http://www.buildingonline.com/news/viewnews.pl?id=7921&subcategory=192
A brief summary of what SB 15XX, Senator Roy Ashburn (R- Bakersfield), authorizes:
▸ A tax credit of up to $10,000 credit (5% of home price or $10k, whichever is less) for the purchase of a newly constructed, previously unoccupied home.
▸ Available March 1, 2009 and good until March 2010, or when funding authority runs out – whichever comes first ($100 million was allocated to program).
▸ Allocated by the state's Franchise Tax Board on a first-come, first-served basis (details still to be worked out).
▸ Paid out to home purchasers over three tax years in equal amounts (i.e. $3300 for 2009, $3300 for 2010, etc.) • Purchasers must reside in the home for at least two years.
▸ There are no income limitations that have to be met by purchasers.
▸ There is no first-time homebuyer requirement.
▸ There is no repayment requirement (unless the purchaser sells, rents out, etc before 2 years expire).
Thursday, February 26, 2009
Democrats' Budget
President Barack Obama presented his budget for fiscal 2010, including about $318 billion in tax increases mainly targeted at the wealthy. Capital gains will be taxed at 20% for taxpayers whose adjusted gross income is more than $250,000.
http://www.cnn.com/video/#/video/podcasts/ac360/site/2009/02/26/cooper.podcast.wednesday.cnn
CNN's Anderson Cooper has a very good analysis of the new Democratic budget proposal, increasing discretionary expenditures by some 8%, with over 8,000 pork projects.
http://www.mercurynews.com/news/ci_11788298
Administration officials said the president would propose to reduce the value of itemized tax deductions for everyone in the top income tax bracket of 35 percent and many of those in the 33 percent bracket — roughly speaking, starting at $250,000 in annual income for a married couple.
Under existing law, the tax benefit of itemizing deductions rises with a taxpayer's marginal tax bracket (the bracket that applies to the last dollar of income). For example, $10,000 in itemized deductions reduces tax liability by $3,500 for someone in the 35 percent bracket.
Obama would allow a saving of only $2,800 — as if the person were in the 28 percent bracket. A White House official said it's unfair for high-income people to get a bigger tax break than middle-income people for claiming the same deductions or making the same charitable contributions.
http://online.wsj.com/article/SB123561551065378405.html
Even the most basic inspection of the IRS income tax statistics shows that raising taxes on the salaries, dividends and capital gains of those making more than $250,000 can't possibly raise enough revenue to fund Mr. Obama's new spending ambitions.
Consider the IRS data for 2006, the most recent year that such tax data are available and a good year for the economy and "the wealthiest 2%." Roughly 3.8 million filers had adjusted gross incomes above $200,000 in 2006. (That's about 7% of all returns; the data aren't broken down at the $250,000 point.) These people paid about $522 billion in income taxes, or roughly 62% of all federal individual income receipts. The richest 1% -- about 1.65 million filers making above $388,806 -- paid some $408 billion, or 39.9% of all income tax revenues, while earning about 22% of all reported U.S. income.
Note that federal income taxes are already "progressive" with a 35% top marginal rate, and that Mr. Obama is (so far) proposing to raise it only to 39.6%, plus another two percentage points in hidden deduction phase-outs. He'd also raise capital gains and dividend rates, but those both yield far less revenue than the income tax. These combined increases won't come close to raising the hundreds of billions of dollars in revenue that Mr. Obama is going to need.
http://www.cnn.com/video/#/video/podcasts/ac360/site/2009/02/26/cooper.podcast.wednesday.cnn
CNN's Anderson Cooper has a very good analysis of the new Democratic budget proposal, increasing discretionary expenditures by some 8%, with over 8,000 pork projects.
http://www.mercurynews.com/news/ci_11788298
Administration officials said the president would propose to reduce the value of itemized tax deductions for everyone in the top income tax bracket of 35 percent and many of those in the 33 percent bracket — roughly speaking, starting at $250,000 in annual income for a married couple.
Under existing law, the tax benefit of itemizing deductions rises with a taxpayer's marginal tax bracket (the bracket that applies to the last dollar of income). For example, $10,000 in itemized deductions reduces tax liability by $3,500 for someone in the 35 percent bracket.
