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As we move into
fall, now is time to start your tax planning for 2009 and 2010. Several
tax incentives passed this year can be incorporated into your planning to
reduce your 2009 tax burden.
Individual
Incentives - Federal
American
Opportunity Tax Credit. This education credit will be available to
more Americans than the Hope Credit as the income phase-outs have been
raised to $80,000 single/$160,000 joint filers. The maximum credit has been raised to
$2,500 per year, applies to all four years of post-secondary education,
and makes 40 percent of the credit refundable.
Qualified Tuition
Plans (529 Plan). Beneficiaries of qualified tuition plans are allowed to
take tax-free distributions to pay for computers and computer technology.
First-time
homebuyer tax credit. This updated credit removes the repayment
requirement for homes purchased by first-time buyers between January 1,
2009 and December 1, 2009 as long as the owners live in the home for 36
months. The enhanced credit equals 10 percent of the purchase price of a
home up to $8,000 ($4,000 for married individuals filing separately).
This credit begins to phase out with a modified adjusted gross income of
$75,000/$150,000 joint. In addition, some homebuyers may be able to
monetize their credit as a down payment or credit to closing costs
depending on the type of taxpayer financing used on the purchase of the
home.
New car sales tax
deduction. This new
deduction is an above-the-line deduction for state and local sales taxes
or excise taxes paid on qualified purchases of new motor vehicles. This
deduction is effective from 2/17/09 to 12/31/09 and is limited to the tax
imposed on the first $49,500 of the purchase price of the vehicle. Income thresholds and other limitations
apply.
Residential Energy
Property Credit. This credit has been increased to 30
percent and now has a maximum cap of $1,500 total for 2009 and 2010. Improvements eligible for this credit
include insulation, exterior windows, exterior doors, furnaces, hot water
heaters and central air conditioners. The new cap affords taxpayers who
previously received the cumulative $500 credit in 2006 and 2007 to claim
an additional $1,500 credit.
Zero % Tax Rate
for Lower Income Taxpayers. The Federal tax rate in 2009 and 2010 is
Zero % for qualified dividends and long-term capital gains for lower
income taxpayers. Single taxpayers with taxable income up to
approximately $33,000 and married couples filing jointly with taxable
income up to about $65,000 will qualify for the reduced rate.
Minimum Required
Distributions. Taxpayers are not required to take a required minimum
distribution from their IRA in 2009.
Roth Conversions. In 2010, the modified adjusted gross
income limit for conversions has been repealed and everyone is now
eligible to convert a traditional IRA or qualified plan to a Roth
IRA. It will require the taxpayer
to pay ordinary income tax on the converted income on their 2010 tax
return or elect to divide the tax and pay it equally on the taxpayer's
2011 and 2012 tax returns.
Retirement
Planning Taxpayers should
consider maximizing deferral into 401(k) plans to take advantage of tax
savings and any employer matching funds.
NYS Incentives -
Individual
Long-Term Care
Insurance Credit.
Taxpayers may
claim a credit against their personal income taxes equal to 20% of the
premiums paid during the year for qualifying long-term care
insurance. It is not refundable
but may be carried forward to future years.
New York's 529
Plan. Taxpayers should consider making
contributions to the NYS 529 plan to save money for a child's college
education. Contributions to this
plan of up to $5,000 for an individual taxpayer and $10,000 per year for
married taxpayers filing jointly are deductible in computing New York
taxable income. Only contributions
by the account owner are deductible and the contribution deadline is
December 31. Withdrawals are not subject to taxation if used for
qualified educational expenses.
Additional information can be found at www.nysaves.org.
Business
Incentives - Federal
Bonus
depreciation. The new law provides for 50 percent
first-year bonus depreciation on original use property with a MACRS life
of 20 years or less acquired by a taxpayer and placed in service before
January 1, 2010. The new law
raises the first-year depreciation cap limits by $8,000 for new vehicles.
The new law also allows eligible businesses to monetize accumulated AMT
and research tax credits in lieu of taking bonus depreciation for 2009.
Code Sec. 179
expensing. Code Sec. 179 expensing for tax years
beginning in 2009 is $250,000 and the threshold for reducing the
deduction is $800,000. This
provision allows taxpayers to fully expense, instead of capitalizing and
depreciating, tangible property in the year it is purchased.
Work Opportunity
Tax Credit. The new law creates two new categories of
targeted groups under the existing Work Opportunity Tax Credit: unemployed veterans and disconnected
youth. These new categories apply
to individuals who are hired and begin work in 2009 or 2010.
Estimated Tax of
Qualified Individuals. Qualified individuals may base estimated
tax payments in 2009 on 90% of prior year's tax. An individual is a qualified individual
if the adjusted gross income shown on the individual's return for the
preceding tax year is less than $500,000 and more than 50 percent of the
gross income from the preceding tax year is from a business which
employed less than 500 people.
If you have any
questions about these or any other tax developments, please contact our
office at (315) 234-1100.
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