Allow me to begin this years’ Newsletter with sound advice as well as a small tribute to the late King of Pop:
In a year of tightened belts for businesses, individuals and government agencies, we want to make certain we maintain detailed and accurate records for proof of our income, expenses, as well as our assets and liabilities. Many employers have reduced their head-count, but the federal and state revenue agencies have increased employment in their auditing divisions since those employees are revenue producers. As long as we maintain proper records to support our income, our investment activity, and our tax deductions, we can prepare accurate tax returns and present a strong case.
In an effort to assist you in preparing for your next tax appointment, I have listed some helpful information about this upcoming Tax Season:
· Tax Season Office Hours – NYC Office: Mon – Sat, 9am – 8:30pm. I am working exclusively from 330 W. 56th Street, Ste 16D, NYC 10019 Office. I no longer have a Yonkers Office.
· Methods of Tax Preparation – Now more than ever, it is important I receive a complete package of tax information in order to efficiently and effectively prepare your tax returns. I require copies or originals of all statements of income (earned and unearned income) and a listing of your tax deductible expenses. Please use the Client Organizer as a guide to help you collect your information. I need to know you have retained receipts/documentation supporting your expenses, but you don’t have to send the receipts to me. Please make a tally of each type of expense so we are not using the appointed tax prep time adding receipts.
· Delivery of Tax Materials – Due to a heavier client load in the month of March, I will need to have your tax mailing or drop-off by March 20th in order to guarantee an April 15th completion.
This next tax year will no doubt be an adventure, filled with late-breaking tax law changes which never were addressed in Congress during 2009. One early example is a very important tax bill signed into law on November 6th, the Worker, Homeownership and Business Assistance Act of 2009, which includes an extension and expansion of the First-Time Homebuyers Credit (see below). I’ve selected a few tax credits or deductions effective during 2009 that are very positive and hopefully have encouraged home or auto sales during 2009!
The American Recovery and Reinvestment Act of 2009 **– This law expanded an educational tax credit, the Hope credit, and renamed it the American opportunity tax credit for tax year 2009 and 2010. This credit is now based on 100% of the 1st $2,000 of qualified higher education tuition & related expenses, plus 25% of the next $2,000 of such expenses paid during the tax year, not to exceed $2,500. Also, this credit is now available for the first 4yrs of college. We have another educational credit, the Lifetime learning credit, which remains unchanged based on 20% of the 1st $10,000 of qualified tuition & related expenses for a max. credit of $2,000.
Also, this law provided for an exclusion from income of the first $2,400 of unemployment benefits received during 2009. This exclusion is per individual not per tax return.
Another credit found in this Act is the Making Work Pay & Government Retirees Credits. For taxpayers with AGI under $75,000 (Joint filers, $150,000), a full credit of $400 ($800 for Joint filers) is available. If a taxpayer is also a recipient of social security/railroad retirement benefits/veterans comp. and received the $250 Retiree Credit in advance during 2009, the $400 credit will be reduced by the $250 already received. The Making work pay credit phases out once income exceeds $95,000 ($190,000 for Joint filers).
First-Time Homebuyer Credit** – This credit has been extended and applies to those in binding purchase contracts before May 1, 2010 and close by June 30, 2010. As summarized in the National Association of Enrolled Agents E@lert, “The Worker, Homeownership, and Business Act (HR.3548) provides a continuation of the up-to-$8,000 first-time tax credit through April 30, 2010 and creates a new $6,500 tax credit for existing homeowners buying a different house for use as their primary residence. The refundable $8,000 credit will apply to all contracts entered into before May 1, 2010, and closed before July 1. It also creates a new $6,500 credit for property owners who have lived in their home for at least five consecutive years of the past eight years. Income limits for eligible home buyers are expanded to $125,000 for single buyers and $225,000 for couples, from $75,000 and $150,000, respectively, (for purchases after 11/6/2009, per IRS website). No credit is allowed for the purchase of any residence with a price exceeding $800,000. This ceiling operates as a cliff, not as the onset of a phase-out range, and does not adjust for localities. To help guard against fraud, buyers are required to attach documentation of purchase to their tax return.” The link to the IRS website concerning this credit is: http://www.irs.gov/newsroom/article/0,,id=204671,00.html
Motor Vehicle Sales Tax Deduction** – Effective for qualified motor vehicle purchases between 2/16/09 through 12/31/09, there will be a sales tax deduction limited to the sales tax attributable to the first $49,500 of the purchase price. This has an income limitation to it: the deduction is only available to taxpayers with AGI between $125,000-$135,000 (for Joint tax filers, $250,000-$260,000). It is available whether you take the standard deduction or itemize your deductions.
