Small Business Taxes & ManagementTM--Copyright 2009, A/N Group, Inc.
Individuals--Income, Deductions, and Credits
First-Time Homebuyer Credit
The Recovery Act extended and expanded the first-time homebuyer tax credit for 2009. Taxpayers who didn’t own a principal residence during the past three years and purchase a home this year before Dec. 1 can receive a credit of up to $8,000 on either an original or amended 2008 tax return, or a 2009 return. But the purchase must close before Dec. 1, 2009, and an eligible taxpayer cannot claim the credit until after the closing date. This credit phases out at higher income levels, and different rules apply to home purchases made in 2008.
New Vehicle Purchase Incentive
A new law provides a tax break to taxpayers who make qualified new vehicle purchases after Feb. 16, 2009, and before Jan. 1, 2010. Qualifying taxpayers can deduct the state and local sales and excise taxes paid on the purchase of new cars, light trucks, motor homes and motorcycles. There is no limit on the number of vehicles that may be purchased, and you may claim the deduction for taxes paid on multiple purchases. But the deduction per vehicle is limited to the tax on up to $49,500 of the purchase price of each qualifying vehicle and phases out for taxpayers at higher income levels. This deduction is available regardless of whether a taxpayer itemizes deductions on Schedule A.
Energy-Efficient Home Improvements
The credit for nonbusiness energy property is increased for homeowners who make qualified energy-efficient improvements to existing homes. The law increases the rate to 30 percent of the cost of all qualifying improvements and raises the maximum credit limit to a total of $1,500 for improvements placed in service in 2009 and 2010. Qualifying improvements include the addition of insulation, energy-efficient exterior windows and energy-efficient heating and air conditioning systems.
The amount of the credit and the total credit limit has been increased for 2009 and 2010. Property must meed certain energy efficiency standards. Qualified energy efficiency improvements include exterior windows, skylights and doors and insulation. Qualified energy property includes high efficiency natural gas, propane, or oil hot water boilers or furnaces. Energy efficiency building property includes electric heat pumps, central air conditioners and natural gas, propane or oil water heaters.
The new law eliminates the requirement that expenditures cannot be made with funds from subsidized energy financing.
Residential Alternative Energy Credit
The American Recovery and Reinvestment Act eliminates the annual maximum credit cap for solar hot water, wind and geothermal energy property for tax years 2009 through 2016. The maximum credit on fuel cell plants has not been changed. The new law eliminates the requirement that expenditures cannot be made with funds from subsidized energy financing.
Tax Credit for First Four Years of College
The American opportunity credit is designed to help parents and students pay part of the cost of the first four years of college. The new credit modifies the existing Hope credit for tax years 2009 and 2010, making it available to a broader range of taxpayers, including many with higher incomes and those who owe no tax. Tuition, related fees, books and other required course materials generally qualify. Many of those eligible will qualify for the maximum annual credit of $2,500 per student. Note that the credit may only be taken in the year it is paid.
Certain Computer Technology Purchases Allowed for 529 Plans
The American Recovery and Reinvestment Act adds computer technology to the list of college expenses (tuition, books, etc.) that can be paid for by a qualified tuition program (QTP), commonly referred to as a 529 plan. For 2009 and 2010, the law expands the definition of qualified higher education expenses to include expenses for computer technology and equipment or Internet access and related services to be used by the designated beneficiary of the QTP while enrolled at an eligible educational institution. Software designed for sports, games or hobbies does not qualify, unless it is predominantly educational in nature.
Vehicle Credits
Alternative motor vehicle credit. For tax years beginning after 2008, the personal use part of the alternative motor vehicle credit is allowed against the AMT.
New plug-in conversion credit. A new plug-in conversion credit of 10% of the cost of converting any motor vehicle (new or used) to a qualified plug-in electric drive motor vehicle. The maximum credit is $4,000 per vehicle. This credit is claimed on Form 8910, Alternative Motor Vehicle Credit, and applies to property placed in service after February 17, 2009.
New plug-in electric vehicle credit. A new credit of 10% of the cost of a new plug-in electric vehicle can be claimed on Form 8834. The maximum credit is $2,500 per vehicle. This credit applies to vehicles acquired after February 17, 2009. The original use must begin with the taxpayer claiming the credit and it must meet certain other requirements such as weight, certain kilowatt capacity, etc.
Social Security and Medicare Taxes
The maximum amount of wages subject to the social security tax for 2009 is $106,800. There is no limit on the amount of wages subject to the Medicare tax.
Making Work Pay Credit
For 2009 and 2010 taxpayers can get a credit equal to the lesser of 6.2 percent of the taxpayer's earned income or $400 ($800 for a married couple filing jointly). The credit is phased out for taxpayers with AGI above $150,000 for a couple filing jointly or $75,000 for a single individual.
Health Savings Accounts (HSAs)
Eligibility. For 2009, a qualifying high deductible health plan (HDHP) must have a deductible of at least $1,150 for self-only coverage or $2,300 for family coverage and must limit annual out-of-pocket expenses of the beneficiary to $5,800 for self-only coverage and $11,600 for family coverage. Employer contributions. Up to specified dollar limits, cash contributions to the HSA of a qualified individual (determined monthly) are exempt from federal income tax withholding, social security tax, Medicare tax, and FUTA tax. For 2009, you can contribute up to the following amounts to a qualified individual's HSA.
