Current Updates to the 2010 - 2011 Tax Planning Guide

For tax planning, the only certainty is uncertainty. Recent tax law changes have made some items in the enclosed 2010 – 2011 Tax Planning Guide obsolete. Below are the current updates to the 2010 – 2011 Tax Planning Guide that are effective for 2010 which are not in the Guide. due to current tax law changes. Unfortunately, aAt this time there is uncertainty as to what other tax law changes may be enacted for 2010. Congress has been discussing and debating whether the "Bush tax cuts" should be allowed to expire as provided by current law or whether they should be extended (either in full or in part) to 2010 due to continued sluggishness seen in the U.S. economy. Many believe with the November election, clarifying Clarifying legislation should not be expected until December at the earliest.

The following are the newest tax law items effective for 2010:

Self‐Employed Health Insurance Premium deduction for 2010
A self-employed person may deduct on the Form 1040, Schedule C the amount paid for health insurance. Such deduction is used in determining self-employment income. "Earned income" for retirement plan contribution purposes will not be reduced by health insurance premium. (This is a correction to the information shown in the booklet on page 21.)

Section 179 expensing election:
For tax years beginning in 2010 or 2011:

1. the dollar limitation on the expense deduction is $500,000; and
2. the reduction in the dollar limitation starts to take effect when property placed in service in a tax year exceeds $2,000,000 (beginning-of-phaseoutphase-out amount).

For property placed in service in tax years beginning in 2010 or 2011, the deduction won't won't phase-out completely until the cost of expensing-eligible property exceeds $2,500,000 ($2,000,000 (beginning-of-phaseoutphase-out amount) + $500,000 (dollar limitation). (This is a correction to the information shown in the booklet on page 15.)

"Qualified real property" is eligible for Code Sec. 179 expensing
Up to $250,000 of "qualified real property" is eligible for Code Sec. 179 expensing in tax years beginning in 2010 and 2011. The 2010 Small Business Act temporarily expands the definition of property qualifying for a deduction to include certain real property—i.e., qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property. (This is an extended tax break mentioned in the booklet on page 15.)

Bonus First-Year Depreciation Extended Through 2010
The 2010 Small Business Act Act extends 50% bonus first-year depreciation for one year, i.e., makes it available for qualifying property acquired and placed in service in 2010 (as well as 2011, for certain long-lived property). (This is an extended tax break mentioned in the booklet on page 15.)

First-Year Depreciation Cap for 2010 Autos and Light Trucks or Vans Boosted by $8,000
For example, On January 15, 2010, T, a calendar year taxpayer, placed a new $40,000 passenger automobile into service in his business. Assume that the vehicle is "qualified property" (and an election to decline bonus depreciation and AMT depreciation relief doesn't doesn't apply to the vehicle). T is allowed first-year depreciation for 2010 of $11,060 ($3,060 general first year allowance for 2010 plus $8,000). If the vehicle is a light truck or van, T is allowed first-year depreciation for 2010 of $11,160 (the $3,160 general first year allowance for 2010 plus $8,000). (This is in addition to information mentioned in the booklet on page 18.)

Deduction for Start-up Expenses Increased
For tax years beginning after Dec. ember 31, 2009, and before January. 1, 2011, the $5,000 amount for start-up expenditures is increased to $10,000, and the phase-out threshold is increased from $50,000 to $60,000.

The following are some examples of tax law items that are being proposed to be extended for 2010 but currently are not in effect for 2010:

1. Extension of the deduction of State and local general sales taxes.
2. Extension of the additional standard deduction for real property taxes.
3. Extension of the above-the-Iine line deduction for qualified tuition and related expenses.
4. Extension of the above-the-line deduction for certain expenses of elementary and secondary school teachers.
5. Alternative Minimum Tax for 2010 "Fix":
   In a November 9, 2010 letter to IRS Commissioner Douglas Shulman, bipartisan tax policy leaders have committed themselves to legislation that will:  (1) Allow the personal credits against the alternative minimum tax (AMT) and (2) Set the AMT exemption amounts for 2010 at (a) $47,450 for individuals and Head of Household (b) $72,450 for married taxpayers filing jointly, (c) $36,225 for married filing separately.

Please check with your tax advisor at HK to discuss the best ways to save tax in these uncertain times and for the latest changes out of Washington. December is a great month to discuss tax saving strategies and we look forward to hearing from you before the end of the year!