First, a little backwards thinking. I know you’ve heard a lot about how tax cuts stimulate spending. I suspect you’ve heard little or nothing about how taxes, in and of themselves, encourage businesses to spend money. For example, a sole proprietor in the 25% tax bracket, in a high income state like California can expect an approximate 50% discount, via the tax deduction, for anything they spend on qualified business expenses. Yes, the expenses have to be reasonable or necessary, but knowing that you will get almost half of it back at tax time (or sooner, if you adjust your estimated tax payments), can make a new computer (or a new employee) much more appealing (and doable).
Speaking of estimated taxes:
Individuals with an adjusted gross income under $500,000, who can certify that at least 50% of their income reported the previous year was from a small business are now required to pay estimated tax payments based on 90% of the previous years taxes (rather than 100%). As always, if your 2009 taxable income is looking lower than 2008, you can still base your estimated taxes on your projected 2009 taxes instead of your 2008 actual taxes.
Speaking of new employees:
Disabled veterans and “disconnected youth” have been added to the classes of employees that may qualify their employers for the Work Opportunity Tax Credit.
Speaking of new computers (or other tangible assets):
Generally, the expense of fixed assets (assets expected to have a life of one year or more), is claimed over the lifetime of the asset via depreciation, rather than in the year they are purchased and/or put into service. The 2008 Economic Stimulus Act brought back bonus depreciation, allowing businesses to deduct 50% of the cost of new assets in the year of purchase, and then deduct the balance via depreciation over the first and remaining years of the assets expected life.
The 2009 Act extends bonus depreciation through 2010. The act also increased the amount that can be expensed (claimed) in the year of purchase under section 179, and the amount of depreciation that can be claimed for vehicles was also increased. The act also extended the opportunity for qualifying businesses can also take accumulated AMT and business credits in lieu of bonus depreciation through 2010.
And yes, there’s more. The 2009 act also has provisions that allow qualifying business to:
Recognizing cancellation of debt over 5 years
Carry net operating losses back 5 years
Shorten the S-corp built-in gain period
And more – as always, contact us if you have questions about how any provision of this act will affect your tax situation.
Showing posts with label American Recovery and Reinvestment Act. Show all posts
Showing posts with label American Recovery and Reinvestment Act. Show all posts
Wednesday, February 25, 2009
Other Tax Provisions - American Recovery and Reinvestment Act of 2009
I’ve talked about folks who buy a car or get (or have) a job seeing tax advantages from this act. What else can you do to take advantage of the new tax laws?
Get a job (and have kids):
Two earned income based credits for taxpayers with qualifying children – the additional child tax credit and the earned income credit, were both expanded. The wage base to qualify for the additional child tax credit was decreased from $8,500 to $3,000, and additional earned income credit is available to taxpayers with three or more qualifying children.
Lose a job :-(
The first $2,400 of unemployment benefits are now excluding from federal income tax. Also, individuals who are involuntarily separated between September 1, 2008 and January 1 2010 can maintain their insurance while paying only 35% of the COBRA coverage (the employer is required to pay the balance, but can take it as a credit against federal payroll taxes and withholding).
Buy a house:
The 2008 stimulus package included a “credit” of up to $7,500 for first time howebuyers (it’s actually a loan). The ARRA increases that to $8,000 and eliminates repayment (after living in the home for 36 months) for homes purchased from January 1, 2009-November 30, 2009 by qualifying taxpayers.
If you bought a house on or after April 9, 2008 and before January 1, 2009 you may still qualify for the 2008 credit.
Go to college (or send your kids):
The HOPE credit got a new name (the “American Opportunity Tax Credit”) and some nice enhancements. The maximum credit was increased from $1,800 to $2,500 for 2009 and 2010. Also students in all four years of college (instead of only those with freshman or sophomore standing) now qualify, and course materials are now qualifying expenses. It’s not all easy street, however, the Treasury Department has been charged with exploring the feasibility of requiring community service to qualify for the education credits.
Withdrawals from Qualified Tuition Plans are now excludable from income if used to pay for computers and computer technology (including internet access) as well as previously qualified educational expenses. The computers have to be used by the student (but not exclusively).
Take the A Train (or Van Pool):
The amount of transportation fringe benefits excludable from income was increased from $120 to $230 per month.
AMT Patch:
Check out our 2007 newsletter (click on AMT Relief) for a more complete explanation of how the alternative minimum tax works, and why it gets “patched” every year. This year, the exemption amount will increase to $46,700 for most taxpayers ($70,950 for married taxpayers filing jointly)
Get a job (and have kids):
Two earned income based credits for taxpayers with qualifying children – the additional child tax credit and the earned income credit, were both expanded. The wage base to qualify for the additional child tax credit was decreased from $8,500 to $3,000, and additional earned income credit is available to taxpayers with three or more qualifying children.
Lose a job :-(
The first $2,400 of unemployment benefits are now excluding from federal income tax. Also, individuals who are involuntarily separated between September 1, 2008 and January 1 2010 can maintain their insurance while paying only 35% of the COBRA coverage (the employer is required to pay the balance, but can take it as a credit against federal payroll taxes and withholding).
Buy a house:
The 2008 stimulus package included a “credit” of up to $7,500 for first time howebuyers (it’s actually a loan). The ARRA increases that to $8,000 and eliminates repayment (after living in the home for 36 months) for homes purchased from January 1, 2009-November 30, 2009 by qualifying taxpayers.
