It is that time of year again. Time to plan for your 2009
tax year and maximize your tax refund. Some of
you have been contacting us for last minute saving tips and hence to the
benefit of everyone we are sending this E-Mail. To that extent we enclose the
following:
Last-Minute tax tips
Tax law changes for 2009
We look forward to seeing you all again for filing your
2009 taxes!
Last-Minute Tax
Tips
Some
last-minute tax-reduction planning tips. Here are a few suggestions
Contributions to
your favorite charity
If
you have appreciated stock that you've held for more than one year, you might
want to keep the cash in your pocket and donate the stock. You'll avoid
paying tax on the appreciation, but will still be able to deduct the full
value of the stock. You win, your charity wins, and the only loser is Uncle
Sam.
If
you still love the stock and want to maintain a position in the shares after
your charitable contribution, you can simply
buy new shares in the company. Deadline for this is December 31, 2009. And
don't forget about the contributions that you will make by check! Remember
that you need to have the check written and given to the charity (or at least
mailed out) before the end of the year in order for this deduction to
"stick." It matters not that the charity may not actually cash the
check until the next year. The key is that you deliver it to the charity
before the end of the year. It is a 2009 deduction if postmarked December 31,
2009 or earlier.
Donate in Kind
These donations are tax
deductible. You may consider donating clothes or old stuff, furniture, computer
etc before 12/31 and get an additional deduction for donations. Make sure you
create a list of items donated and pick up a receipt from the charity. Attach
the receipt to your list. I prefer you not write on the receipt because
frequently the donor undervalues the value of the donation
Use your credit
card
If
you have year-end deductible expenses (such as business
expenses, medical expenses, charity, rental expense, miscellaneous itemized deductions, or virtually any allowable deduction), you can use your credit card to
make the purchase this year, take the deduction this year, and pay your credit card bill next year.
You see, when you pay with a credit card, the IRS considers the expense
deductible in the year that the charge is incurred, not necessarily when you
pay the credit card charge.
In fact, going back to the first tip, you can even find charitable
organizations that accept credit cards for charitable
contributions. If you have the right credit card, you can receive a
30-day "float" that amounts to an interest-free use of the bank's
money if you pay it off when the bill comes.
Prepay your state
and/or local taxes this includes property tax
If
you believe that your tax bracket next year
will be no higher than this year, and you won't be bothered by any Alternative Minimum Tax issues, consider making those
state/local tax payments before the end of this year. After all, you're going
to owe the money anyway, right? So why not make those payments before December
31 and take the federal tax deduction this year?
You might think that this strategy only applies to people who have
fourth-quarter estimated tax payments to make
in January, but it really doesn't. If you are a W-2 wage earner and expect a
state/local tax balance due, even you can use a state/local prepayment
voucher and make your tax payment before the end of the year. All you need is
a December 31 postmark. (But beware of AMT, although many of you will not be
impacted by this you may be if you have huge stock options, exercised but not
sold or have itemized deductions for AMT
disqualified purposes like Taxes paid and Miscellaneous deductions. If you
are in the AMT zone, prepaying your state taxes
will not result in any additional deduction for Federal taxes but may help
with state taxes.)
Prepay
your Mortgage
Consider
making your January Mortgage payment on December 31.
Prepay
your tax preparer or prepay your legal fees!
Fees are deductible in
the year they are paid. If you haven’t already paid your tax preparation fee for 2008 tax preparation, make
sure your check is dated Dec 31, 2009 and pay it before the yearend. Also you
can prepay your 2009 tax preparation fees. Same rules apply to legal and
other professional fees
Match
up your 401(k) contributions
As
you know, there are maximum limits to 401(k) contributions each year.
Generally, your 401(k) contributions must be made throughout the year, but
did you know that some 401(k) plans allow for
"catch-up" contributions in December if your contribution level is
less than the maximum allowed? Using your December bonus to fund the balance
of your 401(k), when allowed, might be a good way to dodge some current
taxes. If your employer matches some of your catch-up contributions, you're
in even better shape. Not all 401(k) plans allow for this provision, so check
with your company's benefits administrator. If you are not sheltering the
maximum amount in your 401K talk to me at tax time to understand what you may
be losing.
