Lack of Inflation Means Little Change in Tax Items for 2010
The tax law provides for many tax items to be adjusted each year to keep pace with inflation. Due to lack of inflation, however, most of these items will see little or no change for the year 2010. In October, the IRS released its annual list of inflation-adjusted items. Some of the more significant items are listed below.
Standard Deduction. The 2010 standard deduction amounts will be the same as they were in 2009, except for a $50 increase for heads of households, from $8,350 to $8,400. Accordingly, the deduction for a single individual or married couple filing separately will remain at $5,700, and the deduction for a married couple filing jointly will remain at $11,400.
Personal and Dependent Exemption Amount. The personal and dependent exemption amount for 2010 will remain at $3,650, as it was in 2009.
Tax Rate Schedules. The rates themselves remain the same for 2010, and only very slight changes were made to the income amounts taxable at the various brackets. In 2010, for single filers, married couples filing jointly and heads of household, the top bracket of 35% will apply to taxable income in excess of $373,650 (up from $372,950 in 2009); for married couples filing separately, the top bracket will apply to taxable income in excess of $186,825 (up from $186,475 in 2009); and for estates and trusts, the top bracket will apply to taxable income in excess of $11,200 (up from $11,150 in 2009).
Annual Gift Tax Exclusion. The annual gift tax exclusion for 2010 will remain at $13,000, as it was in 2009. However, the annual gift tax exclusion for gifts to a spouse who is not a United States citizen will be increased to $134,000 (up from $133,000 in 2009).
Expensing of Depreciable Business Assets. The aggregate cost that may be deducted for investments in certain depreciable business assets (known as Section 179 property) will be $134,000 (up from $133,000 in 2009). This amount is reduced by the amount by which the cost of the asset exceeds $530,000 (same as 2009).
Valuation of Qualified Real Property in Decedent's Gross Estate. For an estate of a decedent dying in 2010, if the executor elects to use the Code Section 2032A special use valuation method for qualified real property, the aggregate decrease in value for estate tax purposes resulting from the election cannot exceed $1,000,000 (same as 2009).
Retirement Plan Contribution Limits. The 2010 maximum contribution to 401(k) plans, IRAs and other retirement plans will remain unchanged from 2009. Therefore, the contribution limit for 401(k), 403(b) and 457 plans will remain at $16,500, and the additional catch-up contribution limit for these plans for taxpayers who are age 50 or older will remain at $5,500. The maximum contribution to IRAs will remain at $5,000 for those under age 50, with an additional $1,000 catch-up contribution allowed for those age 50 or older, the same as 2009. There was some concern during the summer that the IRS may actually be forced to reduce contribution limits due to negative inflation, so the freezing of these limits in the current environment can be viewed as welcome news.
Year-End Reminder: Remember to make any remaining gifts for 2009 by December 31. Gifts made in 2009 which aggregate more than $13,000 for any donee must be reported on an IRS Form 709 United States Gift (and Generation Skipping Transfer) Tax Return filed with the IRS by April 15, 2010.