| On-Target Tax Tips |
The American Recovery and Reinvestment Act of 2009 (the Stimulus Act), which was signed into law on February 17, 2009, included several federal income tax changes. Here is a summary of the changes that we think will interest you.
Tax Changes for Individuals
· Refundable Making Work Pay Credit for 2009 and 2010. The credit equals 6.2% of earned income, up to $400 ($800 for a married joint-filing couple). It is reduced or eliminated for individuals with income over $75,000 ($150,000 for a married joint-filing couple). To get credit dollars into the economy quickly, the IRS has already released new federal employment tax withholding tables. The new tables will allow employees to collect credits in advance in the form of lower payroll tax withholdings for the rest of 2009.
· Temporary Sales Tax Deduction for Buyers of New Vehicles and Motor Homes. The law adds a new deduction for sales tax paid on new (not used) (1) autos and trucks with a gross vehicle weight of 8,500 pounds or less, (2) motorcycles, and (3) motor homes purchased between 02/17/09 and 12/31/09. The deduction is limited to the amount of tax paid on the first $49,500 of the purchase price. The amount will be claimed as an itemized deduction or will add to your standard deduction if you don't itemize. It is reduced or eliminated for individuals with income over $125,000 ($250,000 for a married joint-filing couple).
· Higher Education Credit Increased. For 2009 and 2010, the Hope credit (renamed the American Opportunity credit) equals 100% of the first $2,000 of qualified higher education expenses paid during the year plus 25% of the next $2,000. So, the maximum annual credit is now $2,500. The credit is now reduced or eliminated for individuals with income over $80,000 ($160,000 for a married joint-filing couple).
· Temporary Homebuyer Credit Extended and Liberalized. Legislation passed last year established a temporary refundable tax credit for first-time homebuyers. The Stimulus Act extends the credit for five more months, to cover qualified home purchases between 1/1/09 and 11/30/09. The credit equals 10% of the purchase price of the home, up to $8,000 ($4,000 if married filing separately). More importantly, the requirement to repay the credit over 15 years is deleted for 2009 purchases (but not for 2008 purchases).
· Tax-free Treatment for First $2,400 of 2009 Unemployment Benefits. The first $2,400 of unemployment compensation received in 2009 will be tax-free. Unemployment benefits above the $2,400 limit will still count as taxable income.
· Personal Energy Credits for 2009 and 2010. The new law extends through 2010 the nonrefundable credit equal to 30% of the cost of energy-efficient insulation, windows, doors, roofs, and heating and cooling equipment installed in your residence. The credit is limited to a total of $1,500 for 2009 and 2010. A good place to look for products that qualify for this credit is at www.energystar.gov/taxcredits.
Business and Other Tax Changes
· Generous Section 179 Deduction Rules Extended. Taxpayers can treat the cost of capital equipment as expense and deduct it in the first year rather than depreciating it. The Stimulus Act extends the $250,000 Section 179 limit through tax years beginning in 2009. The $250,000 limit is reduced if the total cost of property purchased exceeds $800,000. The limit for certain sport utility vehicles remains at $25,000.
· First-year Bonus Depreciation Extended. The Stimulus Act extends the 50% first-year bonus depreciation break to cover qualifying new (not used) assets that are placed in service by no later than 12/31/09.
· Longer Carryback Period for 2008 Losses for Small Businesses. Small businesses (an average of no more than $15 million in gross receipts) with deductions exceeding their income in 2008 can get a refund of taxes paid over the past five years instead of the usual two.
· COBRA Premium Subsidy. Group health plans maintained by employers that have at least 20 employees are required to offer certain employees the opportunity to continue to participate in the group health plan for up to 18 months. This is referred to as COBRA continuation coverage. The Stimulus Act provides for a 65% government-provided subsidy for COBRA continuation payments for up to nine months beginning on or after 2/17/09. The former employer is reimbursed for these payments by a reduction in payroll taxes.
Please call our office at 317-888-2047 if you have any questions about these new tax changes.
On-Target Tax Tips is an email communication of tips, legal updates and tax considerations intended to inform clients and colleagues of Shaub CPA Group about current tax issues and planning techniques. You should consult with your CPA or tax advisor before implementing any ideas, comments or planning techniques.
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