Sunday, October 10, 2010

Congress Wimps Out

Well, no doubt our Congressional members are worried about keeping their jobs. So they decided to sweep important tax issues under the rug until after the mid-term election next month. Then, of course, we’ll have the holiday recess. And hopefully a lot of new cast members. I wouldn’t expect income tax, estate tax and alternative minimum tax to come to anyone’s attention until well into the first quarter of 2011. Congress did, however, pass the Small Business Jobs Act of 2010 before hitting the campaign trail. Here’s a quick overview of a few points that might touch your wallet: Employee cellphones — If your employer provides you with a cellphone, you’ll no longer have to deal with the recordkeeping nightmare of logging your personal cell use. Roth 401(k) plans — You can now transfer 401(k) money into a Roth 401(k) plan. You’ll have to pay income taxes, but Roths allow tax-free buildup and tax-free withdrawals. And if you make the switch this year, you can defer the conversion income taxes into 2011 and 2012. The catch is that your employer's plan must allow for such Roth accounts. Annuity payouts — If you own a tax-deferred annuity outside of a retirement plan, you can now break out part of that money to provide a steady income. The balance will continue to grow tax-deferred. For instance, suppose you have a tax-deferred annuity that’s worth $100,000. And maybe you only need enough income each month to pay for long-term care insurance. You could ask the annuity company exactly how big of a lump sum would you need much to generate $xx a month for the rest of your life. Let’s say it’s $25,000. That amount will set you up with the ongoing income you want and the remaining $75,000 will stay in the original account for you to use in the future. Rental expenses — Those of us with rental properties now have one more government-induced aggravation to deal with. Starting in 2011, we’ll have to fill out 1099’s for anyone who does more than $600 in work for us during the year. Landscapers, plumbers, painters are among those who will have to give you Social Security numbers so you can report the income to the IRS. So you better make sure they’re legal residents with valid Social Security numbers before hiring them. What’s in store for us when Congress gets back to work in January? I place my bet on higher taxes for all. And even if Congress refuses to boost taxes or cut expenses, state and local governments are swimming in a sea of red ink. Good luck! George

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