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CCH can assist you with stories, including interviews with CCH subject experts.
Also, the 2011
CCH Whole Ball of Tax is available in print. Please
contact:
Leslie Bonacum
(847) 267-7153
mediahelp@cch.com
Eric Scott
(847) 267-2179
eric.scott@wolterskluwer.com
Visit the CCH Whole Ball of Tax site often as new releases and other updates will be posted throughout the tax season.
CCH provides special CCH Tax Briefings on key topics at CCHGroup.com/Legislation.
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2011 CCH Whole Ball of Tax
CCH Reviews 2010 Tax Changes, 2011 Tax Agenda
(RIVERWOODS, ILL., January 2011) – From start to finish, 2010 was a busy and important year for tax law changes. Changes affecting 2010 taxes were spread across several pieces of legislation throughout the year, culminating with the Tax Relief Act in December, according to CCH, a Wolters Kluwer business and a leading provider of tax, accounting and audit information, software and services (CCHGroup.com).
“Despite several earlier attempts to win passage as part of other bills, it was not until the eleventh hour that the extensions of Bush-era tax cuts and numerous other provisions finally passed,” said CCH Principal Federal Tax Analyst Mark Luscombe, JD, LLM, CPA.
In addition to the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (Tax Relief Act), other major legislation with tax repercussions passed in 2010 included the Hiring Incentives to Restore Employment (HIRE) Act; the Patient Protection and Affordable Care Act (Patient Protection Act), the Homebuyer Assistance and Improvement Act of 2010 and the Small Business Jobs Act of 2010.
Here are major provisions of the new laws that can affect 2010 returns of individuals and small businesses. For a Special 2010 Tax Year-in-Review Briefing, click here, or visit CCHGroup.com/legislation.
- The alternative minimum tax (AMT) received another patch for 2010 (and 2011); for 2010, the exemption amount increases to $47,450 ($72,450 for joint filers). (Tax Relief Act)
- For 2010, as part of the Bush-era tax cuts, there is a full repeal of the income restrictions for claiming itemized deductions and exemptions. As a result, high-income taxpayers are not required to reduce the amount of their itemized deductions or exemptions when their adjusted gross income (AGI) exceeds a certain amount. The Tax Relief Act extends this full repeal through 2012. (Tax Relief Act)
- Medical expenses for adult children under age 27 can be deducted by the parent. However, insurance carriers are only required to allow children under age 26 to be included on their parent’s coverage. (Patient Protection Act)
- The adoption credit has been made refundable, increased to $13,170 and extended through 2011 (Patient Protection Act). Under the Tax Relief Act for 2012, the maximum credit will decrease to $12,170 and no longer be refundable.
- Additional requirements for taking the homebuyer credit are in effect for 2010 to prevent fraud, including providing a copy of the contract and settlement statement to the IRS as well as, for long-time homeowners, mortgage interest statements, property tax records or homeowner insurance records. To claim the credit, the homebuyers must have signed the sales contract before July 1, 2010 and closed the sale before October 1, 2010. The credit is up to $8,000 for qualified first-time homebuyers and $6,500 for longtime homeowners (those living in their home for more than five years). ( Homebuyer Assistance and Improvement Act)
- Homebuyers who participated in the Housing Assistance Tax Act of 2008 First-Time Homebuyer Credit will have to start repaying the credit on their 2010 tax returns. The taxpayer’s income tax is increased by 6.33 percent of the amount of the credit taken for each taxable year in the 15-year recapture period, starting with the second taxable year after the credit was taken.
- Several extensions that had expired at the end of 2009 were extended for 2010 and 2011 under the Tax Relief Act, including:
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Taxpayers are allowed to deduct state and local sales taxes on their federal returns; however, the additional standard deduction for state and local property taxes was allowed to expire and will not be available for 2010;
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Above-the-line deductions are allowed for student tuition and fees of up to $4,000 for qualified taxpayers;
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Above-the-line deduction for teacher’s classroom expenses up to $250;
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Charitable contribution of IRA proceeds up to $100,000 can be made by taxpayers at least age 70½; and
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Taxpayers can make charitable contributions of appreciated property for conservation purposes.
