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President Obama signed into law “The American
Recovery and Reinvestment Act of 2009” referred to here from now on as “The Act”. I wanted
to get this information to you before the end of the year, so that you might benefit from this new tax law.
Making
Work Pay Credit
This credit is 6.2% of your earned income up to $400 a person ($800 on a joint return). You
have probably seen this credit already in reduced taxes being withheld from your paycheck. This credit will be calculated
on your income tax return for 2009. If you do not have EARNED income but receive Social Security, SSI, Railroad Retirement,
Veterans Disability or Government Pension you should have received a check for $250. You can not receive this credit if you
are being claimed by someone else. Also if your Income is above $75000 or ($150000 joint) the credit is phased out. This credit
is a refundable credit which means even if you do not owe income taxes you will receive it in the form of a refund.
First-Time Homebuyer Credit
If you are a first time homebuyer of a principal residence after April
8, 2008 and before July 1, 2009; you can receive up to a $7500 credit on your tax return. It is 10% of the purchase price
up to $7500. This credit has to be paid back over 15 years. However under the new Act, if you purchase a home between
January 1, 2009 and July 1, 2010 you can receive a credit up to
$8000 for 10% of the purchase price of a first-time primary residence. You must live in the home for three years
or you will have to pay the credit back. However, if you keep the home as your primary residence for three years or longer,
you never have to pay this credit back. If you purchased the home in 2009, we can go back and amend your 2008 tax return to
receive the credit.
Sales Tax Deduction for New Vehicle
If you purchase a new vehicle in
2009, you can deduct the sales tax on the purchase without having to itemize. Property taxes and (hopefully we won’t
need this one) hurricane losses come straight off the top also without having to itemize. Therefore, make sure you give those
items to us when we prepare your income tax return.
Unemployment Compensation Exclusion
Up
to $2400 on unemployment compensation benefits received in 2009 are excluded from income.
Hope Credit
changed to American Opportunity Tax Credit
The original Hope Credit was limited to $1800 for tuition and fees
for the first two years of college expenses. Under the new Act the credit is up to $2500 for the first four years of college
expenses and that will include materials. This credit is also up to 40% refundable (which means you get a refund even if you
don’t owe taxes). The income limits have been increased to $80000 for singles and $160000 for married filing jointly.
Computer Equipment and Internet Access
For those of you who have 529 college savings accounts
(which we do offer here), you are allowed to use those funds to purchase computer equipment and internet access.
Refundable Child Tax Credit
The child tax credit is still $1000 per child under the age of 17. This
year they have increased the amount of that credit that will be a refundable credit (you will receive it even if you do not
owe taxes) to 15% of the excess over $3000 instead of the past $10000.
Earned Income Credit
The Earned Income Credit will apply to three or more children in 2009. In the past the Earned Income Credit only applied
to the first two children. The maximum credit for 2009 is $5656.50. This credit is phased out for no children $18440, one
child $40463 and two or more children $45295.
Alternative Minimum Tax
The exemption amounts
for 2009 have been increased to $46700 for single and $70950 for married filing joint. Also interest on tax-exempt bonds issued
in 2009 or 2010 are not subject to AMT. Therefore if you hit the AMT limits you might want to look into the new Municipal
Bonds (which we offer here) to avoid the AMT tax. The Act also allows nonrefundable personal credits to offset AMT.
COBRA Premium Subsidy
If you get laid off from your job, you can elect to have COBRA coverage for
your health insurance. The new Act allows you to have the government subsidize your premium by 65% up to nine months. The
time period for this is September 1, 2008 to December 31, 2009. This is being administered through the Department of Health
and Human Services. If your income exceeds $125000 ($250000 married joint) you will have to pay this back.
Small
Business Estimated Tax Payments
Under the new Act, small business owners can lower their quarterly estimated
tax payments from the normal 100% of the prior year tax liability to 90%. You must have adjusted gross income of less than
$500000 and certify that more than 50% of your income is from a small business.
Bonus Depreciation
50% bonus depreciation has been extended for 2009. This will apply to new equipment placed into use in 2009. The
Section 179 deduction has been increased up to $250000 and the phase out limit has been raised to $800000. This is great news
for small business owners. Passenger auto first year limit on depreciation has been raised to $10960 for autos and $11160
for trucks and vans.
Misc. Business
-Income from re-acquisitions of business debt at a discount
in 2009 and 2010 is deferred and included ratably over five years.
-Non-corporate taxpayers can exclude 75% of gain on
the sale or exchange of qualified small business stock held for five years and acquired after February 17, 2009 and before
January 1, 2011.
-Work Opportunity Credit has been expanded to include unemployed veterans and disconnected youth which
you hire in 2009 or 2010.
Energy Credits
There are several credits for energy savings for
2009 and 2010. These are very specific and technical, so if they seem to apply, make sure you do your research before you
try and use them.
-Qualified alternative fuel vehicle refueling property
-Qualified Plug-in Electric Drive Motor
Vehicle Credit (these seem to be autos and 2 or 3 wheeled vehicles that run on batteries)
-Non-business Energy Credits
(improvements to your home) have increased to 30% of purchase price up to $1500 through 2010. These include: insulation, windows,
doors, roofs, air conditioners, water heaters, furnaces and boilers. Please note, all of these have specifications that must
be met. Please check with the IRS or us before you purchase to make sure you meet the guidelines.
Hurricanes
Please check your flood and windstorm coverage and increase those to replacement value. We saw such sad stories in Orange
and Bridge City this past year. Please videotape your contents. Take that with you in an evacuation. We have a whole separate
pamphlet on hurricane preparedness if you are interested. We need to prepare for the worst and pray for the best
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