2010 Pending Tax Law Changes

While there’s nothing unusual about the leaves changing colors this time of year, what is unusual is the unprecedented number of unresolved tax law changes this late in the season. If you’re not paying attention, you could be in for a surprise when you file your 2010 return or when you receive your first paycheck in 2011.

I’d like to take a few minutes to highlight two important tax laws that will likely affect you. The most immediate concern is the Alternative Minimum Tax and the second is the expiration of the Bush-era tax cuts at the end of this year. Let’s take a look at what each means to you and your tax refund.

The Alternative Minimum Tax (AMT)

Congress originally crafted the AMT in 1969 to ensure that 155 high income taxpayers paid at least some minimum tax on income that was otherwise sheltered from tax through legal deductions. Since then, the AMT has gradually snared more taxpayers, not because of their rising incomes or aggressive tax deductions, but because Congress did not index the AMT formula for inflation. As a result, the AMT traps more and more middle class folks each year. Last year, approximately 4-5 million taxpayers paid AMT. If Congress does nothing to adjust the AMT formula, experts believe it will affect more than 30 million taxpayers in 2010– an increase of over 400% in just one year!

You are more likely to be affected by the AMT if you have income over $100,000, have large deductions for state taxes (those living in high state tax regions like NY, CA and NJ) and/or medical expenses, and claim a large number of personal exemptions (like for your kids). Unfortunately, there is little you can do to mitigate this tax other than to defer paying taxes and medical expenses into 2011, if possible. On the brighter side, most tax experts are confident Congress will eventually tinker with the AMT rules to avoid affecting millions more American taxpayers. But best of all, when it comes time to file your return, TurboTax software will be updated with the latest tax laws to ensure it’s easy for you get the biggest refund possible.

The Expiring Bush-era Tax Cuts

Much has been written about the Bush tax cuts that expire at the end of 2010. Basically what this means is that if Congress does nothing, tax rates will revert to what they were back in 2000. That means higher tax rates not just for the affluent, but for almost all taxpayers. For example, today the tax rates range from 10% to 35% based on income. Back in 2000 the tax rates ranged from 15% to 39.6%. So even the less affluent would see their tax rate increase next year by 50% just by having the Bush tax cuts expire.

One element of the Bush tax cuts that has not received much attention is the “marriage penalty”. This refers to the additional tax a couple pays by filing jointly instead of filing two single returns. Under Bush, the tax code was adjusted to virtually eliminate the marriage penalty. However, if the tax cuts expire, the marriage penalty comes back since the standard deduction and tax brackets for couples would be less than twice as large (actually 167%) as those provided to single filers.

Congress has yet to act on the expiring tax cuts, but we expect to see action sometime after the November 2010 elections. Absent quick action, taxpayers may see less take home pay in January to reflect the higher tax rates. Fortunately, the Bush tax cuts do not affect your 2010 tax return, so stayed tuned to find out what happens here.

Comments (15) Leave your comment

  1. Jack… The change to conform with the new OR law is now in final testing and should be available late Friday (3/25) night or Saturday morning. Then you can finish your return!

    Bob Meighan

    VP, TurboTax

  2. Will turbo tax be updated for oregon state recent march/2011 law for 2010 educational credit. when will this happen so I can finish my oregon state return

  3. Shelli… If the installer indicates it is a Microsoft .NET issue, then it is a Microsoft issue. While we have tried to fix the issue on Microsoft’s behalf for our customers, we can’t fix them all. For those we can’t, we encourage you to contact Microsoft directly. Please refer to my FAQ at http://turbotax.intuit.com/support/go/8056. Keep in mind that we do stand behind our satisfaction guarantee if you need to return the software.

    Bob Meighan

    VP, TurboTax

  4. I have been trying to install TurboTax Home and Business for 2 weeks. I am very upset that the software is not working. I find it hard to believe that all of these issues just so happen to have issues this year. The TurboTax .Net fix does not work. CAN SOMEONE HELP US PLEASE! SAM’s Club will not exchange the disk because so many people have tried to return them. This is not good customer service. I guess that after 15+ years using TurboTax; this will be my last year. Help someone Please!!!!

  5. Crystal… Ahh! The FAQ that I referenced was updated subsequent to my post so there is no step 6. Nevertheless, here is another link to review (it also has a link to Microsoft support):

    http://turbotax.intuit.com/support/go/8056

    While you may had the computer for years, it is still very likely that it has a corrupted .net installation. Our TurboTax installer (which is really a Microsoft installer) validates the integrity of .net prior to install. If it is flagging it as bad, then I strongly suspect that is the case.

    Bob Meighan

    VP, TurboTax

  6. Bob in your comment of Jan. 26 it states: “It is important that you click on step 6 to fix the Microsoft .NET framework issue. Fortunately, this issue is very isolated. Make sure you also sign up to be notified if there is a solution (using the same URL above).”

    There isn’t a step 6 nor is there a place to sign up to be notified of a solution.

    I’ve have repeatedly followed these steps over and over again and it’s not working. I have never had this issue before and have had the same computer for the last three years.

  7. Donald… To make sure you get every deduction and credit to which you’re entitled, follow the TurboTax interview. It will alert you to tax savings opportunities in those areas that are relevant to your tax situation.

    Bob Meighan

    VP, TurboTax

  8. Patsy… Error 123 points to corrupted files in the Windows operating system (not TurboTax). Reinstalling or getting new disks will not change anything. The engineers are working with Microsoft to see if there is a workaround. In the meantime, make sure you follow the steps at this URL (http://turbotax.intuit.com/support/iq/Crashing/Error-123-is-displayed-when-using-TurboTax-2010/SLN44311.html?_requestid=192287) as a workaround (it may not work for all). It is important that you click on step 6 to fix the Microsoft .NET framework issue. Fortunately, this issue is very isolated. Make sure you also sign up to be notified if there is a solution (using the same URL above). I hope this helps.

    Bob Meighan

    VP, TurboTax

  9. Is anyone else having problems downloading the TurboTax, either Deluxe or Premier. It will not load on to my computer. No matter which one I use , I get a message error 123. It has a work around but I am still having problems. I contacted thw support help line and have not received an answer. I have had to return the discs I have bought and it is so embarrassing. This is my 4th time returning them, at different stores of course.

  10. Hi B,

    No, that is not correct. Only some returns will be affected by IRS processing delays. Here is a post that will explain what returns are being delayed:

    http://blog.turbotax.intuit.com/tax-news/irs-will-begin-accepting-delayed-returns-feb-14/01212011-4948

    Don’t worry, you can go ahead and file now though. And if you file with TurboTax, you can get your state refund immediately.

    http://blog.turbotax.intuit.com/tax-news/some-states-experiencing-tax-return-processing-delays/01102011-4784

    Hope this helps clarify.

    Ashley

  11. I’m confused, someone told me to look at this website bc no refunds would be processed before February 15th…does anyone know if this is true? We had some hard times at the end of the year and got behind on rent, if its not paid by a certain day in February, my husband, myself and our 2 kids are going to be living in our car.

  12. We have purchased a charitable gift annuity this year. We have an in home business/office in home.Very small! A CPA has been doing our taxes for a number of yrs. But we want to try doing it ourselves this year due to expenses. It’s the charitable gift annuity that I have no idea how to deal with. Which Turbo Tax should I buy and will it walk me through the annuity? This is our 3rd gift annuity and we will purchase another one in Jan. Really will appreciate your response. Rae

  13. I downloaded 2010 Turbotax last week and was doing some estimates. Does that version of Turbtax assume the AMT is modified or does it reflect anticipated law?

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