Andrew Carroll, CPA/PFS, CITP, and General Manager for NCH Wealth Advisors
Four Tax Changes You Need to Know About NOW
1
Tax Rates
Most experts agree that there WILL NOT be major changes to the 2009 tax rates. The tax cuts enacted by the Bush administration will not expire until Jan. 1, 2011, and it is unlikely that major changes will be enacted before then.2
The Return of the IRS Audit
The IRS has been relatively lax on individual and business audits the past 15 years. We have seen all that change this year.We are seeing a renewed emphasis on individual and business audits across the board. The IRS is staffing up and preparing to bring back audits on a larger scale in the year ahead. What does this mean for you?
- Be sure you have documentation for your deductions and credits (especially for small businesses and sole proprietorships).
- Ensure you have an accurate method for keeping track of financial reporting for your small business.
- Don’t misplace the tax documents mailed to you; not recording information on your return that has been reported by others can trigger an audit.
- Work with a qualified tax professional willing to guide you through the year.
- If you are tapped for an audit, do NOT represent yourself. Would you go to court against the U.S. government without a lawyer? That’s what you’re doing if you try to represent yourself in an IRS audit.
3
Traditional IRA Conversion to Roth IRA
For the first time, individuals and couples earning more than $100,000 per year can convert part or all of their traditional IRAs to a Roth IRA.That gives you the potential, when certain restrictions are met, to take future distributions from the IRA tax-free. Effects of converting a traditional IRA to a Roth IRA:
- Taxes will be due on the conversion amount. But if you make the conversion in 2010, you have two options: 1) include the conversion on your 2010 tax return or 2) split it equally between your 2011 and 2012 tax returns.
- Your money can grow and be distributed tax-free if you begin withdrawals after you have reached age 59½ and held the account at least five years.
- There are no required minimum distributions during the original account holder’s lifetime.
You won’t know if you should convert your traditional IRA to a Roth IRA without talking to a qualified tax professional who can understand your unique situation.
4
New Credits and Continued Old Credits
- The first-time homebuyer credit has been extended and there is an additional credit for repeat homebuyers. Both are subject to income limits.
- Many energy credits remain. The largest is the unlimited 30% energy credit for solar power purchases, which can potentially reduce your tax bill for several years.
- Credits for college tuitions are still a great value. Make sure you consult a qualified and experienced tax professional.
This financial institution does not give tax advice.
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