Employers are allowed to make larger HSA contributions for a nonhighly compensated employee than for a highly compensated employee.
Alternative Minimum Tax
The American Recovery and Reinvestment Act made two changes to the AMT which are effective for tax years beginning in 2009. The first increased, slightly, the exemption amounts to $70,950 for married filing joint and $46,700 for single individuals. The second allows the nonrefundable personal tax credits to the full amount of a taxpayer's regular and AMT liability.
Child Tax Credit
The American Recovery and Reinvestment Act modifies the formula to increase the refundable amount of the child tax credit to apply to 15 percent of earned income in excess of $3,000 for taxable years beginning in 2009 and 2010.
Earned Income Tax Credit
The American Recovery and Reinvestment Act increases the EITC percentage for families with three or more qualifying children to 45 percent for 2009 and 2010. For example, in 2009 taxpayers with three or more qualifying children may claim a credit of 45 percent of earnings up to $12,570, resulting in a maximum credit of $5,656.50. The provision increases the threshold phase-out amounts for married couples filing joint to $5,000 (indexed for inflation) above the threshold phase-out amount.
Unemployment Benefits Exclusion
For tax years beginning in 2009, only, taxpayers may exclude from income the first $2,400 of unemployment compensation.
Foreign Earned Income and Housing Exclusions
Exclusion amount. For 2009, the maximum foreign earned income exclusion has increased to $91,400.
Housing expenses--base amount. For 2009, the base housing amount has increased to $40.07 per day, or $14,624 for the entire calendar year.
Build America Bonds
A build America bond is a bond issued after February 17, 2009, and before 2011 that qualifies as a tax-exempt bond that is not a private activity bond, and for which an election is made by the issuer.
A tax credit of 35% of interest payable on build America bonds is available to the bondholder, unless the issuer elects to receive a direct payment in lieu of the credit to the bondholder. The amount of credit is taxable as interest income to the bondholder. The unused credit is not refundable, but can be carried forward to succeeding tax years. Use Form 8912, Credit to Holders of Tax Credit Bonds, to claim the credit.
IRAs and Other Retirement Plans
Temporary Waiver of Required Minimum Distributions (RMDs) for 2009
For 2009, you are not required to take an RMD from your IRA or most defined contribution retirement plans. This waiver applies to plan participants as well as to beneficiaries. The waiver also applies to you if you turn 70 1/2 in 2009 and delay your 2009 RMD until April 1, 2010. The waiver does not apply to RMDs for 2008, even if you turned 70 1/2 in 2008 and choose to take the 2008 RMD by April 1, 2009.
Modified AGI Limit for Traditional IRA Contributions Increased
For 2009, if you are covered by a retirement plan at work, your deduction for contributions to a traditional IRA is reduced (phased out) if your modified AGI is:
If you either live with your spouse or file a joint return, and your spouse is covered by a retirement plan at work, but you are not, your deduction is phased out if your modified AGI is more than $166,000 but less than $176,000. If your modified AGI is $176,000 or more, you cannot take a deduction for contributions to a traditional IRA.
Modified AGI Limit for Retirement Savings Contributions Credit Increased
For 2009, you may be able to claim the retirement savings contributions credit if your modified AGI is not more than:
Modified AGI Limit for Roth IRA Contributions Increased
For 2009, your Roth IRA contribution limit is reduced (phased out) in the following situations.
Qualified Plans
Limits on contributions and benefits. For 2009, the maximum annual benefit for a participant under a defined benefit plan has increased to the smaller of:
For 2009, a defined contribution plan's maximum annual contributions and other additions (excluding earnings) to the account of a participant has increased to the smaller of:
Compensation limit. For 2009, the maximum compensation used for figuring contributions and benefits has increased to $245,000.
Simplified Employee Pensions (SEPs)
Deduction limit increased. The maximum deduction for contributions to a SEP remains unchanged at 25% of the compensation paid or accrued during the year to your eligible employees participating in the plan. However, for 2009, the maximum combined deduction for a participant's elective deferrals and other SEP contributions has increased to $49,000.
Contribution limit increased. For 2009, the annual limit on the amount of employer contributions to a SEP has increased to the smaller of:
Compensation limit. For 2009, the maximum amount of an employee's compensation you can consider when figuring SEP contributions (including elective deferrals) and the deduction for contributions has increased to $245,000.
SIMPLE Plans
For 2009, the limit on salary reduction contributions (excluding catch-up contributions) to a SIMPLE plan has increased to $11,500.
403(b) Plans
Limit on elective deferrals. For 2009, the limit on elective deferrals (excluding catch-up contributions) has increased to $16,500.
Limit on annual additions. For 2009, the limit on annual additions has increased to $49,000.
Copyright 2009 by A/N Group, Inc. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is distributed with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional should be sought. The information is not necessarily a complete summary of all materials on the subject. Copyright is not claimed on material from U.S. Government sources.--ISSN 1089-1536
--Last Update 07/22/09