Capital Gains
You can deduct up to $3000 of losses per year. If you have realized gains you could sell stocks you are holding that have paper losses and convert these to actual losses. You can then use these losses to offset real realized gains plus you could sell stocks to get you a net loss of $3000 (the maximum loss allowed). Why pay taxes when you don’t have to! Remember you can’t buy back stocks sold at a loss before 30 days (wash sales rules), although you could buy options in these stocks.
If you have realized losses in excess of $3,000 these can be carried forward.
Deduction planning
This
goes hand-in-glove with income planning. If you believe that your marginal
tax rate will be greater this year than it will be next year, accelerate
deductions into this year's tax return. If you believe that the opposite will
be true, then defer deductions into next year.
If deduction planning works for you, and you are a cash-basis taxpayer (which
virtually all of us are), please remember these important deduction tips:
1. An expense is only
deductible in the year in which it is actually paid. (This is especially
important for people trying to "bunch" their deductions into a
specific tax year. Remember that you can't bunch expenses paid in different
years.
2. If you use a
credit card to pay expenses (such as last-minute charitable
contributions, medical expenses, business expenses, etc.), the IRS
considers the expense deductible in the year that the charge is incurred, not
in the year that the credit card bill is paid. So consider using your credit
card for those last-minute deductible purchases, services, and charitable
contributions.
3. If you make a
payment by check, make sure that it is dated and mailed before the end of the
year. It's not important whether the check actually clears the bank by the
end of the year, just that you made the payment before the end of the year.
4. Remember that a
mere promise to pay (making a pledge for a charitable contribution, for
example) doesn't constitute an actual payment and is, therefore, not
deductible until the year actually paid.
Business
Owners or Business related expenses
If you have a business or business
related expenses, consider buying your capital assets
by year-end, make sure you charge it or pay by check. Section
179 allows you to expense (i.e., deduct currently) purchases of
business assets and property that you would otherwise be required to
depreciate and deduct over a number of years. The total cost of Section 179
property can be immediately deducted is $250,000 for 2009. see tax law
changes
Deductions and credits for non-itemizers
Just because you don't itemize your deductions doesn't
mean that there aren't deductions and credits out there for you to use.
Alimony paid, pension plan deductions (Keogh, SEP, SIMPLE, IRA, etc.),
student-loan interest, job-related moving expenses, medical insurance for the
self-employed, and deductions for self-employment taxes are all
available to you -- regardless of whether you itemize deductions. This is
true also for the many credits available to you even if you don't itemize
your deductions. Some of the most popular credits include the Child Tax
Credit, the Hope and Lifetime Learning Credit, and the Dependent Care Credit.
Note:
Simple IRA accounts need to be funded by January 15th to qualify
as a 2009 deduction, so make sure you fund by then. Questions? email or call
Tax Law Changes For 2009
Tax Credit of Up to $8,000 for First-Time Homebuyers and $6,500 for
Existing Homeowners
The Congress and the Obama Administration have extended and expanded the
wildly popular 2008 first-time homebuyer tax credit. Now, existing homebuyers
are eligible to receive a tax credit of up to $6,500 if they buy a
replacement home by June 30, 2010. In addition, the income limits have been increased,
making even more people eligible for these credits.
If you purchased a primary residence in 2009 before December 1, 2009, and
are a “first-time” homebuyer, you can qualify for a tax credit equal to 10
percent of up to $80,000 of the purchase price. To be eligible, you must not
have owned a residence in the United States in the previous three years.
The credit is refundable to the extent it exceeds your regular tax
liability, which means that if it more than offsets your tax liability,
you’ll get a refund check. But it does not offset the Alternative Minimum
Tax.
You can even elect to claim the credit for a 2009 home purchase on your
2008 tax return. (If you filed for 2008 before buying, but before the
December 1, 2009, deadline, you can claim your credit by filing an amended
return using Form
1040X. Doing so will guarantee you a refund check.) The credit for
2009 purchases generally doesn’t have to be paid back. But you will have to
repay it if you sell the house within three years of the date you bought it.
In November 2009, the program was broadened to include existing
homeowners, meaning those who have lived in the same principal residence for
any five-consecutive-year period during the past eight years. Homeowners are
eligible for a credit of up to $6,500 if they buy a replacement home to use
as their principal residence. They are not required to sell or dispose of
their current home, but the new home must become their principal residence.
