2009 Tax law changes seminar

Here is part of the seminar outline given to clients on August 4th 2009.

2009 Tax Law changes:  

a) First Time Homebuyers Credit.

1. This is a large $8,000 refundable credit.
2. To qualify as a first time homebuyer, you must not have owned a home in the last 3 years
3. If you are married both spouses must qualify.
4. Two single people buy a house together only one has to qualify; the qualifying person gets 50% of the credit. We are seeing this scenario when a parent is a joint owner on their children’s home.  The child gets a $4,000 credit
5. The taxpayer must live in the house for 3 years or the credit is required to be paid back. They let you out of the repayment if you die, get divorced or the home is destroyed in a natural disaster.
6. You cannot purchase a home from a related party.  Children cannot buy a home from their parents, brother, sister, grandparents.
7. Under most circumstances installment sales qualify, if structured properly.
8. Can be a houseboat or Mobile home.

 

b) New Vehicle purchase sales tax deduction.

1. Above the line deduction, no itemization required.
2. If you purchase a $20,000 car this would equate to either a $375 bigger refund or $225 if you are in the 15%  tax bracket.
3. It must be a new car. No previous owners can be a 2008 model.
4. Must be purchased between 2/19/2009 and 12/31/2009
5. It can be a Motorcycle. or motor home.
6. With that cash for clunkers no may be a good time to get a new car.

 

c) Energy Efficient Home Improvements

1. The residential energy credit has been revived and expanded.
2. These improvements must be made to your personal residence. Rental property and Vacation homes do not qualify.
3.  The maximum credit has been expanded to $1,500.
4. For example if you spend $1,000 on a qualifying improvement you get a $300 credit on your tax return. Spend $5,000 you get the maximum $1,500 larger refund.
5. The item must be placed in service (available for use)  Between 1/1/09 and 12/31/2010.
6. Some items that qualify: Insulation, Storm Doors, Exterior Doors, Sky lights, Windows, Water heaters, AC/Furnace, Heat pumps.
7. If you invest in more exotic things like solar panels or Geo Thermal heating systems there are larger credits. Ground source heat pumps qualify for a 30% no cap credit. For example if you spend $20,000 on this you would get a credit of $6,000! The credit is non refundable but can be carried forward to future years until it is used up.

 

d) Hope Tax credit Expansion

1. The credit has been increased from $1,800 per student to $2,500
2. The credit is available for all 4 years of School rather than just freshman and sophomores.
3. The income phase out has been increased to $160,000 from $96,000 phases out completely with AGI over $180,000
4. Books are now included in the cost of college.
5. Sec 529 Plans changes: If you are using a tax free 529 plan to save for college you can now use it to pay for a personal computer for the student.
6. Part of the Credit is refundable.  You can get up to $1,000 even if you don’t owe any taxes.  Cannot be a dependent.
7. With the income limitation changes they now match the tuition deduction phase outs so I cannot see any reason to use that deduction.

 

 

f) Unemployment compensation

1. The first $2,400 of unemployment compensation is tax free. That available to both spouses.
2. After receiving $2,400 I would recommend opting for Tax withholding on the benefits. The last thing you need is to owe additional tax at the end of the year.
3. Keep track of your job hunting expenses.  Mileage driving to job fairs interviews etc. can add up.
4. If you do need to tap your 401k or IRA talk to us, maybe we can structure the distribution minimize tax and penalty.
5. Self employment income – We can help you set it up correctly.  It does not break the Unemployment benefit rules until you start making a profit.

 

g) Roth conversions

1. Starting in 2010 higher income individuals will have the opportunity to convert their traditional IRA to a Roth IRA.
2. The benefit of having your money in a Roth IRA is there are no tax or penalty on the distributions from the Roth.  The growth in the account is tax free.
3. That reminds me for 2009 there is not a requirement to take a distribution even if you are over 70 ½
4. It makes sense to consider a Roth conversion if your income is signicantly lower in a given year. You are in a lower tax bracket.

          h) Family budgeting and importance of family teamwork

1. I read that an alarming number of married couples have not had any meaningful discussions about their joint financial goals.
2. A great tool we started using in our household is a website called mint.com. It aggregates all your checking and credit card accounts and tracks and categorizes how you are spending your money. Once you know where your money is going you can make adjustments.
3. You can put budget limits and it will email you when you go over budget.
4. Whether you use this system or something similar.

