adoption credit in the article appearing at the bottom of this page.
The second phase of changes take affect for 2011:
• Tax-Free Medical Account Limits: Over-the-counter drugs are no longer eligible expenses for flexible medical spending accounts. Prescription drugs; however, will still be covered.
• Increased fines for Health Savings Accounts (HSAs) abusers: HSA and Archer MSA distributions used for non-qualified medical expenses are now subject to a 20% penalty. This is an increase of 10% and 5% respectively.
After 2011, the next major round of changes will take effect in 2013, with some of the most significant changes impacting higher income taxpayers. Joint filers with an AGI over $250,000 or single filers with an AGI over $200,000 may be subject to additional Medicare taxes:
• Wages - Medicare tax on earned income will increase from
1 .45% to 2.35% on incomes beyond the $250,000/$200,000 amounts.
• Investment income - A new 3.8% medicare tax on investment income over
$250,000/$200,000, including interest, dividends, capital gains, rent and royalty income. Retirement account investment income is exempt.
Those are just a few of the many changes that taxpayers can expect to see over the next few years. Speak with your tax preparer if you have specific questions or need more information.
Increased Education Credits for 2010!
Through the American Reinvestment and Recovery Act of 2009 (ARRA), signed in early 2009, the credit formerly known as the Hope Credit has increased to a maximum of $2,500 of eligible expenses for the first four years of post-secondary education. This expanded credit, now called the American Opportunity Tax Credit, is available for tax years 2009 and 2010. The credit also includes the cost of books and software required for courses.
Other education-related deductions & credits include:
• Deductions for Required Software and Other Expenses: For tax years 2009 and 2010, the cost of Internet access and technology, such as laptop or desktop computers, are considered qualified distributions from a section 529 (college savings) plan. Students enrolled in an eligible institution can use tax-free distributions from the program to pay for these qualified education-related expenses.
• Lifetime Learning Credit: Available to individuals paying qualified tuition and related expenses at an eligible post-secondary educational institution. This credit is available in any year for as few as one class a year. A taxpayer cannot claim the Lifetime Learning Credit and American Opportunity Tax Credit for the same student in the same year.
Contact your local Jackson Hewitt office for more details about the American Opportunity Tax Credit.
Expanded Adoption Credit Available for 2010!
The expanded adoption credit included in the Affordable Care Act, raises the maximum adoption credit to $13,170 per child, up from $12,150 in 2009. In addition, the credit is now refundable, which means that eligible taxpayers can get the credit even if they don’t owe taxes for this year!
The credit is based on certain expenses related to a legal adoption, including: adoption fees, court costs, attorney’s fees and travel expenses. Income limits and other special rules apply.
In addition to filling out the required Form 8839, Qualified Adoption Expenses, eligible taxpayers must also include one or more adoption-related documents, which can be found on the IRS website: www.irs.gov.
Since adoption-related documents will have to be submitted with the tax return, the IRS requires all returns with Qualified Adoption Expenses be submitted as paper returns.
Taxpayers can still use IRS Free File; however, the returns must be printed out and mailed to the IRS, along with all required documentation. Ask your tax preparer for complete details.
Tax Updates for Small Business Owners!
As a small business owner, there are some important tax issues that you should be aware of this year that could impact your 2010 profit or loss reported on your tax return.
• Married taxpayers that operate a small business together may split the Schedule C income and expenses onto a Schedule C for each spouse if filing a joint tax return instead of being required to file a partnership return.
• The direct deduction for start-up expenses has been increased to $10,000 (up from $5,000).
• The business standard mileage rate has changed to $0.50 per mile from January 1, 2010 to December 31, 2010.
• The maximum section 179 deduction has been increased to $500,000 and the maximum property limits has been increased to $2,000,000.
• Special bonus depreciation of 50% of the basis of the asset is allowed for assets placed in serving during 2010. This special depreciation amount is added to the regular depreciation to increase the allowed deduction.
• You may deduct up to 100% of health insurance premiums if the plan is set up through your business, your spouse is an employee of the business and covered by the plan, and you are covered under your spouse’s family plan. Amounts paid to cover your employee spouse is an allowed business deduction and excludable from the spouse’s income.
• Self-employment tax may be adjusted for the cost of qualifying health insurance for self-employed taxpayers.
Questions? Contact your local Jackson Hewitt office for complete details.
Gifts that are given in 2009 and 2010, valued at under $13,000 are not required to be reported on a Gift Tax Return? Generally, there is no gift tax due until the taxpayer has given a lifetime maximum of over $1 million gifts.
The following gifts are exempt form annual limits: gifts to your spouse, charitable donations, political donations, tuition or medical expenses paid directly to an educational or medical institution for someone else’s benefit.