Newsletter

Text Box: Ben Murphy Michael Hoyle Certified Public Accountant Certified Public Accountant Personal Financial Specialist

Providing you with news, tips, and observations to provide to you the most current information available

Certified Public Accountant

Personal Financial Specialist

IT DEPENDS

With this economy, who isn’t looking for great deals and savings? In this issue, we will present a few strategies and tips that will come in handy when filing your 2010 tax return!

Generate tax savings by hiring your kids! Income Shifting Employing your children can mean major tax savings and advantages for the whole family! When you pay your child reasonable wages for legitimate work for an unincorporated company, you are taking money that would otherwise be income and shifting it into a lower tax bracket. The work can be simple such as running errands, stuffing envelopes, cleaning up the office, or taking the mail to the post office. Their wages will be considered earned income which protects it from the kiddie tax. The kiddie tax is imposed on unearned income in excess of $1,900. This income is taxed at the parent’s highest income tax rate. If you pay your child $5,700, the standard deduction will eliminate all tax on the child’s income.

Retirement Plan Savings

If your child earns more than $5,700, he or she can use that extra money and make a tax deductible contribution of up to $5,000 into a traditional IRA in 2010. In the event that the child does not make the contribution, you will still come out ahead as you have successfully shifted the income from your high tax bracket to their low tax bracket.

Social Security & Medicare Tax For unincorporated businesses, social security and Medicare taxes do not apply for children under the age of 18. This is a great benefit as you would have to pay these taxes on any other employee you hired. Hired children, under the age of 21, are not subject to unemployment taxes. These exemptions do not apply if the business is incorporated.

Good News for Homebuyers!

Don’t forget to plan! The end of 2010 is rapidly approaching and with it, the expiration of some big tax savings!

There is still time to claim the first-time homebuyer’s credit! The “Homebuyer Assistance Improvement Act of 2010” was signed into law by President Obama on July 2, 2010. This law extends the deadline for those homebuyer’s who have entered into a binding contract to purchase a home before May 1, 2010. The original deadline to close was June 30, 2010; however, with several lenders and federal programs involved in homebuyer loans, a 3 month extension was granted for those who were not able to close through no fault of their own. Therefore, contracts must now be closed before October 1, 2010. When filing your tax return, don’t forget to attach the required documentation to avoid delays! You should attach a copy of the pages from a signed contract involving all parties and signatures (if required by local law), the property’s address, purchase price, and the date of the contract

With certain tax laws due to sunset at December 31, 2010, planning is now more important than ever. We’ll discuss a few major provisions that will expire at the end of 2010. The maximum capital gains rate is currently15%. At the end of this year, this rate will increase to 20%. Qualified dividends will no longer be taxed at 15%. After 2010, they will be taxed as ordinary income which has a maximum tax rate of 35%. The estate tax will be reinstated with a $1 million exemption. Also, at the end of 2010, when the estate and generation-skipping transfer taxes have been repealed, the highest gift tax rate will be 35%. Bonus depreciation will no longer be available after the end of the year. There are other tax laws that are set to expire, so planning for the year-end is crucial. Please call our office for more information or any questions you may have.