New Budget and its impact on you!

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Government’s New Budget Bursting with Tax Changes

In February, the president announced his $3.6 trillion budget for the 2010 fiscal year for the federal government. Now, he has fleshed out some of the income tax changes that are key to his budget; both the House and Senate have approved a budget blueprint for $3.4 trillion, but have not yet worked out any details. The following are some highlights of the tax changes that will likely result. None of the changes would directly affect your 2009 taxes but could impact your tax planning for this year and for years to come.

  • Retain many of the Bush tax cuts, with modifications. The lower income tax rates (including the 10% tax bracket), which are due to expire at the end of 2010, would be retained. Marriage penalty relief would also be retained. However, the top two tax brackets would be increased to 36% and 39.6% (up from 33% and 35%) for wealthy individuals (which may be defined as those with taxable income over $200,000 if single, or $250,000 if married filing jointly).
  • Make the American Opportunity credit permanent. This tax credit, which replaced the Hope credit for 2009 and 2010, is 100% of the first $2,000 of eligible expenses, plus 25% of the next $2,000 of eligible expenses, for a top credit of $2,500. The credit applies for the first four years of higher education.
  • Extend expiring provisions. Many of the more than six dozen tax breaks set to expire at the end of 2009, including the deduction for state and local property taxes and the research credit, would be extended again.
  • Make the estate tax rules permanent. The estate tax, which is set to expire at the end of 2009 and reappear in 2011 in the pre-2002 form, would be overhauled. The estate tax exemption amount could be set at $3.5 million per person ($7 million per couple) or higher and indexed annually for inflation. The top estate tax rate could be retained at the current level, which is 45%.
  • Provide a three-year AMT fix. The alternative minimum tax would be given a three-year “patch” by retaining the exemption amounts for 2009 ($70,950 for joint filers and $46,700 for singles), but indexing them for inflation over the next 3 years. Also, all personal nonrefundable tax credits would be allowed to offset both regular and AMT for these 3 years.

To help pay for some of these changes, there may be greater enforcement of tax laws. One area to be targeted is offshore tax abuse where taxpayers (corporations in particular) hide money in jurisdictions that do not share information with the United States.
To ensure compliance with requirements imposed by the IRS in Circular 230, we inform you that, unless we expressly state otherwise in this post any tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any transaction or other matter addressed herein. GVA serves the Individual & SME community by offering a wide range of services, which typically are offered by a large HR consulting and Big 5 Accounting firms. Services include, Mobility services, Taxation, Incorporation, Accounting & Payroll processing services. Disclaimer: GVA does not offer legal services or legal advice, but only generic information on legal subjects. GVA is not an attorney or law firm and not a substitute for an attorney or law firm. Do not make any decisions based on the contents of this post.

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  • ACTUALLY YES!!! when asked to enter the amount you reiceved from 2008 stimulus and then you proceed you will notice that amount is deducted from your return. Try it out if you dont believe me. here is what you will getThis is what i got when i entered in that reiceved 600..then my return was decreased by 600 Your recovery rebate credit is $0. Your credit is reduced by any economic stimulus payment you received in 2008. If i changed that number to 0 i got this Your recovery rebate credit is $600. Your credit is reduced by any economic stimulus payment you received in 2008 and my return increased by 600$