Obama would allow a saving of only $2,800 — as if the person were in the 28 percent bracket. A White House official said it's unfair for high-income people to get a bigger tax break than middle-income people for claiming the same deductions or making the same charitable contributions.
http://online.wsj.com/article/SB123561551065378405.html
Even the most basic inspection of the IRS income tax statistics shows that raising taxes on the salaries, dividends and capital gains of those making more than $250,000 can't possibly raise enough revenue to fund Mr. Obama's new spending ambitions.
Consider the IRS data for 2006, the most recent year that such tax data are available and a good year for the economy and "the wealthiest 2%." Roughly 3.8 million filers had adjusted gross incomes above $200,000 in 2006. (That's about 7% of all returns; the data aren't broken down at the $250,000 point.) These people paid about $522 billion in income taxes, or roughly 62% of all federal individual income receipts. The richest 1% -- about 1.65 million filers making above $388,806 -- paid some $408 billion, or 39.9% of all income tax revenues, while earning about 22% of all reported U.S. income.
Note that federal income taxes are already "progressive" with a 35% top marginal rate, and that Mr. Obama is (so far) proposing to raise it only to 39.6%, plus another two percentage points in hidden deduction phase-outs. He'd also raise capital gains and dividend rates, but those both yield far less revenue than the income tax. These combined increases won't come close to raising the hundreds of billions of dollars in revenue that Mr. Obama is going to need.
Wednesday, February 25, 2009
Monday, February 23, 2009
IRS calls for tax simplification
IRS National Taxpayer Advocate Nina E. Olson urged Congress to simplify the U.S. Tax Code and recommended measures to reduce the burden on taxpayers who are struggling to pay their bills.
Olson advanced a simplification plan organized around six core principles:
1. The tax system should not entrap taxpayers.
2. The tax laws should be simple enough to allow most taxpayers to prepare their own returns without help, permit taxpayers to compute their tax liabilities on a single form, and let IRS telephone assistors fully and accurately answer taxpayer questions.
3. The tax laws should anticipate the largest areas of noncompliance and minimize the opportunities for such noncompliance.
4. The tax laws should provide some choices, but not too many.
5. Refundable credits provided by the law should be easier to administer.
6. The tax system should incorporate a periodic review of the Tax Code, which Olson calls a "sanity check."
Olson cited the Alternative Minimum Tax as one example of complexity. "Although it was originally conceived to prevent wealthy taxpayers from escaping tax liability through the use of tax-avoidance transactions, 77 percent of the additional income subject to tax under the AMT today is attributable to the disallowance of deductions otherwise allowed for state and local taxes and personal and dependency exemptions," she declared.
"Few people think of having children or living in a high-tax state as a tax-avoidance maneuver, but under the unique logic of the AMT, that is essentially how those actions are treated," she noted.
To read the entire article, go to http://www.webcpa.com/article.cfm?articleid=30658.
Olson advanced a simplification plan organized around six core principles:
1. The tax system should not entrap taxpayers.
2. The tax laws should be simple enough to allow most taxpayers to prepare their own returns without help, permit taxpayers to compute their tax liabilities on a single form, and let IRS telephone assistors fully and accurately answer taxpayer questions.
3. The tax laws should anticipate the largest areas of noncompliance and minimize the opportunities for such noncompliance.
4. The tax laws should provide some choices, but not too many.
5. Refundable credits provided by the law should be easier to administer.
6. The tax system should incorporate a periodic review of the Tax Code, which Olson calls a "sanity check."
Olson cited the Alternative Minimum Tax as one example of complexity. "Although it was originally conceived to prevent wealthy taxpayers from escaping tax liability through the use of tax-avoidance transactions, 77 percent of the additional income subject to tax under the AMT today is attributable to the disallowance of deductions otherwise allowed for state and local taxes and personal and dependency exemptions," she declared.
"Few people think of having children or living in a high-tax state as a tax-avoidance maneuver, but under the unique logic of the AMT, that is essentially how those actions are treated," she noted.
To read the entire article, go to http://www.webcpa.com/article.cfm?articleid=30658.
Saturday, February 14, 2009
Obama Stimulus Plan
Click on this PDF file from CCH, requires Adobe Acrobat Reader:
http://tax.cchgroup.com/Legislation/House-Senate-Recovery-Act-2009.pdf
And here's another article from Yahoo:
http://finance.yahoo.com/taxes/article/106600/Stimulating-Work
An overview of the stimulus package, where the money goes:
http://accounting.smartpros.com/x65480.xml
To read the law, click here.
http://tax.cchgroup.com/Legislation/House-Senate-Recovery-Act-2009.pdf
And here's another article from Yahoo:
http://finance.yahoo.com/taxes/article/106600/Stimulating-Work
An overview of the stimulus package, where the money goes:
http://accounting.smartpros.com/x65480.xml
To read the law, click here.
