Client Newsletters

First-Time Homebuyer Credit Extension of deadline - new law

The First-Time Homebuyer Credit that was set to expire on 11/30/2009 has been extended by the Worker, Homeownership, and Business Assistance Act of 2009 to apply to any taxpayer who enters into a written binding contract before 5/1/2010 to purchase a principal residence if the closing date on the purchase occurs before 7/1/2010. For a home purchased after 12/31/2008 the credit remains the lesser of 10% of the purchase price or $8,000(4,000 MFS).

New Law - Long-time residents of the same principal residence.

For long-time residents of the same principal residence that are looking to move up or down in home, or to those who would like to purchase a new home and rent out your old home, you may be entitled to a credit that is the lesser of 10% of the purchase price of the home, or $6,500($3,250 MFS). To qualify for this credit you must have maintained the same principal residence for any 5-consecutive year period during the 8-year period ending on the date of the purchase of a subsequent principal residence. The new residence must be purchased after 11/06/09 and before 7/1/2010(written binding contract signed before 5/1/2010).

Tax Benefits You Might Overlook

As the tax season approaches take some time to determine if you qualify for some of these often overlooked tax breaks. Some of these tax saving ideas require that you itemize your deductions. Others can be claimed by any qualifying taxpayer.

1. Charitable Volunteering. If you volunteer for a charitable organization you may have deductible expenses. Did you purchase supplies or required equipment? Perhaps you volunteer in a hospital and need to purchase a uniform. The costs for the apparel AND the costs to clean the uniform can qualify as charitable deductions. And don't forget mileage, it too can often be deducted.
   
   


2. Moving Expenses. While job related moving expenses are a well known deduction, many clients don't realize moving expenses for a first job may also be deducted if the job passes a 50 mile distance test from the place the newly employed person has been living.
   
   


3. Job Hunting Costs. Workers can often deduct job hunting costs provided the expenses are associated with looking for a new job in your present occupation. Qualifying costs include resume preparation, printing, postage, phone calls and outplacement/employment agency fees. Remember these costs, along with other miscellaneous itemized expenses, must exceed 2 percent of your adjusted gross income before they produce any tax savings.
   
   


4. Child and Dependent Care Credit. Did you know the popular Child and Dependent Care tax credit also applies to summer day camp costs? As long as the camp is a day-camp and camp officials supervise the child while the parents work you can claim the credit for the camp costs.
   
   


5. Mortgage Refinancing Points. If you refinance your house or buy a second residence, any "points" you pay for the loan can be deducted proportionately each year over the life of the loan. If you sell your home or refinance before you have deducted the full cost of your "points", you can then deduct the remaining amount in the year of the refinancing or sale.
   
   Caution: The lender in the subsequent refinancing must be different to deduct points this way.


6. Military Reservists' Travel Expenses. Military reserve forces and National Guard troops are allowed a deduction for travel expenses attending drills or meetings provided you travel more than 100 miles and stay overnight for the training exercise. This deduction includes mileage reimbursement at 55 cents per each mile traveled. Parking toll fees also qualify. You receive this deduction whether or not you itemize your deductions.

So take a minute to examine your activities over the past year and try to identify items that may lower your tax obligation. If you have questions about these topics or have other areas of concern please feel free to call.

More Special 2009 Items

2009 marks another year of major tax law changes. While too vast to mention them all, here are some that will impact many clients.

• $2,400 of unemployment benefits are not taxed this year.


• There is a one-year option to avoid the minimum retirement plan distribution rules for qualified accounts.


• The "Cash for Clunkers" vehicle benefit that many took advantage of is not taxable. Plus sales and use tax paid on the purchase of a new vehicle creates a potential tax break!


• Social Security benefits will NOT be going up next year so you need to plan accordingly.


• The Hope Credit education expense deduction has been increased and expanded from two to four years of post secondary education.


• The earned income and child tax credits have been changed and will likely benefit most clients (but not all).


• A personal casualty and theft loss must now exceed $500. This is up from $100.

As always, please feel free to bring up any questions or concerns that may impact your situation.

Energy Efficient Tax Credits 2009

The American Recovery and Reinvestment Act expands your tax-deductible opportunities to make energy efficient home improvements in 2009 and 2010. If you make any of the following improvements, you can possibly recover up to 30% of the costs:

• Exterior Windows and Doors


• Storm Windows and Doors


• Skylights


• Roofs (metal or asphalt)


• Insulation and Sealing


• Central Air Conditioning


• Air Source Heat Pumps


• Furnace (Natural Gas, Propane or Oil)


• Hot Water Boiler (Gas, Propane, or Oil)


• Advanced Main Air Circulating Fan


• Water Heater (Gas, Oil, Propane, or Electric Heat Pump)


• Biomass Stove

Here are some of the stipulations:

• The maximum credit allowed is $1,500.


