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Every year the government rolls out new tax breaks, but too many taxpayers fail to take advantage of them. As a result many Americans pay higher taxes than they should. Tax rules also change, and missing out on these amendments could cost taxpayers dearly. This is why it’s important to do your tax planning way ahead of time instead of waiting for the last possible moment.

Here are some of the tax tips for 2010 that you should consider:

• $16,500 tax-free 401(k) maximum contribution limits. The IRS is holding the maximum amount an employee can contribute to a 401(k) in 2010 at $16,500. Catch-up contribution will remain unchanged from 2009 at $5,500 for individuals over the age of 50. The contribution limits are set annually based on the inflation rate in the third quarter vs. the previous year’s quarter. This is good news since many were expecting the IRS to reduce the limit.

• The return of the RMD. The required minimum distribution (RMD) was eliminated last year for taxpayers who are at least 70½ years of age. In 2010 RMDs are back. If you fail to withdraw an RMD, fail to withdraw the full amount of the RMD or fail to withdraw the RMD by the applicable deadline, you will have to pay a 50 percent tax on the amount not withdrawn.

• Income limits for Roth IRA conversions eliminated. Starting this year the adjusted gross income limit of $100,000 and the filing status requirement have both been abolished. Anyone is now eligible to convert a traditional IRA or any other retirement plans from a previous employer to a Roth IRA. When you make a conversion, the conversion amount counts as ordinary income. For this year, however, you have the option to recognize 50 percent of the conversion amount as ordinary income in 2011 and the other half in 2012.

This entry was posted on Monday, February 1st, 2010 at 11:58 am and is filed under Tax Advice. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.