2010 Tax Updates

Tax Updates to keep you prepared for 2009.

2010 Payroll Tax Information

For those who prepare payroll, the following is effective January 1, 2010:

Minimum wage remains at $8.00 per hour in California.
FICA and Medicare withholding remains at 7.65% (6.2% for FICA and 1.45% for Medicare) for both employees and employers. The FICA limit is $106,800. Medicare will be charged to the employee and employer for all wages with no upper limit.
FUTA wage limitations remain the same at $7,000 at 0.8%.
State disability insurance (SDI) remains at 1.10% with the limit increasing to $93,316 of wages.
Please watch for your EDD notice for SUI rates, this is employer specific, and will need to be changed in your software.
All employers are required to notify all of their employees of the Federal Earned Income Tax Credit usually distributed with the W-2 and/or 1099.
New forms 941-X is used for correcting errors on a previously filed 941 (replacing the 941c).
State Board of Equalization has converted to e-filing sales tax returns.

Tax Changes for 2009

MILEAGE RATES: Business mileage rate is 55¢ per mile for 2009.
Medical and Moving mileage rate is 24¢ per mile for 2009.
Charitable mileage rate is 14¢ per mile.
ALL charitable contributions must have a proof of receipt otherwise they may not be deducted.
Educator deduction of $250 extended through 2009.
State and local general sales tax deductions extended through 2009.
Higher education expenses for 2009-10 include computer technology and equipment and Internet access and related services.
The Hope Credit has been renamed the American Opportunity Tax Credit and it was enhanced: first four years of college, $2,500 max, covers tuition fees and materials, higher phase-out.
Payroll tax changes – Maximum wages subject to social security tax is $106,800 for 2009.
Withholding changes – The IRS has announced changes in withholding rates for 2009 & 2010. These changes are the result of the Making Work Pay provision of the American Recovery and Reinvestment Act, which provides a refundable tax credit of up t0 $400 for working individuals and $800 for married taxpayers filing joint returns.
Social security earnings limit – under full retirement age, $14,160; full retirement age and over, no limit.
One-year exclusion for unemployment benefits up to $2,400.
Either a standard or itemized deduction is allowed for sales and excise taxes on new vehicles bought on or after Feb. 17, 2009 and before 2010.
An IRA owner, age 70½ or over, can directly transfer tax-free, up to $100,000 to an eligible charitable organization in 2009.
The kiddie tax applies to children who are 19 years old or who are full-time students over age 18 but under age 24 with investment income.
Increased retirement plan contributions – 401(k) elective deferrals up to $16,500 (plus another $5,500 for those age 50 or older by the end of 2009).
The contribution limit for individual retirement accounts (both traditional and Roth) is $5,000 for 2009. A “catch up” provision permits an additional contribution of up to $1,000 by individuals who are at least age 50 in 2009.
One-time economic recovery payments ($250) made to recipients of social security isn’t included in income.
The first-time homebuyer tax credit is extended to apply to a principal residence purchased before May 1, 2010. The credit also applies to the purchase of a principal residence before July 1, 2010, by any taxpayer who enters into a binding contract before May 1, 2010, that requires closing before July 1, 2010.
For home purchases after Nov. 6, 2009, any individual (and, if married, the individual’s spouse) who has maintained the same principal residence for any 5-consecutive year period will be considered as first-time homebuyer of the purchase of a subsequent principal residence.
Non-itemizers can get a deduction for property taxes paid on a principal residence in 2009.
The Mortgage Forgiveness Debt Relief Act of 2007 provides that a taxpayer may exclude from income up to $2 million of qualified principal residence indebtedness for discharges incurred on or after January 1, 2007, and before January 1, 2013.
The deduction on Mortgage insurance premiums has been extended through 2010.
Residential Energy Efficient Property credit enhanced, solar heating, heat pumps, small wind energy property.
Section 179 – Equipment purchases expensing limit for 2009 - $250,000 ($25,000 for qualified SUVs). Total qualified purchases cannot exceed $800,000. The California deduction remains at $25,000 and phases out at $200,000.
Bonus depreciation - The 50% bonus depreciation deduction for qualifying new property has been extended an additional year and applies to property placed in service before Jan. 1, 2010.
Five-year carryback of NOL’s extended to include 2009 NOL’s and broadened to include most businesses.
A business in California with $100,000 or more in gross receipts must register with the Board of Equalization and report and pay any use tax due from purchases made in 2009 by April 15, 2010.

New Tax Changes - 2010

Key developments for the 2010 tax year include the following:

Business mileage rate is 50¢ per mile for 2010.
Medical and Moving mileage rate is 16.5¢ per mile for 2010.
Charitable mileage rate is 14¢ per mile.
Mandatory e-filing of individual and estate and trust returns for returns filed by tax return preparers after Dec. 31, 2010.
Roth conversions, beginning in 2010, no income limitations.
DB(k) plans will become available for small business retirement plans.

Important Information for 1099 Filers

A 1099 must be issued and sent to recipients or the IRS may disallow the deduction. 1099’s are due to the recipients by 2/1/10 and to the IRS by 3/1/10 to avoid penalties. If a 1099-Misc. for services is required to be filed, the payer must also report to the state of CA, EDD, on Form DE 542 within 20 days of paying either $600 or more, or entering into a contract for $600 or more. For all your independent contractors, you must have a W-9 on file, to be used for your 1099 filing.

** For those who need it, our Federal I.D. Number is 77-0457760 **