• This tax credit doesn't apply to new construction.


• Not all products and materials qualify so you must question your vendor, re-modeler or service company.


• The equipment or products must last a minimum of five years.


• The improvement must be placed in service on or after February 17, 2009.


• Improvements made before February 17, 2009 have different qualifications.

Improvements made in 2009 may be claimed on your 2009 tax return filed by April 15, 2010. Those made in 2010 will be claimed with your filing in 2011.

Key 2009 Exemptions and Deductions

Listed here for your reference are key deduction rates for 2009.

Personal Exemptions -

The personal exemption for each qualifying dependent increases by $150 for 2009.

The exemption phases out by 2% for each $2,500 ($1,250 for married filing separately) by which your income is over:

2009 Alert: This phaseout may only reduce the exemption by 1/3 in 2009.

Standard Deductions -

Standard deductions for those who do not itemize are as follows:

Itemized Deduction Phaseout -

Deductions are reduced by 3% of every dollar of Adjusted Gross Income over $166,800 ($83,400 if married filing separately) up to a maximum phaseout of 80% of your itemized deductions. Medical expenses, investment interest, casualty losses and gambling losses are excluded.

2009 Alert: The phaseout may only reduce your itemized deduction by 1/3 in 2009.

2009 Tax Rates

The income brackets for each tax rate are:

Shrinking Social Security Benefits

Fewer Benefits for Millions of Seniors in 2010

In 2010, for the first time in more than three decades, seniors will not receive a social security benefit increase. A formula set by federal law determines the benefit increase, formally known as the "cost of living adjustment" (COLA). The COLA formula is closely tied to inflation rates, as calculated by the consumer pricing index. This year's recession and the decreased cost of oil have led federal experts to predict a deflation (a decline in prices and wages) through mid-2010 and perhaps longer. Because there is a negative inflation rate for 2010, there will be no COLA, and thus no increase in benefit payments to social security recipients.

Fortunately, Federal law prohibits social security payments from going down, so check payments will simply freeze for many benefit recipients. However, monthly benefit payments may decrease for millions of Americans in the Medicare prescription drug program because the premiums are predicted to go up, and these premiums are often deducted from social security checks.

What to do? Plan now to take steps to account for this "freeze". You may wish to re-forecast required distributions from your retirement plans or postpone a planned expense. Adjusting your budget now will help prepare for the impact of the Social Security Benefit freeze in 2010.

Making Work Pay Credit may put you at risk for underpaying your income tax

The new making work pay credit could cause you to underpay your income tax liability for the year resulting in either a decrease to your refund or increase in the amount you owe. Married couples, taxpayers with multiple jobs, taxpayers with investment income, taxpayers with pension income, and children who are working that are being claimed by their parents as dependents all may be affected. Please call me or go to my links page and click on the IRS Withholding Calculator to adjust your withholding to reduce your risk of being under withheld for 2009.

2010 Roth IRA Rollovers

Are you ready to roll? Starting next year, a new tax rule takes effect that allows more individuals to convert—or roll over--their traditional IRA savings into a Roth IRA.

As you may know, traditional IRAs and Roth IRAs are flip sides of the same coin. With a traditional IRA, you deduct your retirement savings contributions up front, but pay tax down the road when you withdraw funds during retirement. With a Roth IRA contributions are not deductible—you make your contributions with after-tax dollars, but withdrawals during retirement are tax free. In other words, traditional a Roth IRAs offer a choice between tax deferral and tax-free buildup of income.

The tax law also offers the opportunity to second-guess your initial decision. Individuals who have been saving in a traditional IRA have the option of rolling over the funds into a Roth IRA. Tax must be paid on the rolled over funds—but earnings on the converted funds will be tax-free at retirement.

Unfortunately, many individuals have been locked out of that option until now. For 2009 and earlier years, taxpayers with incomes above $100,000 were barred from making Roth IRA rollovers. Starting in 2010, however, the income ceiling on rollovers will be repealed allowing taxpayers at any income level to convert their traditional IRAs into Roth IRAs. Moreover, for rollovers made in 2010, the tax on the converted amount won’t have to be paid all at once. The tax will be payable over two tax years beginning in 2011.

If you would like more information about making a Roth IRA rollover, please feel free to contact us at the phone number on this website or email us.