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Tax Tips Newsletter
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January 2009 - Vol 4, Issue 1
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Greetings!
Linda Head Short 0608

Happy New Year! I hope that 2009 will be a healthy and prosperous new year.

Since the last 6 months has brought some signficant financial changes for everyone, I anticipate that I will be sending out another e-newsletter very shortly to go over some of the changes that will impact some taxpayers. I want to let you know that I am very sensitive to the fact that all of us have been affected in one way or another by the financial downturn and I am doing my best to keep my fees as reasonable as possible.

For those of you who are residents of California, it is worth noting now is that most state offices in California will be closed 2 Fridays a month. Essential services, such as police, fire and other emergency responders will handle their situation differently, but most state offices will close 2 Fridays a month for the foreseeable future.

Windfall
Trillions of dollars disappeared from taxpayers' retirement accounts in the closing months of 2008, thanks to the crisis in the financial markets. If your IRA lost value, you might have a tax opportunity to consider.

* CONVERT YOUR TRADITIONAL IRA TO A ROTH IRA.

Converting to a Roth triggers income tax on the value of your IRA, but since your IRA's value has dropped, the tax would also be lower. The benefit: Qualified withdrawals from Roth IRAs are tax-free while withdrawals from traditional IRAs are subject to ordinary income tax. There is a $100,000 income threshold to qualify for a Roth conversion in 2009; this income limit ends in 2010. * Extension through 2009 of 50% bonus depreciation for the purchase of business equipment.
* Extension through 2009 of up to $250,000 first-year expensing for the purchase of business equipment.
* Easing funding requirements for pension plans to help cash-strapped businesses.
* Temporary suspension of required minimum distributions from retirement plans for those 70½ and older.

* RECHARACTERIZE A ROTH TO A TRADITIONAL IRA.

What if you converted your traditional IRA to a Roth IRA in 2008 before the market took a dive and are now facing income tax on a higher value than your Roth IRA currently has? In this situation, you might consider what is called a "recharacterization" - making a trustee-to-trustee transfer from the Roth back to a traditional IRA, essentially canceling out the original conversion to a Roth and any taxes due.

The rules governing IRAs are complex, so see us before you do anything. We can help you analyze the options available in your specific circumstances.
Mom with 2 kids
Every few years the "nanny tax" becomes a big news story when some high-profile political figure reveals that he or she hasn't paid required nanny taxes. While you may not plan on running for political office, failing to pay the nanny tax on the household workers you employ could result in IRS penalty and interest charges. And that's in addition to the tax itself.

If you paid a household employee - such as a gardener, housekeeper, or nanny - more than $1,600 in wages in 2008, you may have payroll tax obligations to meet. These taxes are called "nanny taxes." You are generally required to pay social security taxes on your worker's behalf, and you may have other federal and state payroll tax obligations as well.

If you had household workers in 2008, it's worth contacting our office to discuss your tax obligations. February 2, 2009, is the deadline for sending W-2 forms to your workers if the nanny tax applies for 2008.

Be aware that the nanny tax threshold increases to $1,700 for 2009.
Golden Egg
The Tax Tip this week has the inflation-adjusted new rates for retirement plan contributions, gifts and mileage.br>
The Business Tip of the Month has tips on how to promote your business website.

The Financial Tip of the Month deals with the pros and cons of debit cards.

The Fraud Alert has to do with thefts at airports.

Photos © Bigstockphotos.com, istockphoto.com

Sincerely,
Linda Heineman
Linda L. Heineman, CPA, CITP

phone: 626-577-0979
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