Tuesday, February 10, 2009
Friday, February 6, 2009
Labor Secretary nominee's tax problem
http://www.webcpa.com/article.cfm?articleid=30706
Washington, D.C. (Feb. 6, 2009)
By WebCPA staff
In the latest sign of tax trouble in the Obama cabinet, Labor Secretary-designate Hilda Solis’ husband had tax liens filed against him.
Confirmation hearings for Rep. Solis, D-Calif., were delayed after news of the tax problems surfaced. The White House admitted to the latest tax snafu after USA Today discovered 15 tax liens dating back to 1993 from the State of California and Los Angeles County totaling $7,630, some of which have since been paid. The tax liens had been filed against Solis’s husband, Sam H. Sayyad, and his business, Sam’s Foreign and Domestic Auto Center. Sayyad paid $6,400 this week to settle the outstanding tax liens, but still plans to appeal them.
Solis is the fourth nominee to the Obama administration to face tax questions in recent weeks. Earlier this week, former Senate Majority Leader Tom Daschle withdrew his nomination for secretary of Health and Human Services after he was forced to pay $140,000 in taxes and interest, mainly for the use of a car and driver provided by a private equity firm between 2005 and 2007 (see Daschle Bows Out After Tax Problems).
Treasury Secretary Timothy Geithner also needed to pay over $42,000 in taxes, interest and penalties for self-employment taxes that he owed from work he did between 2001 and 2004 for the International Monetary Fund (see Geithner Admits Back Tax Problems).
A third nominee, Nancy Killefer, was forced to withdraw after being named to the new post of chief performance officer. The Associated Press discovered a 2005 tax lien for $946.69 filed by the District of Columbia on her home for failure to pay unemployment compensation tax on household help.
Washington, D.C. (Feb. 6, 2009)
By WebCPA staff
In the latest sign of tax trouble in the Obama cabinet, Labor Secretary-designate Hilda Solis’ husband had tax liens filed against him.
Confirmation hearings for Rep. Solis, D-Calif., were delayed after news of the tax problems surfaced. The White House admitted to the latest tax snafu after USA Today discovered 15 tax liens dating back to 1993 from the State of California and Los Angeles County totaling $7,630, some of which have since been paid. The tax liens had been filed against Solis’s husband, Sam H. Sayyad, and his business, Sam’s Foreign and Domestic Auto Center. Sayyad paid $6,400 this week to settle the outstanding tax liens, but still plans to appeal them.
Solis is the fourth nominee to the Obama administration to face tax questions in recent weeks. Earlier this week, former Senate Majority Leader Tom Daschle withdrew his nomination for secretary of Health and Human Services after he was forced to pay $140,000 in taxes and interest, mainly for the use of a car and driver provided by a private equity firm between 2005 and 2007 (see Daschle Bows Out After Tax Problems).
Treasury Secretary Timothy Geithner also needed to pay over $42,000 in taxes, interest and penalties for self-employment taxes that he owed from work he did between 2001 and 2004 for the International Monetary Fund (see Geithner Admits Back Tax Problems).
A third nominee, Nancy Killefer, was forced to withdraw after being named to the new post of chief performance officer. The Associated Press discovered a 2005 tax lien for $946.69 filed by the District of Columbia on her home for failure to pay unemployment compensation tax on household help.
Friday, January 30, 2009
Daschle Paid $100,000 in Back Taxes
First it was Tim Geithner who did not pay his self-employment tax while working for IMF. Now Tom Daschle has the same problem. Didn't Joe Biden said it was patriotic to pay taxes? What message is the Obama administration and Congress telling the general public about paying their income taxes (NOTE: Sen. Daschle did the right thing by withdrawing his nomination on February 3, hours after Nancy Killefer, nominee for a new White House oversight position, withdrew her nomination after it was revealed she too didn't pay all of her taxes. The only good news is that between Daschle and Gaithner, they paid $183,000 to the IRS which they otherwise would not have paid).
http://online.wsj.com/article/SB123335984751235247.html
By JONATHAN WEISMAN
Former Senate Majority Leader Tom Daschle, President Barack Obama's nominee for the secretary of Health and Human Services, paid around $100,000 in back taxes after his nomination to pay for a car and driver he was supplied but did not report as income, according to documents being prepared by the Senate Finance Committee.
