2010 Tax Tips for Individuals

Roth IRA

Did you know that anyone can convert a traditional IRA into a Roth IRA starting in 2010 regardless of income levels? Roth IRAs are funded by after-tax dollars and all earnings of Roth IRAs are tax-free after you reach the retirement age. There are no minimum distribution requirements at age 70 1/2, which allows your account to grow without being depleted annually by minimum distributions. Your heirs will also not pay income taxes on your Roth IRA. Deductible contributions and earnings of IRAs are taxable on conversion; therefore, careful planning must be done to structure the conversion properly to minimize income taxes.

First-Time Homebuyer Credit

The first-time homebuyer credit of $8,000 has been extended until April 30, 2010. If a binding real estate purchase contract is signed prior to May 1, 2010, a taxpayer will have until June 30, 2010 to close on the purchase. The $8,000 credit does not need to be repaid unless the residence is sold or is no longer used as a principal residence within 3 years from the date of purchase. The $8,000 is a refundable credit, and 2010 purchases can be claimed on the 2009 tax return. To claim the credit, an individual must be at least 18 years old and cannot be claimed as a dependent.

The new law signed in 2009 also allows long-time residents to claim the first-time homebuyer credit of $6,500. If you maintained the same principal residence for any 5 consecutive years during the last 8-year period, you will qualify for this credit. The purchase price of the new home cannot exceed $800,000.

Be aware that the both $8,000 and $6,500 credits are phased out for higher income taxpayers:

Married Filing Jointly - phase out starts at AGI of $225,000 and is completely phased out at $245,000.

All others - phase out starts at AGI of $125,000 and is completely phased out at $145,000.

Education Incentives

Education incentives have been enhanced by the 2009 tax law and increased the HOPE scholarship credit from $1,800 to $2,500. The HOPE scholarship credit has been renamed the American opportunity tax credit and now includes the cost of course materials in addition to tuition in computation of the credit.

Going Green

It saves going green. If you make energy-efficient improvements to your residence you can claim a 30% tax credit of the cost up to a $1,500 limit. If you install solar energy systems for water heating or electricity, you can claim a 30% credit of the cost without limits.

How about getting a large credit for purchasing a golf cart? Sounds too good to be true? It is true in the case of plug-in electric vehicles, which includes certain street ready golf carts. Beware that the make and model of golf carts must be certified by the IRS to be eligible for the credit. The credit is equal to 10 percent of the cost of a qualified plug-in electric vehicle and is limited to $2,500. Check the IRS certification before making your purchase.