             I) Tax facts

1. Missouri Ranks 31’st in total taxation. Income, Sales, Real Estate, Personal property. Not too bad. The highest was Vermont, Maine and New York.  The Lowest were Tennessee, Alaska and New Hampshire.
2. You cannot deduct a loss on the sale of a time share.  It is a personal asset, similar to a car. No losses allowed only gains.  As a matter of fact if you sell a restored/collectible car the tax rate is 28%

The tax code has over 7 million words. So I could go on for a while but I want to thank you all for coming and encourage you to tax adavantage of our team.

If you would like additonal information on any tax change please call 636-441-1110 or email me craig@csltax.com .

Thanks,

Small Business Startup Tips

Tips:

1. Meet with your tax advisor. Of course I am biased toward my expertise in this area. The tax implications compared to wage income are numerous, do not try this alone. Don’t wait until after the operation has started.  We offer a free consultation to people considering self – employment!
2.  Meet with your insurance agent.  Make sure all of your liabilites are covered, a good agent can help you cover all the bases.
3. My favorite entity choice is a LLC.  You can have liability protection of your personal assets (your home, car, etc), without the administrative headaches of a regular corporation.
4. Accounting/Bookeeping- This is very important for all business regardless of the size. Banks, Credit Unions SBA all require some form of Financial Statments before they will loan you money. Also accurate projections of profit or loss are important for quarterly tax projections.
5. My favorite accounting system is quickbooks online version.  This system allows remote accountant interaction to fix and set up your accounting system.  They even have a free version that works for most startups.

Here are some topics that are will be covered in the small business consultation and further blog posts.

1. Self employment offers great opportunites for saving for retirement if you pick the right plan for your business
2. Employ your children for great tax savings, also how your choice of enity can effect this deduction.
3. The right medical savings plan offer great deductions for health insurance and other medical costs.
4. How to best deduct your auto expenses.
5. Office in home – do you qualify
6. How much should you set aside for your quarterly tax payment.

Home Improvement Tax Credits

The massive stimulus bill passed in 2009 created alot of tax saving opportunities.  In this installment I will cover the Residential Energy Credit portion of the bill:

Basically you get a credit of 30% of the cost of certain improvements. For example if you spend $5,000 on a qualifying improvement your refund will go up by $1,500!

Home Improvements

Must be “placed in service” from January 1, 2009 through December 31, 2010

• must be for taxpayer’s principal residence, EXCEPT for geothermal heat pumps, solar water heaters, solar panels, and small wind energy systems (where second homes and rentals qualify)
• $1,500 is the maximum total amount that can be claimed for all products placed in service in 2009 & 2010 for most home improvements, EXCEPT for geothermal heat pumps, solar water heaters, solar panels, fuel cells, and small wind energy systems which are not subject to this cap, and are in effect through 2016
• must have a Manufacturer Certification Statement³ to qualify
• for record keeping, save your receipts and the Manufacturer Certification Statement³
• improvements made in 2009 will be claimed on your 2009 taxes (filed by April 15, 2010)
• If you are building a new home, you can qualify for the tax credit for geothermal heat pumps, photovoltaics, solar water heaters, small wind energy systems and fuel cells, but not the tax credits for windows, doors, insulation, roofs, HVAC, or non-solar water heaters.

Here is a more detailed list of the improvements that qualify. (from the “Energy Star” website)

If you would like detailed information on how the credit will effect your personal tax return please contact the office. 636-441-1110