Mr. Daschle also took two vacation trips aboard a $30 million corporate jet belonging to non-profit lender EduCap, which faces a separate probe by the Finance Committee into its tax status.
The issues will dominate a closed-door meeting of the committee called for Monday afternoon, according to committee aides. His confirmation has been held up for weeks as committee staff pours over tax records and business ties of the former Senate majority leader.
A Daschle spokeswoman didn't respond immediately to requests for comment.
On the back-tax issue, Mr. Daschle was supplied a luxury car and driver by InterMedia Advisors, LLP, an investment firm specializing in buyouts and industry consolidation. Mr. Daschle served as chairman of the firm's executive advisory board. He told committee staff he had grown used to having a car and driver as majority leader and did not think to report the perk on his taxes, according to staff members.
Write to Jonathan Weisman at jonathan.weisman@wsj.com
http://online.wsj.com/article/SB123335984751235247.html
By JONATHAN WEISMAN
Former Senate Majority Leader Tom Daschle, President Barack Obama's nominee for the secretary of Health and Human Services, paid around $100,000 in back taxes after his nomination to pay for a car and driver he was supplied but did not report as income, according to documents being prepared by the Senate Finance Committee.
Mr. Daschle also took two vacation trips aboard a $30 million corporate jet belonging to non-profit lender EduCap, which faces a separate probe by the Finance Committee into its tax status.
The issues will dominate a closed-door meeting of the committee called for Monday afternoon, according to committee aides. His confirmation has been held up for weeks as committee staff pours over tax records and business ties of the former Senate majority leader.
A Daschle spokeswoman didn't respond immediately to requests for comment.
On the back-tax issue, Mr. Daschle was supplied a luxury car and driver by InterMedia Advisors, LLP, an investment firm specializing in buyouts and industry consolidation. Mr. Daschle served as chairman of the firm's executive advisory board. He told committee staff he had grown used to having a car and driver as majority leader and did not think to report the perk on his taxes, according to staff members.
Write to Jonathan Weisman at jonathan.weisman@wsj.com
Seven Tax Perks
From MarketWatch
By Andrea Coombes | MarketWatch
In all the hoopla surrounding the current stimulus package, it's easy to forget that other stimulus bill -- the one in 2008 that resulted in a good-sized check for many U.S. taxpayers.
Forgetting about that earlier stimulus, and any of the other major tax changes in 2008, could mean missing out on some much-needed cash when you file your tax return this year
There were six "pretty significant pieces of tax legislation" in 2008, said Mark Luscombe, a principal analyst with CCH Inc., a Riverwoods, Ill., tax publisher, including bills related to housing, farming, the military, pensions, and two on the economy.
Still, while all that tax tinkering affects most of us eventually, many of the changes last year were related to arcane rules -- and won't show up on our Form 1040s.
More noticeable for some taxpayers is that their bleaker financial situation may bring good news when they file. Small comfort it might be, but more people may be eligible for perks for which their formerly higher income made them ineligible, such as education-related credits or that stimulus payment from 2008.
"People's circumstances could change sufficiently that these deductions and credits are new for them," said Bob Scharin, New York-based senior tax analyst with Thomson Reuters' tax and accounting business.
Also, homeowners saw plenty of tax changes in recent years. For instance, those who don't itemize now have access to an extra standard deduction for property taxes paid, up to $500 for single filers and $1,000 for married-filing-joint filers. And homeowners who went through a foreclosure on their primary residence won't owe income tax on the forgiven mortgage-loan debt.
Here are seven more recent changes to consider:
1. Recovery rebate credit
You call it the "stimulus payment," but the IRS says "recovery rebate credit." If you weren't eligible for the full payment -- or any at all -- last year, you may get more money now if a layoff or investment losses slashed your income, because the stimulus checks sent in 2008 were based on 2007 returns. The credit starts phasing out with adjusted gross income over $75,000 for single filers and $150,000 for married-filing-jointly filers.
Also, if you had a baby in 2008 you may be eligible for the additional $300 stimulus payment per child. Or if your college-age child now supports herself, she might qualify for up to $600. Parents can't claim a payment for children older than 17 and a dependent can't claim it for him or herself, Scharin said. But "if the child graduated in 2008 and is no longer dependent, then that child could apply for it." See this IRS page for more on claiming recovery rebate credit.
