January 29, 2010 HAPPY NEW YEAR!!! The following tax rates and amounts are effective for 2010: OASDI rate remains at 6.2% and wage base remains at $ 106,800. Medicare rate remains at 1.45% and there is no wage limit. There is no cost of living hike for Social Security beneficiaries this year. The maximum earnings one can earn before social security benefits will start to be withheld is $37,680 for those under age 66. Those between age 62 and age 66 can earn $14,160. For each $2 earned above that, $1 of benefits is lost. There is no limit on earnings for those older than 66. The retirement age for social security continues to rise this year. Those turning 62 this year are affected. They will get reduced benefits if they start receiving payments before they attain age 66. Ultimately, anyone born after 1959 will not get full benefits before age 67. Social Security benefits will rise 5.8%. Personal exemptions remain at $3,650 and exemptions will not phase out in 2010 due to high income. Phaseout returns in 2011. Standard deduction remains at $11,400 plus $1,100 for each spouse 65 or older. For children age 14 who must file returns, it remains at $850 Income tax rates will remain at 10%, 15%, 25%, 28%, 33% and 35%. Those in the 15% or lower brackets receive a 5% rate on gains. 15% bracket is doubled for marrieds over singles for 2010. Dividends are taxed at 15%. Alternative Minimum Tax rate remains at 26% on first $175,000 of income for marrieds for 2006-2009 and 28% over that. Exemptions from the minimum tax drop to pre-2001 levels so more individuals will be subject to this tax. Back up withholding rate remains at 30%. 401(k), 403(b) and 457 contribution pay-in limitation remains at $16,500, with $5,500 more for employees 50 and older. Ceiling on SIMPLE plans remains at $11,500 but folks age 50 or older can put in an additional $2,500 in 2010. Maximum level of pay on which pay-ins to plans can be based upon remains at $245,000, with the maximum pay-in for defined contribution plans remaining at $49,000. Percentage of compensation that can be put in remains at 100%. Profit Sharing percentage remains at 25%. Benefit limit remains at $195,000. Business meal and entertainment deductibility remains at 50%. Standard business mileage allowance is lowered to 50¢ per mile, from 55¢. Medical travel and moving expense rate is lowered to 16.5¢ from 24¢. Charitable driving rate remains at 14¢ a mile. Federal estate tax exemption remains at $3,500,000. Maximum Estate and Gift rate remains at 45%. Lifetime gift tax exemption remains at $1,000,000. Maximum amount of equipment eligible for expense election for small businesses rises to $250,000. Simplified per diem allowances are up slightly. Phaseout for IRA deductions start at $89,000 and ends at $109,000 for couples. Phaseout for singles is from $53,000 to $63,000. If only one spouse is covered by a plan, the phaseout zone for deducting a payin for the spouse who is not covered begins at $166,000 of AGI and ends at $176,000. Contribution limit remains at $5,000. If 50 or older, can contribute up to $6,000. The interest exclusion on U.S. Savings Bonds redeemed to pay qualified higher education expenses starts to phase out at AGI above $105,100 for marrieds. Eligible portion of long term care premium rises to $4,110 for those age 71 and older, $3,290 between ages 60 and 70, $1,230 between ages 50 and 60, $620 from 40 to 50 and $330 for age 40 and under, deductible as medical expenses. Medicare Part B premium remains at $96.40 for those singles with AGI under $85,000, others will pay up to $353.60. The Nanny tax threshold remains at $1,700. No social security tax is due for domestics paid $1,700 or less this year. It is not indexed for inflation. FUTA is due whenever a domestic employee is paid $1,000 or more in a calendar quarter in the current or prior year. The exemption from the Kiddie Tax for 2010 remains at $1,800. A parent will be able to elect to include a child’s income on the parent’s return for 2010 if the child’s income is more than $850 and less than $8,500 and the child needs to be less than 20. If earned income of child is less than ½ the support, age rises to 24. If Kiddie Tax applies, a child’s earned income over $1,800 is taxed at the parents’ marginal rate Low and middle income savers can still get a tax credit of up to $1,000 for contributions made to IRAs and qualified plans. Credit disappears for marrieds when AGI hits $55,500, $27,750 for singles. Adoption tax credit rises to 100% of up to $12,170 of expenses. Phaseout starts at $182,520 AGI. Hope and Lifetime Learning credit phaseout for MFJ starts at $100,000, $50,000 for singles. The maximum Hope credit remains at $2,000. Gift tax exclusion remains at $13,000 per donee for gifts made in 2010. The limit on deducting payins to Health Savings Accounts rises to $6,150 for family coverage and $3,050 for individual coverage. Account owners born before 1955 can put in an additional $1,000. Ceiling on out of pocket cost rises to $11,900 for family coverage and $5,950 for individual coverage. IRAs can now be rolled into HSAs. The 10% credit for energy saving improvements up to a maximum credit of $500 returns for 2009. See our August 2005 Newsletter for details. The up to $250 above the line deduction for teachers’ out of pocket classroom related expenses remains through 2010. Companies can deduct 9% of income from U.S production activities, up from 6%. U.S. taxpayers working abroad have a higher exclusion, $91,500, up from $91,400. Itemizers can deduct private mortgage insurance premiums in 2009 if the policy was issued after 2006. Federal minimum wage is $7.25, food service employees, $2.13. New Jersey and New York Minimum wage is $7.25. New York tipped employees, $4.29. Connecticut minimum wage is $8.25, tipped employees $5.52. Pennsylvania minimum wage is $7.25 with tipped employees $2.83. Casualty losses on non-business assets are subject to a $100 floor in 2010, down from $500. S Corporations and partnerships owe a penalty of $195 per owner or partner per month for up to 12 months for failure to file on time, up from $89. High income taxpayers can convert their IRAs to ROTHs. The $100,000 AGI cap is gone. How Come I Didn’t Make Any Money? Many clients have expressed that in the past ten (10) years they did not make any money investing with me, that they are really back where they started.(of course, considering the internet and real estate bubble meltdowns it’s great that they are back where they started, and did not lose money!) The dubious distinction for this decade is that for the decades since the1820s, this is the worst decade ever for owning stocks. Even the 1930s were better (annual returns of -.2% v -.5%). Compare that to the two decades of the 1980s and 1990s of 16.6% and 17.6% annual returns which together with the 1950s were the best decades for owning stocks. Investors would have been better off investing in anything else, from bonds to gold to even just stuffing money under a mattress. Despite the woeful returns this decade, stocks today are not a steal. Jeremy Grantham thinks large cap stocks are about 30% overpriced which means returns should be about 30% less than their long term average for the next several years. That means returns of just 1.6% a year before adding for inflation. Wall Street Journal Investors Hope the ‘10s Beat the ‘00s 12/21/09 p.C1 As One Client Said of Me 30 years ago he could have run into Bernie Madoff. Thank G-d he ran into me instead or else he would have been broke. Anonymous Retired Public Safety Officers can exclude from gross income taxes up to $3,000 for qualified health insurance premiums as of 2007. If you are a retired law enforcement officer or firefighter, then you will need to separately inform us of your health insurance premium payments. As always, if you have any questions about these or any other matters, do not hesitate to call me. Remember, We’re Here For You!!