SUMMARY OF TAX CREDITS FOR HOMEOWNERS

Product Category	Product Type	Tax Credit Specification	Tax Credit	Notes
Windows & Doors	Exterior Windows and Skylights	*Important Change: Before June 1, 2009: Must meet ENERGY STAR criteria After June 1, 2009: U factor <= 0.30 SHGC <= 0.30	30% of cost, up to $1,5002	Not all ENERGY STAR labeled windows and skylights qualify for tax credit.More information
	Storm Windows	Meets IECC1 in combination with the exterior window over which it is installed, for the applicable climate zone	30% of cost, up to $1,5002	Manufacturer Certification Statement3 will list classes of exterior window (single pane, clear glass, double pane, low-E coating, etc.)4 that a product may be combined with to be eligible in specific climate zones.
	Exterior Doors	U factor <= 0.30SHGC <= 0.30	30% of cost, up to $1,5002	Not all ENERGY STAR doors will qualify.More information
	Storm Doors	In combination with a wood door assigned a default U-factor by the IECC1, and does not exceed the default U-factor requirement assigned to such combination by the IECC	30% of cost, up to $1,5002
Roofing	Metal Roofs, Asphalt Roofs	ENERGY STAR qualified	30% of cost, up to $1,5002	All ENERGY STAR metal and asphalt roofs qualify for the tax credit.Must be expected to last 5 years OR have a 2 year warranty.
Insulation	Insulation	Meets 2009 IECC & Amendments	30% of cost, up to $1,5002	For insulation to qualify, its primary purpose must be to insulate (example: insulated siding does not qualify).Must be expected to last 5 years OR have a 2 year warranty
HVAC	Central A/C	Split Systems: EER >=13 SEER >= 16Package systems: EER >= 12 SEER >= 14	30% of cost, up to $1,5002	For a list of qualified products, go to the Consortium for Energy Efficiency product directory , click on Air Conditioners, then in the “CEE Tier” enter “Residential Advanced Tier 3” for CAC Split Systems, and “Residential Tier 2″ for CAC Package Systems and ASHPs.Note — not all ENERGY STAR products will qualify for the tax credit. View ENERGY STAR criteria.
	Air Source Heat Pumps	Split Systems: HSPF >= 8.5 EER >= 12.5 SEER >= 15Package systems: HSPF >= 8 EER >= 12 SEER >= 14	30% of cost, up to $1,5002
	Natural Gas or Propane Furnace	AFUE >= 95	30% of cost, up to $1,5002	For a partial list of qualifying products go to: Air-Conditioning, Heating, Refrigeration Institute (AHRI) Not all ENERGY STAR products will qualify for the tax credit. View ENERGY STAR criteria for furnaces, boilers.
	Oil Furnace	AFUE >= 90	30% of cost, up to $1,5002
	Gas, Propane, or Oil Hot Water Boiler	AFUE >= 90	30% of cost, up to $1,5002
	Advanced Main Air Circulating Fan	No more than 2% of furnace total energy use. Read this FAQ if the fan qualifies, but the furnace does not.	30% of cost, up to $1,5002
Water Heaters	Gas, Oil, Propane Water Heater	Energy Factor >= 0.82 or a thermal efficiency of at least 90%.	30% of cost, up to $1,5002	All ENERGY STAR gas tankless water heaters will qualify.There are currently no ENERGY STAR qualified gas storage tank or gas condensing water heaters that qualify.View ENERGY STAR criteria for water heaters. For a partial list of qualifying products go to: Air-Conditioning, Heating, Refrigeration Institute (AHRI)
	Electric Heat Pump Water Heater	Same criteria as ENERGY STAR: Energy Factor >= 2.0	30% of cost, up to $1,5002	All ENERGY STAR electric heat pump water heaters qualify for the tax credit.
Biomass Stove	Biomass Stove	Stove which burns biomass fuel5 to heat a home or heat water.Thermal efficiency rating of at least 75% as measured using a lower heating value.	30% of cost, up to $1,5002
Geo-Thermal Heat Pump	Geo-Thermal Heat Pump	Same criteria as ENERGY STAR:Closed Loop: EER >= 14.1 COP >= 3.3Open Loop: EER >= 16.2 COP >= 3.6 Direct Expansion: EER >= 15 COP >= 3.5	30% of the cost	All ENERGY STAR geo-thermal heat pumps qualify for the tax credit.Use IRS Form 5695 Must be “placed into service” before December 31, 2016.
Solar Energy Systems	Solar Water Heating	At least half of the energy generated by the “qualifying property” must come from the sun. Homeowners may only claim spending on the solar water heating system property, not the entire water heating system of the household.The credit is not available for expenses for swimming pools or hot tubs.The water must be used in the dwelling. The system must be certified by the Solar Rating and Certification Corporation (SRCC).	30% of cost	All ENERGY STAR solar water heaters qualify for the tax credit.Use IRS Form 5695 Must be placed in service before December 31, 2016.
	Photovoltaic Systems	Photovoltaic systems must provide electricity for the residence, and must meet applicable fire and electrical code requirement.	30% of cost	Use IRS Form 5695 Must be placed in service before December 31, 2016.
Small Wind Energy Systems	Residential Small Wind Turbines	Has nameplate capacity of not more than 100 kilowatts.	30% of cost	Use IRS Form 5695 Must be placed in service before December 31, 2016.
Fuel Cells	Residential Fuel Cell and microturbine system	Efficiency of at least 30% and must have a capacity of at least 0.5 kW.	30% of the cost, up to $500 per .5 kW of power capacity	Use IRS Form 5695 Must be placed in service before December 31, 2016.

Missouri State Refund Delays

Our research shows Missouri has started to delay refunds!.