2. Zero capital-gains rate
You might assume your income makes you ineligible for the zero rate on capital gains and qualified dividends in effect in 2008 for taxpayers in the 10% and 15% tax brackets. But don't forget those brackets refer to taxable income, not adjusted gross income.
While your AGI may be higher than the $65,100 which marks the start of the 25% tax bracket for married-filing jointly filers ($32,550 for single filers), deductions and other tax perks may bring your taxable income low enough to qualify for at least a portion of the zero rate.
"A family of four claiming the standard deduction could have adjusted gross income of $90,000 and that would translate to taxable income of $65,100 when you take the four personal exemptions plus the standard deduction," Scharin said. People who itemize may have even higher AGI yet still qualify for the zero rate, he said.
While plenty of people only wish they had gains in 2008, some might have sold long-held investments at a gain, Scharin said.
And, Luscombe said, "even if the gain itself moves you into the 25% bracket, there is still a portion of the gain that may be taxed at the zero percent rate."
3. AMT relief on incentive stock options
Taxpayers who've struggled to pay the alternative minimum tax owed on incentive stock options -- exercising an ISO can result in an unexpected AMT bill -- got some good news in 2008: You don't owe the tax.
"If you had an unpaid AMT liability resulting from an incentive stock option prior to 2008, it was basically abated by the law, so you don't have to pay it now," Luscombe said.
Also, Congress sped up the process by which taxpayers can take a credit against regular tax for previous AMT bills, among other provisions. See this IRS page for more information.
4. Perks for higher-income taxpayers
Even as some wonder whether Congress will allow the 2001 tax cuts to expire in 2010, some of those tax cuts are still going into effect.
Higher earners' ability to take itemized deductions and personal exemptions is limited -- those perks phase out at higher incomes. But thanks to the 2001 tax cuts, those phase outs themselves were slowly eliminated starting in 2006. (In 2010, higher-income taxpayers enjoy these perks with no reduction at all, but as with the other tax cuts, this one expires after 2010.)
In 2008, higher-income earners will find their itemized deductions and personal exemptions are cut by just one-third the amount in effect before the tax cuts.
The phase-out on deductions starts at adjusted gross income of about $159,950 for most filers and on exemptions at $159,950 for single filers and $239,950 for married-filing-jointly.
5. First-time home buyer credit
If you're a first-time home buyer (defined as not owning a home in the three previous years) who bought a home after April 8, 2008, and before July 1, 2009, you may qualify for a credit of 10% of the purchase price up to $7,500 on your 2008 tax return. Even if you bought the home in 2009, you can take the credit on your 2008 return, Luscombe said.
But here's the rub: The credit is more like a loan and must be repaid over 15 years. The stimulus bill under consideration now may eliminate the repayment rule for homes bought in 2009, but what's not clear yet is -- if the new stimulus plan does eliminate the repayment rule -- will people who bought a home in 2009 but claimed the credit on their 2008 return be exempt from repaying the credit? (Those who take the credit on homes bought in 2008 will have to repay the credit, under current law.)
If you bought a home in 2009 (before the July 1 deadline), your best bet is to wait until the final bill gets signed into law to see whether to claim the credit on your 2008 return or to wait and claim it next year.
6. Donate land
For those who donate land for conservation by a land trust or other qualified recipient in 2008 and 2009, there's a generous new perk available.
"If you make a qualified conservation contribution like an easement over property or a remainder interest in property, instead of getting a charitable deduction for only up to 30% of adjusted gross income, it goes to 50% of AGI and instead of having a 5-year carryover period you have a 15-year carryover period," said Grace Allison, a tax strategist with Northern Trust in Chicago. "Lots of our clients and people we hear about are doing these qualified conservation contributions."
7. Harvest business loss for a gain
It's not a new perk but plenty of business owners may find themselves ready and eager to take advantage now of the loss carryback that allows them to use a net loss in 2008 to offset a profit from up to two years ago -- and collect a refund for the difference.
"You deduct the loss from your prior year's income and the differential in tax --with the loss and without the loss -- is what you would get refunded," said Maureen McGetrick, tax partner with BDO Seidman in New York. "You file Form 1045 and the IRS generally has to take action on that within 90 days."
Keep an eye on the new stimulus bill being discussed now: The loss carryback perk may get extended to five years, up from two years now.
Note that perks on your federal return may not apply to your state tax bill. For instance, California has frozen the benefit for businesses this year, said Stephen Kunkel, a Los Angeles-based certified public accountant and tax practice leader at CBIZ MHM.
