Tax Planning Tips
by equity design
TAX PLANNING TIPS
Highlights of 2008 Tax Law Changes
It’s that time of year again! Working with our allied professionals we have compiled some tax planning tips to help you as you prepare to meet with your adviser or go it alone.
Tax breaks that had originally expired in 2008, but have been extended into 2009 include:
- The option to claim itemized deductions for state and local sales taxes instead of the itemized deduction for state and local income taxes (this is typically an issue for those taxpayers that live in Washington and work in Oregon)
- The deduction to reduce your adjusted gross income for qualified tuition and related expenses paid for higher education
- The $250 educator-expenses deduction that also reduces your adjusted gross income
- The $100,000 annual exclusion from gross income, when a taxable IRA distribution is donated to a qualified charity
First time homebuyer credit
For individuals who purchase their first home after April 8, 2008 and before July 1, 2009, they will be eligible for the $7,500 first-time homebuyer credit. The $7,500 the IRS gives you must be repaid over the next 15 years so this is basically a 15-year interest-free loan. Taxpayers should give this serious consideration if they are a first time homebuyer as defined by the IRS which is anyone who has not owned a home in the prior 3 years.
Depreciation deductions
The maximum Section 179 deduction, for immediate expensing of equipment, in 2009 is $133,000. This is a good business deduction. A business owner can purchase up to the $133,000 of equipment and take a tax deduction for the entire amount in 2009. It should be noted that a taxpayer does not have to pay for the equipment in the year of purchase, they just have to have the equipment placed into service.
Retirement plan rules
For 2009, the tax law is temporarily suspended that required individuals with retirement accounts to make required withdrawals after the age of 70-1/2. The thought behind this was that retirement accounts took such a big hit during 2008, the IRS does not want to force taxpayers to take distributions from their accounts that have depleted in value.
Energy-saving credits
There are two tax credits available for taxpayers who make energy saving improvements to their residences. The credits are in relation to solar energy equipment or energy efficient equipment installed in their residences.
Security sale compliance
After 2010, stock brokers will be required to file an information return to the IRS regarding stock sales including information such as: the taxpayer’s name, address, when the sale took place, the gross proceeds of the sale, the customer’s adjusted basis, and whether a gain or loss on the transaction was short or long. This rule does not take effect until next year, but taxpayers are now forced to keep detailed records of their purchase and sale activities.
Debt forgiveness
Many individuals throughout the country may be affected this year by the debt forgiveness rules (if their home was foreclosed upon or their mortgage reduced) and whether or not the debt forgiveness income is taxable. Generally, if an individual has debt forgiveness on their principal residence, then that will not be taxable to the extent that it does not exceed $2 million. Taxpayers need to work closely with their advisors in this area. As the rule may seem straightforward, there are numerous issues as to what qualifies as debt forgiveness based on the type of debt a taxpayer may have. Scenarios are different for recourse (debt for which you are personally liable) and non-recourse (debt for which you are not personally liable for) debt.
Alternative Minimum Tax (AMT)
Many individuals are affected by AMT (Alternative Minimum Tax). The AMT was originally introduced by the Tax Reform Act of 1969 to make sure that wealthy Americans did not avoid paying taxes. The AMT has started to apply to more middle-income taxpayers, due in part to the fact that AMT has not increased over the years like inflation. The AMT is a parallel tax system which does not permit several of the deductions permissible under the regular tax system, such as state, local, and property taxes. Taxpayers who may be subject to the AMT must calculate their tax liability under the regular federal tax system and under the AMT system taking into account certain preferences and adjustments. If their liability is found to be greater under the AMT system, that’s what they owe the federal government. If a taxpayer has income over $100,000, they most likely need to do some AMT planning.
For more information on these highlights talk to your tax advisor. For the do-it-yourself crowd, go to the IRS website at www.irs.gov where you can find publications and forms providing details on these tax law changes. Please verify your situation with your tax advisor as we are not licensed tax professionals, but simply forwarding information we find relevant to many of our clients. If you need a trustworthy tax advisor,
contact us! and we can connect you.
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