Know Your Limits

We hope you all had a wonderful Holiday season and that your new year is off to a great start. Before we get into the heat of tax season, we want to make you aware of some 2010 limits and key figures as you start to do your 2010 planning.

Standard Mileage Rates
The IRS has issued the 2010 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes. Beginning on Jan. 1, 2010, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

• 50 cents per mile for business miles driven
• 16.5 cents per mile driven for medical or moving purposes
• 14 cents per mile driven in service of charitable organizations

It might pay to do the math here because you always have the option of calculating the actual costs of using your vehicle rather than using the standard mileage rates.

Standard Deduction Amounts
The Standard Deduction amounts for 2010, with the exception of Heads of Households, will remain constant to the levels that were seen in 2009 and are as follows:

Married Filing Jointly -- $11,400
Heads of Households -- $8,400 (up from $8,350)
Single -- $5,700
Married Filing Separate -- $5,700

Personal Exemption
The personal exemption is also remaining at its 2009 level of $3,650.

FICA Wage Base
The Wage base remains frozen for 2010 at $106,800. The tax rates remains the same also, with self-employed individuals paying 15.3% on first $106,800 of net earnings and 2.9% on any amount above that. For those who fall outside of the self-employed category, your rates are the same; however, half is paid by your employer and half is paid by you.

Student Loan Interest Deduction
The maximum deduction for student loan interest is $2,500 and is phased out as follows:

Phased out on a Single return beginning at $60,000 and ending at $75,000.
Phased out on a Joint return beginning at $120,000 and ending at $150,000.

Lifetime Learning Credit
In order to claim the Lifetime Learning Credit, you must be paying qualified tuition and related expenses at a postsecondary educational institution and that institution must classified as an eligible educational institution. Unlike the Hope Scholarship Credit, students are not required to be enrolled at least half-time in one of the first two years of postsecondary education. The Modified AGI phase-out ranges are as follows for this credit:

Phase out on a Single return begins at $50,000 and ends at $60,000.
Phase out on a Joint return begins at $100,000 and ends at $120,000.

IRA Contributions
Various phase-out ranges apply to your Contributions, so please contact your CPA for more detailed advice. However, generally speaking, the maximum IRA contributions for Traditional and Roth IRA’s for 2010 are as follows:

Under Age 50 -- $5,000
Age 50 and Over --$6,000

Qualified Plan Contribution Limitations
Limits on what you can place into your Qualified Plans (401(K), profit sharing, defined benefit plans, etc) did not move from your 2009 limits and are as follows:

401(K) Elective Deferral:
Under Age 50 -- $16,500
Over Age 50 -- $22,000

SIMPLE Plan Deferral Amount:
Under Age 50 -- $11,500
Over Age 50 -- $14,000

Benefit Limit for Defined Benefit Plans:
All Ages -- $195,000

HSA High Deductible Health Plan
Many employees and self-employed individuals now take advantage of a Health Savings Account and if so should be aware of the following Limit changes in 2010 as follows:

Minimum Deductible
For Self-Only coverage -- $1,200
For Family coverage -- $2,400

Maximum Out-Of-Pocket Expenses
For Self-Only coverage -- $5,950
For Family coverage -- $11,900

Maximum Contribution Amount
For Self-Only coverage -- $3,050
For Family coverage -- $6,150
If an Individual is over the age of 55, add $1,000 to Contribution Amount limits.

Annual Gift Tax Exclusion
While Congress still debates some Estate and Gift tax law, one thing we do know is that the Annual Gift Tax Exclusion amount remains the same as 2009 at $13,000.

The above listed amounts represent just a sampling of some key limits and figures that you will need to know in order to plan for your 2010 tax year. If you have more specific questions or areas of interest, please reach out to us here at McArthur & Co or to your local CPA. Next week, we plan to take a look at the newest version of the First Time Homebuyer tax credit and how it opens up the door to more home buyers. If you’re in the real estate market, check back in and see if you can apply this opportunity to your buying situation.

info@mcarthurco.com
704.544.8429