"It continues to carry forward, they just kind of freeze it," he said.
Similarly, Kunkel said California doesn't allow businesses to take the full federal amount of the Section 179 expense deduction. The federal stimulus bill in 2008 increased the Section 179 expense deduction to $250,000 from $128,000. That law includes another perk: 50% bonus depreciation, allowing certain businesses to immediately write off one-half of the cost of a capital expense. Of course, few companies likely were making major purchases, especially toward year-end.
Also for business owners: The IRS raised the standard rate for deducting mileage to 58.5 cents per mile for July through December, up from 50.5 cents from January through June. That compares with 48.5 cents in 2007.
"The IRS on Jan. 1, 2009, dropped it back to 55 cents since gasoline has come down somewhat," Kunkel said. If gas prices decline further, "it may be that in mid-2009 they may adjust it downward again."
By Andrea Coombes | MarketWatch
In all the hoopla surrounding the current stimulus package, it's easy to forget that other stimulus bill -- the one in 2008 that resulted in a good-sized check for many U.S. taxpayers.
Forgetting about that earlier stimulus, and any of the other major tax changes in 2008, could mean missing out on some much-needed cash when you file your tax return this year
There were six "pretty significant pieces of tax legislation" in 2008, said Mark Luscombe, a principal analyst with CCH Inc., a Riverwoods, Ill., tax publisher, including bills related to housing, farming, the military, pensions, and two on the economy.
Still, while all that tax tinkering affects most of us eventually, many of the changes last year were related to arcane rules -- and won't show up on our Form 1040s.
More noticeable for some taxpayers is that their bleaker financial situation may bring good news when they file. Small comfort it might be, but more people may be eligible for perks for which their formerly higher income made them ineligible, such as education-related credits or that stimulus payment from 2008.
"People's circumstances could change sufficiently that these deductions and credits are new for them," said Bob Scharin, New York-based senior tax analyst with Thomson Reuters' tax and accounting business.
Also, homeowners saw plenty of tax changes in recent years. For instance, those who don't itemize now have access to an extra standard deduction for property taxes paid, up to $500 for single filers and $1,000 for married-filing-joint filers. And homeowners who went through a foreclosure on their primary residence won't owe income tax on the forgiven mortgage-loan debt.
Here are seven more recent changes to consider:
1. Recovery rebate credit
You call it the "stimulus payment," but the IRS says "recovery rebate credit." If you weren't eligible for the full payment -- or any at all -- last year, you may get more money now if a layoff or investment losses slashed your income, because the stimulus checks sent in 2008 were based on 2007 returns. The credit starts phasing out with adjusted gross income over $75,000 for single filers and $150,000 for married-filing-jointly filers.
Also, if you had a baby in 2008 you may be eligible for the additional $300 stimulus payment per child. Or if your college-age child now supports herself, she might qualify for up to $600. Parents can't claim a payment for children older than 17 and a dependent can't claim it for him or herself, Scharin said. But "if the child graduated in 2008 and is no longer dependent, then that child could apply for it." See this IRS page for more on claiming recovery rebate credit.
2. Zero capital-gains rate
You might assume your income makes you ineligible for the zero rate on capital gains and qualified dividends in effect in 2008 for taxpayers in the 10% and 15% tax brackets. But don't forget those brackets refer to taxable income, not adjusted gross income.
While your AGI may be higher than the $65,100 which marks the start of the 25% tax bracket for married-filing jointly filers ($32,550 for single filers), deductions and other tax perks may bring your taxable income low enough to qualify for at least a portion of the zero rate.
"A family of four claiming the standard deduction could have adjusted gross income of $90,000 and that would translate to taxable income of $65,100 when you take the four personal exemptions plus the standard deduction," Scharin said. People who itemize may have even higher AGI yet still qualify for the zero rate, he said.
While plenty of people only wish they had gains in 2008, some might have sold long-held investments at a gain, Scharin said.
And, Luscombe said, "even if the gain itself moves you into the 25% bracket, there is still a portion of the gain that may be taxed at the zero percent rate."
3. AMT relief on incentive stock options
Taxpayers who've struggled to pay the alternative minimum tax owed on incentive stock options -- exercising an ISO can result in an unexpected AMT bill -- got some good news in 2008: You don't owe the tax.