Extensions for helpful tax deductions – I am very pleased to inform you of another extension through tax year 2009 for the following: the Tuition & Fees Deduction and the Educator Expense Deduction (both are “above the line” deductions and available even if you do not file Sch. A, Itemized Deductions), and the Residential Energy Property Credit for home improvements (insulation, energy saving windows/doors, etc) has been reinstated for 2009 and 2010 with improvements (the prior lifetime limitations have been removed, so if you claimed the credit in past, you may be able to claim it once again in 2009 if you had qualifying home improvements.)
Real Estate Tax Standard Deduction – Effective 1/1/08 through 12/31/09, there will be a maximum $500 additional Standard Deduction for Single taxpayers ($1,000 for Married Filing Joint) who pay real estate taxes and cannot deduct them on Sch. A.
Tax Free RMD Distributions from IRA’s direct to Charitable Organizations – Still in effect for 2009, you can direct your retirement account distributions to a qualified charitable organization. The distribution will NOT be included as income to you if you arrange for the donation to be made directly from your IRA. This applies to IRA’s only. Make your charitable donations with this IRA money instead of from your nonretirement accounts!
2009 RMD’s Waived – The Worker, Retiree, and Employer Recovery Act of 2008 waived the Required Minimum Distribution for 2009. However, if anyone was due to take their first RMD by April 1, 2009, they were still required to do so since it is considered a 2008 RMD. If you are in this category, you’ll want to notify the trustee of your retirement account and take the distribution during this tax year.
Home Sale Exclusion for Surviving Spouse – This went into effect on 1/1/2008 and is wonderfully fair, deserving of a second mention. If a surviving spouse sells the primary residence the couple owned upon the decedent’s demise within 2 years of death, the surviving spouse will have the full $500,000 capital gains exclusion available. This is for sales after 12/31/2007, and applies to the surviving spouse who had been widowed no earlier than 2006.
We also have other changes to prior year tax laws:
· Capital Gains Rates – For tax year 2009, the zero long-term capital gains tax rate remains, which applies to those in the 10% / 15% tax bracket. The long-term capital gains rate for those in higher brackets has remained at the favorable 15% rate. Therefore, one will be taxed at a 0% capital gains rate on long-term gains up to the point one’s entire income reaches the end of the 15% bracket. Once the long-term gain brings income into the 25% bracket, the long-term gain will be taxed at the 15% long-term capital gains rate. Note: this is currently on the books to extend through tax year 2010, but we should plan for increases in capital gains tax rates during 2010.
· “Kiddie Tax” – The age of a minor child remains at under age 19 or to a child under 24 who is a full-time student (if they still qualify as your dependent). If your child has under $1,900 of unearned income (interest/dividends, etc), then the child is taxed at his own tax rate. However, any unearned income exceeding $1,900 will now be taxed at the parents’ highest marginal tax rate, if taxing the income at that rate results in a higher tax. (Note: If the child’s earned income exceeds half of his/her support, the child may not be considered a dependent and would not be subject to these rules.)
Standard Mileage Rate – For tax year 2009, the mileage rate for business use of your automobile was reduced to 55 cents from 58.5 cents in the last half of 2008. It is scheduled to increase to ___ in 2010. The mileage rate for medical & moving mileage is 24 cents increased from 19 cents in 2008. It is scheduled to increase to ___ cents for 2010. Charitable mileage remained the same at 14 cents for the entire year.
Earned Income subject to FICA (Social Security Tax) remains at $106,800 for the 2010 tax year. Since there wasn’t a cost of living adjustment provided to SS recipients, the SSA cannot raise the level of earnings subject to social security tax.
Here are some other interesting snippets I include every year…
Subcontractors: An area of concern not only for my self-employed and small business clients, but for anyone who is entitled to this business deduction…If you pay over $600 to an unincorporated individual for work he performed for you, you are required to obtain his name, address and Tax ID # in order to be able to issue a 1099-MISC form by 1/31/2010. If you need me to issue this 1099, please contact me prior to 1/31/2010 with the pertinent information. The 1099 issuance requirement includes backstage tipping paid to individuals as a “thank you”, if you are intending it to be a business deduction.
Charitable Contributions: The tax laws have not lightened, but have continued to tighten. Therefore, I am unable to deduct any gift to charity (whether a donation of goods or money) unless there is a receipt. For any individual donation over $250 we also need a letter of acknowledgement (issued timely by the charity).
Education Expenses: Colleges and other accredited schools have annually issued 1098-T forms to the students, informing us that tuition may have been paid during the tax year. Unfortunately, many of these institutions don’t report the amount actually paid during the tax year! Please make certain to include this information with your tax documents.