- Taxpayers who converted a traditional IRA to a Roth IRA in 2010 will pay the tax equally in 2011 and 2012 by default. However, they can elect to pay the tax in 2010.
- Starting after September 27, 2010, employees can rollover a qualified distribution from a traditional 401(k) to a Roth 401(k) assuming their employer offers a Roth 401(k). The rollover, excluding any after-tax contributions, is taxable. As with traditional IRA to Roth IRA conversions, employees who made 401(k) to Roth 401(k) rollovers in 2010 will pay the tax in equal amounts over 2011 and 2012, unless they elect to pay it all in 2010. (Small Business Jobs Act)
- Under Bush-era tax cuts, the estate tax was fully repealed for 2010. However, the 2010 Tax Relief Act gives estates of people who died in 2010 the option to apply the estate tax based on the 2010 repeal, which also applies a modified carryover basis rule. Alternatively, they can apply the estate tax based on the new 35 percent top rate and $5 million exemption with stepped up basis. (Tax Relief Act)
- Paid tax preparers must have a valid PTIN (Preparer Tax Identification Number) in order to prepare returns starting in 2011, including 2010 tax returns. By law, tax preparers cannot accept payment for tax returns they do not sign.
- For small businesses, the Code Sec. 179 expense limit for 2010 was increased to $500,000 for companies with assets below $2 million. (Small Business Jobs Act)
- With the hope that improving small business cash flow would lead to more small business hiring, the small business startup deduction, for 2010 only, was doubled from $5,000 to $10,000. The $10,000 deduction is reduced by the amount of the taxpayer’s total startup costs that exceeds $60,000. (Small Business Jobs Act)
- Employers, including small businesses, receive an exemption from the employer’s 6.2-percent share of Social Security tax on all wages paid to each qualified employees from March 19 through December 31, 2010. Qualified employees were those hired after February 3, 2010 and before January 1, 2011 who were previously unemployed or employed for 40 hours or less for the previous 60 days. (HIRE Act)
- Mainly affecting businesses and partnerships, the economic substance doctrine was codified into law effective March 2010 onward. It requires that a transaction have an economic purpose beyond simply tax avoidance and sets penalties for violating the doctrine as high as 20 to 40 percent. (Patient Protection Act)
For More Information
CCH issued a Special 2010 Tax Year-in-Review Briefing that provides an overview of the key tax law developments of 2010 and their impact on taxpayers – some of which require immediate action, and others that impact long-term strategies. To access the CCH Tax Briefing, click here or visit CCHGroup.com/Legislation.
The Road Ahead
Whereas Congress recessed in 2009 with several large tax questions looming, the Tax Relief Act passed in late 2010 means the new Congress is returning with many tax questions answered – at least temporarily.
“The Tax Relief Act essentially extends many of the Bush-era tax cuts for two years, so either through 2011 for extenders that had expired in 2010 or through 2012 for other provisions,” said Luscombe.
That’s not to say that taxes will not be on the agenda. However, the tone may be different, focusing on an overhaul and simplification of the tax code and reviewing some of the tax-related recommendations proposed by the National Commission on Fiscal Responsibility and Reform.
“There are a number of people in Congress who want to take up some of the reform commission’s suggestions. So, it is possible that there will be some effort at tax reform in 2011 as a way to help address the deficit,” said Luscombe. “Achieving a fundamental reform of the tax code is difficult to do, but it will likely be a subject of discussion in 2011.”
About CCH, a Wolters Kluwer business
CCH, a Wolters Kluwer business (CCHGroup.com) is a leading provider of tax, accounting and audit information, software and services. It has served tax, accounting and business professionals since 1913. CCH is based in Riverwoods, Ill. Wolters Kluwer is a leading global information services and publishing company. Wolters Kluwer is headquartered in Alphen aan den Rijn, the Netherlands (www.wolterskluwer.com).
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