"If you had an unpaid AMT liability resulting from an incentive stock option prior to 2008, it was basically abated by the law, so you don't have to pay it now," Luscombe said.
Also, Congress sped up the process by which taxpayers can take a credit against regular tax for previous AMT bills, among other provisions. See this IRS page for more information.
4. Perks for higher-income taxpayers
Even as some wonder whether Congress will allow the 2001 tax cuts to expire in 2010, some of those tax cuts are still going into effect.
Higher earners' ability to take itemized deductions and personal exemptions is limited -- those perks phase out at higher incomes. But thanks to the 2001 tax cuts, those phase outs themselves were slowly eliminated starting in 2006. (In 2010, higher-income taxpayers enjoy these perks with no reduction at all, but as with the other tax cuts, this one expires after 2010.)
In 2008, higher-income earners will find their itemized deductions and personal exemptions are cut by just one-third the amount in effect before the tax cuts.
The phase-out on deductions starts at adjusted gross income of about $159,950 for most filers and on exemptions at $159,950 for single filers and $239,950 for married-filing-jointly.
5. First-time home buyer credit
If you're a first-time home buyer (defined as not owning a home in the three previous years) who bought a home after April 8, 2008, and before July 1, 2009, you may qualify for a credit of 10% of the purchase price up to $7,500 on your 2008 tax return. Even if you bought the home in 2009, you can take the credit on your 2008 return, Luscombe said.
But here's the rub: The credit is more like a loan and must be repaid over 15 years. The stimulus bill under consideration now may eliminate the repayment rule for homes bought in 2009, but what's not clear yet is -- if the new stimulus plan does eliminate the repayment rule -- will people who bought a home in 2009 but claimed the credit on their 2008 return be exempt from repaying the credit? (Those who take the credit on homes bought in 2008 will have to repay the credit, under current law.)
If you bought a home in 2009 (before the July 1 deadline), your best bet is to wait until the final bill gets signed into law to see whether to claim the credit on your 2008 return or to wait and claim it next year.
6. Donate land
For those who donate land for conservation by a land trust or other qualified recipient in 2008 and 2009, there's a generous new perk available.
"If you make a qualified conservation contribution like an easement over property or a remainder interest in property, instead of getting a charitable deduction for only up to 30% of adjusted gross income, it goes to 50% of AGI and instead of having a 5-year carryover period you have a 15-year carryover period," said Grace Allison, a tax strategist with Northern Trust in Chicago. "Lots of our clients and people we hear about are doing these qualified conservation contributions."
7. Harvest business loss for a gain
It's not a new perk but plenty of business owners may find themselves ready and eager to take advantage now of the loss carryback that allows them to use a net loss in 2008 to offset a profit from up to two years ago -- and collect a refund for the difference.
"You deduct the loss from your prior year's income and the differential in tax --with the loss and without the loss -- is what you would get refunded," said Maureen McGetrick, tax partner with BDO Seidman in New York. "You file Form 1045 and the IRS generally has to take action on that within 90 days."
Keep an eye on the new stimulus bill being discussed now: The loss carryback perk may get extended to five years, up from two years now.
Note that perks on your federal return may not apply to your state tax bill. For instance, California has frozen the benefit for businesses this year, said Stephen Kunkel, a Los Angeles-based certified public accountant and tax practice leader at CBIZ MHM.
"It continues to carry forward, they just kind of freeze it," he said.
Similarly, Kunkel said California doesn't allow businesses to take the full federal amount of the Section 179 expense deduction. The federal stimulus bill in 2008 increased the Section 179 expense deduction to $250,000 from $128,000. That law includes another perk: 50% bonus depreciation, allowing certain businesses to immediately write off one-half of the cost of a capital expense. Of course, few companies likely were making major purchases, especially toward year-end.
Also for business owners: The IRS raised the standard rate for deducting mileage to 58.5 cents per mile for July through December, up from 50.5 cents from January through June. That compares with 48.5 cents in 2007.
"The IRS on Jan. 1, 2009, dropped it back to 55 cents since gasoline has come down somewhat," Kunkel said. If gas prices decline further, "it may be that in mid-2009 they may adjust it downward again."
Friday, January 23, 2009
Emergency Economic Stabilization Act
Here is an article on how the Emergency Economic Stabilization Act affects individuals:
http://www.journalofaccountancy.com/Web/EESAEffectsonIndividuals.htm
http://www.journalofaccountancy.com/Web/EESAEffectsonIndividuals.htm
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