Tax season: odds and ends

By Frank Minuti, CPA

I was at a tax conference earlier this week with about 200 hundred other CPAs and Enrolled Agents focusing on the upcoming income tax filing season. There was general disgust regarding the inability of our elected officials to arrive at a tax plan for 2011 and to resolve the estate tax issues.

What is even more distressing is that rather than address the tough budget and tax issues that are facing our country now the White House and Congress seem intent on doing a two year extension of the Bush tax cuts, a 2% reduction in Social Security withholding from employees and to extend the jobless benefits beyond the current 2 year period. The bill in its current form adds $858 billion to our current budget deficit over the next 2 years.

The 2% cut in Social Security withholding that would begin in 2011 benefits those making the most money. A person earning $40,000 "saves" $800 while a person earning $100,000 "saves" $2,000.

Hopefully we will have the new tax bill by Christmas so we can at least make a few informed decisions prior to the end of the year. While we wait for the bill, here are a few reminders:

Required Minimum Distribution (RMD)

Taxpayers over age 70½ must take a minimum distribution from their retirement account(s) annually based on their life expectancy. For 2009 taxpayers were given the option of taking the RMD or choosing not to. For 2010 the distribution must be taken. If you have not yet taken your RMD for 2010 you must do so prior to January 1, 2011. Failure to take the RMD will result in a penalty equal to 50% of the RMD amount.

Medical Insurance For Children Under Age 27

If an employee is covered under a group health insurance plan that offers dependent coverage that plan must now continue to offer health insurance coverage to children under age 27. The child does not have to be financially dependent on or reside with the insured.

The child can be employed, going to school (or not) and live with (or not live with) the insured. However if the child is employed and is eligible to enroll in a plan offered by his/her employer then the parent’s group plan may exclude the child from coverage.

Kiddie Tax

Children under age 19 who are not full time students and full time students under age 24 who have unearned income over $1,900 are taxed on that income at the parent's income tax rates if the parent’s tax rates are greater than the child's. Kiddee tax does not apply for children that have earned income that exceeds one half of the amount of their support.