January Newsletter

As the new year begins, we would like to update you of some tax information and changes that could effect your 2009 tax bill. Taxes are complicated enough, however, additional factors are compounding the challenge. These challenges include the stock market’s swoon, the difficult economic climate we’re in right now, and the strong possibility there will be tax changes in the works throughout the year.

Following is information based on current tax law. Please review the following and feel free to contact us to discuss your individual tax situation.

Mileage Rates:

o $0.55/mile for business use

o $0.24/mile for medical or moving

o $0.14/mile for service to charitable organizations.

First Time Homebuyers

o You may be entitled to a tax credit if you purchase your “first” home before July 1, 2009. The credit applies to primary home purchases between April 9, 2008 and June 30, 2009 and must be paid back in equal payments over 15 years.

o The IRS is calling this a 15 year interest free loan.

Energy Credits

o If you are thinking of making energy saving improvements to your home, such as installing additional insulation or energy saving windows, you may be eligible for a credit of up to $500 in 2009.

o Substantial credits are also available for installing energy generating equipment, such as solar electric panels or solar hot water heaters.

Health Savings Accounts

o New limits for 2009: $5,950 for account owners with family coverage and $3,000 for single coverage. HSA owners born before 1955 can put in an additional $1,000.

o Minimum policy deductibles: $2,300 for family and $1,150 for individuals

Vacation/Rental Home Rules

o Did you sell your primary residence? Was it ever used as a vacation home or rental property? If so, the gain could be taxable. Please make sure we discuss this in detail to determine if any of your gain is taxable.

Additional Real Estate Tax Deduction

o If you do not itemize you may have an additional standard deduction in 2009 for state and local real estate taxes paid - up to $500 for single status and $1,000 for married filing jointly.

Sales Tax or Income Tax

o If you itemize you again have the option of deducting state and local general sales taxes OR state and local income taxes on your 2009 returns.

Education Deductions

o Payment of higher education expenses - qualified tuition and required enrollment fees up to $4,000 paid for yourself, your spouse, or a dependent. You do not have to itemize to take this deduction.

o Classroom related expenses incurred by eligible K-12 educators - up to $250 for out of pocket expenses for books, supplies, equipment and software used in the classroom.

Retirement Plan/IRA Contributions

o The contribution limits for both traditional and Roth IRAs has increased to the lesser of $5,000 or earned income. Taxpayers age 50 and over qualify for an additional $1,000 annual contribution.

o The maximum 401(k), 403(b), and 457 plan contribution increases to $16,500. Taxpayers born before 1960 can put in an extra $5,500 for a total of $22,000.

o SIMPLE retirement plan contributions have increased to $11,500 with an extra $2,500 allowable for those age 50 or over.

IRA Planning

o Did you covert an IRA to a Roth? Have the values of the investment been reduced significantly? This can inflate your tax bill to Uncle Sam. Fortunately, there is some good news. You can treat the conversion as if it had never been made by “recharacterizing” it. In other words, treat the conversion as if it had never been made.

o In 2010, you can convert a traditional IRA into a Roth IRA regardless of your filing status and income. You also have the option of spreading the income over two years.

o If you have reached age 70½ and want to roll over money in individual retirement accounts (IRAs) to a qualified charity, you may do so tax free in 2009. As much as $100,000 may be donated annually.

o Are you 70½ or older and have a retirement account? If so, you normally have to take a Required Minimum Distribution (RMD). This amount is calculated using the total value of the account and an IRS life expectancy table. Any individual who fails to take a RMD is heavily penalized by the IRS, which taxes the amount not withdrawn at 50%. Good news for 2009. Legislation passed which is suspending RMDs for 2009. This waiver, which is available to everyone regardless of their total retirement account balances, applies to all defined-contribution plans, including 401(k), 403(k), 457(k), and IRA accounts. Suspending the mandatory withdrawal allows retirees to keep the money in their account if they choose, and possibly recover some of their losses. Please note, if you have a Roth IRA you do not have to worry about any of this. Roth accounts are not subject to RMDs.

Gifting and Estate Taxes

o You can save gift and estate taxes by making gifts sheltered by the annual gift tax exclusion before the end of the year. You can give $13,000 in 2009 to an unlimited number of individuals but you can’t carry over unused exclusions from one year to the next.

o In 2009, estates of up to $3.5 million may avoid federal estate taxes. The estate tax is repealed for 2010. In 2011 the estate rolls back to an $1 million effective exemption. We expect all of this will change given comments by Congress as well as President-elect Obama.

Business News

o Expensing Capital Purchases - The maximum amount that can qualify for Section 179 expensing in 2009 is $133,000.

o Social Security wage base rises to $106,800 for 2009.

o QuickBooks

If you are thinking about or currently subscribe to QuickBooks payroll and are using QuickBooks 2006 or an earlier version you will need to update to QuickBooks 2009. After the 1^st quarter in 2009, Intuit will only support payroll services for QuickBooks 2007, 2008 and 2009. If you need to update to QuickBooks 2009 you can call our Intuit representative, Jim Evans directly at 214-387-2352 and mention your QuickBooks Pro Advisor, Cindi Yadamec with Rackers & Fernandez, LLC, to receive a 20% discount. Example: Single User QuickBooks Pro 2009 - Retail Price $199.95, QuickBooks Pro Advisor discount price $159.95. QuickBooks Enhanced Payroll for 4 or more employees - Retail Price $349, QuickBooks Pro Advisor discount price $279.

So there you have it. If there is one certainty with tax law it is: It will change. We will be sending out additional information as it becomes available, but please call or e-mail any of the team at Rackers & Fernandez, LLC to discuss any of the items above.

This entry was posted on Tuesday, January 20th, 2009 at 7:22 am and is filed under News. You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.

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