by Gloria Edmonson Nelson

Created on: December 17, 2009   Last Updated: June 30, 2010

There are many interesting changes for Tax Year 2010; but if you are doing your own taxes, make sure you read as well as ask someone because you could be paying a price down the road. An example of this is the Roth IRA. Beginning January 1, 2010, there will be no income limit on who can convert from a Tradition to a Roth Ira; however, experts say to proceed with caution. If you don't have cash to pay the income tax bill that will come due when you pull your IRA money out, be careful. For example, should you have other assets, in order to convert to cash, you have to pay capital gains - converting then becomes less attractive.

John Gin of Gin Associates says some state exemptions get phased out at higher income levels - a lot of conversion calculators do not take that into consideration. He goes on to say that should you convert in 2010, you can choose to pay half the taxes in 2011 and half in 2012, but opting to do it in 2010 might make more sense for higher income taxpayers because of the possibility of tax-rate increases in 2011.

Some advisors say Roth Ira's do make sense for plenty of people because it continues to grow tax-free and everything comes out of it, including tax-free earnings later on. They can also be left to family members with much more favorable tax consequences as to when they have to start withdrawing from the Traditional IRA. He said it is difficult to give any firm rules on this one, particularly if it is a rich family who does not need to draw from the IRA to fund retirement and plans to leave it for family members.  

FEDERAL ESTATE TAX is repealed for one year only for 2010. A person can now pass an unlimited amount to his or her spouse. The limit used to be $67,500 or 55% maximum. Under the new act, the Federal Estate tax is repealed after 12/31/09. The Act also increases the exclusion amount and decreases the maximum Estate Tax rate in increments until it is repealed in 2010. In 2011 the Federal Estate tax is reinstated.

FEDERAL GIFT TAX after 12/31/09, will be 35%. 

HOUSE BILL 436 was introduced in January, 2009. It adds limits to the valuation discount for family limited partnerships and provides strict valuation rules for the transfer of non-business assets. It allows the first-to-die spouse's unused estate tax exemption to his/her surviving spouse.

THE AMERICAN RECOVERY AND REINVESTMENT ACT made the Home Buyer's Tax Credit retroactive so everyone who purchased a home since January 1, 2009, was eligible. Right now, unless the date is extended, it applies to any first time home buyers through December 31, 2009.

MAKING WORK PAY provision gives a $400 tax credit and $800 for married couples. Most people with income, even self-employed will be able to claim that from one of the tax laws in 2009 and 2010.

COLLEGE STUDENTS can deduct some of their college bill in 2010. CAR BUYERS can deduct sales tax paid on the purchase and can claim deductions on certain "green" and environmental-friendly purchases.

REFERENCES;

Ezinearticles.com/?Tax-Laws-Under-The-New-President&id-2155990

Businessweek.com/entrepreneurship/federal-estate-tax -rules-changing2010

Asknewswireatdowjones.com

Austin.bizjournals.com/austin/stories/2001/07/23/foc us4.html

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