Applying for Social Security & Medicare: You should review your annual earnings statement issued from the Social Security Administration (“SSA”). This statement indicates the Full Retirement Age for each one of us. The age is 65 for those born prior to 1938. If you were born after 1943, you will not reach full retirement age until some months after age 66 (this includes those born through 1954). Even if you don’t want to collect social security at your full retirement age (though I do strongly advise a discussion on this fact), you should go at age 65 to sign-up for Medicare!! The sooner you register to receive it, the more beneficial it is to your wallet.
Newly Retired: Please contact me! You may need to begin or enhance your quarterly estimated tax payments, or request income tax withholding from your retirement income. Your tax picture will certainly change and we want to make certain you don’t have any tax surprises when you file your tax return.
Sales and Use Taxes: Please keep track of your purchases from the Internet or from other states, which do not charge you the sales tax for your home state and locality. It has been brought to our attention that this is an area of review for many states. They are finding it a revenue generator! The law states we are required to pay Sales or Use Tax to our home state upon items we purchase and bring back to our home state. (Ex. Internet purchases and out-of-state vendors who don’t have stores within your home state). Most states have now added a line to the state income tax returns, and many states expect a value above that of zero to be included on this line.
Of course, we have the basic reminders I mention to you every year…
· Max-out on your retirement plans – Please make an IRA contribution or fully maximize your 401K, etc. Speak with your banker/broker (if dealing with an IRA or SEP/Simple plan) or your benefits person (if dealing with an employer plan). The maximum contributions for 2009 & 2010, respectively are as follows: 401K - $16,500 remaining at $16,500 in 2010 ($21,500 if over age 50, remaining at $21,500 in 2010), IRA - $5,000 ($6,000 if over age 50) and remains at $5,000 in 2010 (if over age 50, remains at $6,000), SEP plan * - $49,000 remaining at $49,000 in 2010, and SIMPLE plan - $11,500 and remaining at $11,500 in 2010 ($14,000 if over age 50, remaining at $14,000 in 2010). (Note*: a SEP is limited to the lower of 25% of Net Income or $49,000 in ‘08). In addition, the caps for the defined benefit plans are $195,000 in tax year 2008 and remaining at $195,000 in 2010.
· Roth IRA’s – Please remember…not everyone is eligible to have a Roth IRA. If you are filing Single or Head of Household and you have adjusted gross income (“AGI”) over $105,000 ($166,000 if Married Filing Joint), your ability to contribute to your Roth begins to phase-out. Once your AGI exceeds $120,000
($176,000 if Married Filing Joint), you are no longer able to contribute anything to your Roth IRA for the 2009 tax year. Planning Note: Once again, taxpayers with AGI over $100,000 will have an opportunity to convert their traditional IRA’s to a Roth-IRA for tax years beginning after 2009 (compliments of TIPRA). You may want to consider contributing to a nondeductible Traditional IRA if you are currently unable to contribute to either a Roth or a tax-deductible IRA. This will better position you to consider converting the nondeductible Traditional IRA to a Roth in 2010. Let’s discuss prior to converting to Roth!
· Investment activities – Don’t assume that your brokerage statement has provided all the information needed in order to calculate capital losses or gains. Please review your year-end statement to determine if there is an accurate “Net Realized Gain/Loss” section. The information I need in order to accurately calculate the results of your 2009 stock sales is as follows: original purchase price, number of shares (if the entire lot was not sold this year), and the date(s) of purchase.
· Estimated Tax Payments – For those who need to prepay taxes, remember that your final payment is due on January 15, 2010. If you need to pay estimated taxes to the state, you may want to pay by December 31, 2009 in order to take advantage of a federal itemized tax deduction for state taxes paid. However, if you know you have an Alternative Minimum Tax issue, don’t pay your state taxes prior to 1/1/10. If you are uncertain whether you should be making a 4th quarter estimated tax payment or would like to re-assess how much to pay, please place a quick call to my office for a review of your 2009 income.
· New State Tax Changes – Many states have increased their tax rates on income taxes, sales taxes, etc. NYS, for one, has even added new taxes and fees. If you have received a mailing from your state alerting you to a new tax and you discarded this announcement, determining it did not apply to you, please contact my office to make certain you did not miss filing for a new tax that did actually apply to you.
I look forward to working with you during this upcoming tax year. Please reference your Client Organizer, open tax documents as they arrive, organize your tax deductible items, ensure you have your year-end mortgage interest statements, all statements of income and year-end/tax reporting documentation, and your own tax preparation summary (if you are not filling out the Client Organizer). With all these items in hand, we should be able to efficiently tackle the 2009 tax year.
May all things peaceful and joyous come to you and your loved ones, and may you have a safe & heart-warming Thanksgiving.
Much Merriment,
Janice & Shahnaz
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