• Its official MO is holding refunds. Check out this article from the “St. Louis Post Dispatch“ 
• Recent TV story http://www.fox2now.com/ktvi-missouri-tax-refund-delays-051109,0,7687334.story
• Returns accepted after 3/15/2009 are subject to delay. 
• When checking status on these returns we are getting the “Return is in process” message.
• We are trying to get more information from MO about when refunds will be released.
• This happend about 4 years ago and refunds were not released until June or July.

To check on the status of your MO Refund go to: http://d230256.u27.hsphere.clientsource.com/taxrefunds.html

It may be prudent to lower your MO refunds for 2009.! Call the office after 6/1/2009 to discuss how to lower your MO refund. (we need a vacation)

 

First Time Homebuyers Credit

Alert: Homes purchased after 1/1/2009 and before 12/20/2009 qualify for the new $8,000 First time homebuyers credit.

The rules for this credit are completly different from the rules discribed below for the 2008 credit.  You will be able to amend your 2008 returns to claim and recieve this $8,000 credit now!

I will be posting details on the new credit in June 2009 (we need a vacation)

An interesting new option for homebuyers was signed into law in July 2008.

Here is a quick and dirty interpertation of the bill along with my opinions:

• This is being called a tax credit, in reality it must be repaid over 15 years so going forward I will refer to it as loan. (Its a really good loan because the interest rate is ZERO)
• The maximum loan is $7,500 as long as you buy a house that costs over $75,000.  I don’t know too many homes that cost less but this leads to my next observation.
• It must be your primary residence. A primary residence is a residence in which an individual lives most of the time. A primary residence can be a house, condominium, co-operative apartment, houseboat, or mobile home.  (You could probably get a nice houseboat for $75,000)
• You must be a first time homeowner. someone who has not owned a primary residence in the three-year period ending on the date of purchasing the home. (This is a dramatically different interpertation of first time homeowner from other parts of the tax code.  To qualify for a penalty free withdrawl from an IRA to buy a first home you must have not owned a home for 10 years?)
• The credit has a very limited life-span. Individuals will need to purchase a residence after April 9, 2008, and before July 1, 2009. (Funny if congress was hoping to spur home sales why would they make it retroactive to sales before July.  I would hope if sales are still slow in 2009 the time frame would be extended)
• The credit is fully refundable, meaning taxpayers will be able to obtain an additional federal tax refund of up to $7,500 even if they have no other tax liabilities.(No carryforward if you normally get a refund just add $7,500 to that amount!)
• Repayment – The loan needs to be repaid in equal installments over 15 years. That works out to $500 per year. ( I assume the IRS will be tracking this loan with their new fancy computers.  I see problems with post loan, divorced taxpayers, deceased taxpayers, etc)
• Home sale within 15 year time frame. In the year of sale the loan balance must be paid in full, or up to the amount of the gain on the sale of the home. (Taxpayers should keep good records of the money they put into their home for repairs or improvments to reduce the amount of the gain.)
• Example: You bought a house in August 2008 and take the $7,500 loan on your 2008 tax return, you then sell your house in 2009 for no gain over your purchase price, you do not owe any further loan repayments!
• Timing of Credit – Purchases made in 2009 after filing a 2008 return have the option of filing an amended 2008 return to claim the credit.( This money is not available when you really need it when you are sitting at the closing table. You can expidite the refund  by filing an amended return, For 2009 purchases, instead of waiting until 4/2010 file an amended 2008 return and get your money in about 3 months.  You can also adjust your federal tax withholdings lower in anticipation of the refund)

This is a really unique, complicated law designed to keep us tax experts in business.  But if the word gets out I think it could really make a difference in the market. (first time homebuyers do not add a home for sale)

Craig Lovasz, Owner EA

www.csltax.com

info@csltax.com

Welcome To our new tax communication blog

For a long time I have wanted to have a blog to communicate tax law change ramifications, and other tax advice to clients and other web users.

Here a few of the goals and limitations of the blog:

1. I hope to provide timely, short, relevant reports on tax law changes affecting individuals and small business.
2. I will try to keep my posts short and on topic so readers can skip over non-relevant posts.
3. I will use the blog as a forum to post tax tips I have accumulated over 24 years in the tax business.
4. I will try to respond to comments and questions posted on the blog.
5. Please excuse any grammatical errors, I am better at taxation.
6. I will try to keep the blog updated regularly but sometimes the restraints of tax season and the golf course may delay some posts.

Thanks for checking out the blog and look forward to helping you make tax time less taxing.

 Craig Lovasz, Owner, EA

www.csltax.com

info@csltax.com