To be eligible, homebuyers must buy, or enter into a binding contract to buy,
a replacement principal residence after Nov. 6, 2009, and on or before April
30, 2010, and close on the home by June 30, 2010.
In addition, income limits were expanded from earlier versions of the
credit. Homebuyers who file as single or head-of-household taxpayers can
claim the full credit if their modified adjusted gross income (MAGI) is less
than $125,000. For married couples filing a joint return, the combined income
limit is $225,000.
Single or head-of-household taxpayers who earn between $125,000 and
$145,000, and married couples who earn between $225,000 and $245,000 are
eligible to receive a partial credit. The credit is not available for single
taxpayers whose MAGI is greater than $145,000 and married couples with a MAGI
over $245,000. Also, homes costing more than $800,000 are not eligible for
the credit.
Indexed
Tax Brackets
Thanks
at least in part to the increase in federal spending and the federal budget
deficit in the past few years, the 10 percent, 15 percent, 25 percent, 28
percent, 33 percent and 35 percent tax brackets all kick in at more than 4
percent higher levels of income than in 2008
Educators'
Deduction
Educators
may deduct up to $250 of classroom supplies that they purchased with their
own funds. This deduction is scheduled to end after 2009.
Kiddie
Tax
In
2009, a child's unearned income over $1,900, such as gains and dividends, is
taxed at the parents' marginal rate until the year the child is age 19, or
age 24 for full-time students whose earned income is less than half their
support.
Estate
Tax Exemption
For
2009, the federal estate tax exemption is $3,500,000.
Exemptions
for the Alternative Minimum Tax (AMT)
For
2009, the exemption levels rise to $70,950 for married couples filing
jointly, $46,700 for singles and heads of household, and $35,475 for married
couples filing separately. Otherwise, about 28 million filers would have been
added to the AMT rolls. Congress is likely to act again to prevent this from
happening for the 2010 tax year. Also, interest on private-activity bonds
issued in 2009 and 2010 is exempt from the Alternative Minimum Tax.
Income
Earned Abroad
The
maximum foreign earned income exclusion is increased to $91,400, up fom
$87,600 in 2008.
Personal Exemptions
For 2009, each personal exemption is $3,650, up by $150 Personal
exemptions are reduced by 2% for each $2,500 of adjusted gross income over
$250,200 for MFJ (married filing jointly), $208,500 for HOH (heads of
household) and $166,800 for singles, but the reduction cannot exceed $1,217
per exemption
Higher Standard Deductions
For 2009, the standard deduction is as follows:
For married couples $11,400, up by $500.
For single filers, $5,700 in 2009, up by $250
Head of household $8,350 up by $350.
Non-itemizers who pay real estate taxes can now claim up to $1,000 of
property taxes paid for MFJ & $500 for Single.
Section 179 Expense Deduction
The maximum amount of equipment placed in service in 2009 stays at
$250,000.
Tax-free Parking for Employees
Starting in 2009, firms can pay $230 a month for tax free transit passes
or parking for employees.
Tax Credit for College Tuition
For 2009 and 2010, the Hope credit is replaced by a new credit of up to
$2,500 per student a year for four years of college, not just the first two
years. It now also covers the cost of books and begins to phase out at
$80,000 of adjusted gross income for single filers and $160,000 for joint
filers. If the credit is more than your income tax liability, 40% of it is
refundable. Also, the full credit is allowed against the alternative minimum
tax.
Child Tax Credit
If the credit exceeds the filer’s tax liability, all or part of the credit
will be refunded if the filer earns more than $3,000 in 2009 and 2010.
Earned Income Tax Credit
Applies to income of less than 40K so it doesn’t apply to most of you
Higher Income Limits for Deductible IRAs and for Roth IRAs
If you are covered by a retirement plan at work, you can take a full or
partial IRA deduction in 2009 dependent upon income levels per amounts listed
below
IRA Type Single Roth IRA$105,000 – $120,000 Traditional
IRA$55,000 – $65,000
Married Filing Jointly $166,000 – $176,000 Traditional
$89,000 – $109,000
Increased Contribution Limit for 401(k) Plans
The maximum employee contribution rises to $16,500 Workers age 50 and
older in 2009 can put in an additional $5,500.