If you bought a house on or after April 9, 2008 and before January 1, 2009 you may still qualify for the 2008 credit.
Go to college (or send your kids):
The HOPE credit got a new name (the “American Opportunity Tax Credit”) and some nice enhancements. The maximum credit was increased from $1,800 to $2,500 for 2009 and 2010. Also students in all four years of college (instead of only those with freshman or sophomore standing) now qualify, and course materials are now qualifying expenses. It’s not all easy street, however, the Treasury Department has been charged with exploring the feasibility of requiring community service to qualify for the education credits.
Withdrawals from Qualified Tuition Plans are now excludable from income if used to pay for computers and computer technology (including internet access) as well as previously qualified educational expenses. The computers have to be used by the student (but not exclusively).
Take the A Train (or Van Pool):
The amount of transportation fringe benefits excludable from income was increased from $120 to $230 per month.
AMT Patch:
Check out our 2007 newsletter (click on AMT Relief) for a more complete explanation of how the alternative minimum tax works, and why it gets “patched” every year. This year, the exemption amount will increase to $46,700 for most taxpayers ($70,950 for married taxpayers filing jointly)
Making Work Pay "Stimulus Payments" American Recovery and Reinvestment Act of 2009
I’ve been getting calls and emails from clients who want to know when their stimulus check will arrive (and if they will ever get their California Refund).
Here’s how the 2009 “Making Work Pay” provision works:
It’s only available to U.S. Citizens or Resident Aliens. Those who are claimed as a dependent on another’s tax return do not qualify.
In 2009 and 2010, there will be a credit for 6.2% of earned income for up to $400 per taxpayer. 6.2% just happens to be the amount of social security withheld from most wages. Like the 2008 stimulus payment, this credit will phase out at $75,000 in modified adjusted gross income* ($150,000 for taxpayers filing jointly). Unlike the 2008 stimulus payment, checks will not be issued to pay the credit in advance.
Instead, qualified employees should see their federal income tax withholding reduced based on the new credit, increasing their net paycheck. I believe the thinking is that taxpayers are less likely to save an extra $13 a week (or so), than a lump sum check for $400. The IRS released new withholding tables yesterday that they would like employers to start using as soon as possible, but no later than April 1st.
When you file your 2009 return next year, the credit should offset the decrease in your withholding, and barring any other changes, your refund or balance due should be about the same as this year.
The Economic Recovery Payment or “making having worked pay”:
There will also be a $250 payment for many retired (and disabled) taxpayers. This payment will be made, not by the IRS, but by the Social Security Administration (to social security, including SSI recipients), Department of Veterans Affairs (for disabled veterans), and Railroad Retirement Board (for railroad retirement beneficiaries). Social Security has a special section on their website. Unlike the 2008 stimulus payment, no action is required to receive these payments if you qualify.
Retirees from the Civil Service or state governments who worked at a time when their wages were not subject to social security will qualify for a refundable $250 credit, but you will have to file a return to qualify.
* Total income subject to tax, less certain adjustments like IRA contributions, but not decreased by foreign earned income exclusions.
Sources:
CCH “Tax Legislation Update”
DHHCS ‘How the Economic StimulusPlan Affects Individuals with Disabilities”
FedSmith.com “$250 Tax Credit of Payment for Federal Retirees”
IRS “Tax Provisions in the American Recovery and Reinvestment Act of 2009
Here’s how the 2009 “Making Work Pay” provision works:
It’s only available to U.S. Citizens or Resident Aliens. Those who are claimed as a dependent on another’s tax return do not qualify.
In 2009 and 2010, there will be a credit for 6.2% of earned income for up to $400 per taxpayer. 6.2% just happens to be the amount of social security withheld from most wages. Like the 2008 stimulus payment, this credit will phase out at $75,000 in modified adjusted gross income* ($150,000 for taxpayers filing jointly). Unlike the 2008 stimulus payment, checks will not be issued to pay the credit in advance.
Instead, qualified employees should see their federal income tax withholding reduced based on the new credit, increasing their net paycheck. I believe the thinking is that taxpayers are less likely to save an extra $13 a week (or so), than a lump sum check for $400. The IRS released new withholding tables yesterday that they would like employers to start using as soon as possible, but no later than April 1st.
When you file your 2009 return next year, the credit should offset the decrease in your withholding, and barring any other changes, your refund or balance due should be about the same as this year.
The Economic Recovery Payment or “making having worked pay”:
There will also be a $250 payment for many retired (and disabled) taxpayers. This payment will be made, not by the IRS, but by the Social Security Administration (to social security, including SSI recipients), Department of Veterans Affairs (for disabled veterans), and Railroad Retirement Board (for railroad retirement beneficiaries). Social Security has a special section on their website. Unlike the 2008 stimulus payment, no action is required to receive these payments if you qualify.
Retirees from the Civil Service or state governments who worked at a time when their wages were not subject to social security will qualify for a refundable $250 credit, but you will have to file a return to qualify.
* Total income subject to tax, less certain adjustments like IRA contributions, but not decreased by foreign earned income exclusions.
Sources:
CCH “Tax Legislation Update”
DHHCS ‘How the Economic StimulusPlan Affects Individuals with Disabilities”
FedSmith.com “$250 Tax Credit of Payment for Federal Retirees”
IRS “Tax Provisions in the American Recovery and Reinvestment Act of 2009
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