SEP and profit-sharing plan
limit of $49,000 (up from $46,000).
Higher Annual Gift Tax Exemption
For 2009, you can give any individual up to $13,000 without owing any gift
tax,
Credit for Residential Energy-efficient Property
The credit for 30% of the cost of installing solar water heating equipment,
solar electric equipment, geothermal heat pumps or small wind turbines in
your primary residence or a second home is no longer limited to $2,000 after
2008. But the credit for fuel cell property still cannot exceed $500 per
half-kilowatt capacity.
Credit for Energy-saving Home Improvements
The old 10% tax credit of the cost of energy saving home improvements is
increased to 30% for 2009 and 2010, up to a maximum of $1,500 in the two-year
period. It applies to skylights, windows, outside doors, biomass fuel stoves
and high-efficiency furnaces, water heaters and central air conditioners.
Converting a Second Home to a Primary Home
If you convert a second home into a principal residence after 2008, you
may not be able to exclude all of your gain. A portion of the gain on a
subsequent sale of the home will be ineligible for the home-sale exclusion of
up to $500,000, even if the seller meets the two-year ownership and use
tests.
Partial Exclusion for Unemployment Benefits
For 2009, the first $2,400 of unemployment benefits you received is tax
free.
College Savings Plans
Beginning in 2009, 529 plans can be tapped tax free to pay for a computer
or Internet access.
Lower Mileage Rates
The IRS lowered the standard mileage rates for the
business use of vehicles. Beginning on Jan. 1, 2009, the standard mileage
rate is:
55
cents per mile for business miles driven
24
cents per mile driven for medical or moving purposes
14
cents per mile driven in service of charitable organizations
Sales Tax Deduction for New Vehicles
Buyers of new vehicles can deduct the sales tax paid on the purchase, even
if they don’t claim sales taxes as itemized deductions. They can add the tax
they pay to their standard deduction. This break applies to new cars, motor
homes, light trucks and motorcycles purchased after February 16, 2009 and
before January 1, 2010. Sales tax paid on the first $49,500 of cost
qualifies. The benefit begins phasing out for married couples with AGI over
$250,000 and singles with Adjusted Gross Income over $125,000. It is
completely gone for single filers with Adjusted Gross Income of $135,000 or
more, or joint filers with AGI of at least $260,000.
Increased Deductions for Health Savings Accounts
(HSAs)
You can contribute more in 2009 to business HSAs, with a
100% tax deduction up to a limit of $5,950 for a family, and $3,000 for an
individual.
RMD’s Suspended
For taxpayers age 70½ and older, required minimum distributions from
individual retirement accounts and other retirement plans can be skipped
without penalty. The same rules apply to heirs of inherited IRAs.
U.S. taxpayers working abroad have a higher exclusion tax this year. It is
now $91,400.
Plug-in Electric Vehicles Credit
This modification to the tax credit benefits people who purchase a
qualified plug-in electric motor vehicle after 2009. The credit is limited to
$7,500, and the amount begins to decrease after the manufacturer sells
200,000 plug-in vehicles. When you purchase a plug-in vehicle, ask the dealer
about the credit. You'll claim the credit when you file your 2010 to 2014 tax
returns.
Payroll
Tax Credit
For
2009 and 2010, Congress gave workers a credit of 6.2 percent of their earned
income, capped at $400 for single filers and $800 for joint filers. For single
filers, the credit starts phasing out at $75,000 of Adjusted Gross Income and
dries up at $95,000. The phaseout zone for couples is $150,000-$190,000.
Employees will get the credit in advance via lower income tax withholding in
each paycheck, not as a rebate check.
Self-employed
taxpayers can reduce their quarterly estimated payments to get an advance
benefit from the credit. The exact amount of the payroll tax credit for the
year will be calculated on the filers’ tax returns. Recipients of Social
Security benefits, Railroad Retirement benefits, Supplemental Security Income
or veteran disability pensions get a one-time $250 check for 2009. Federal
retirees who don’t receive Social Security payments also get a $250 check.
Note: If in doubt,
before acting upon these suggestions, check with your tax adviser to make
sure the actions suggested are in your best interest.
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