Highlights of ARRA 2009

Highlights of the American Recovery

and Reinvestment Act of 2009

INDIVIDUALS

Economic Recovery Payments: $250 Payments to Recipients of Federal Program Benefits

  • Eligible recipients receive a one-time economic recovery payment of $250 in 2009 or 2010.
  • These payments are not considered gross income for tax purposes
  • Must meet both of the following eligibility requirements:
  1. During November 2008, December 2008, or January 2009, you must have been entitled to a benefit payment under a qualifying program – Social Security, Railroad Retirement, Veterans compensation or pension benefits, or supplemental security income (SSI) benefits.
  2. Your current address of record under the qualifying program must be in one of the 50 states, the District of Columbia, Puerto Rico, Guam, the U.S. Virgin Islands, American Samoa or the Northern Mariana Islands.
  • If you are eligible for benefits under more than one of the qualifying programs, you will receive only one economic recovery payment.
  • If you are also eligible for the new Making Work Pay Credit, the amount of that credit is reduced by the amount of your economic recovery payment.

$250 Credit for Certain Government Retirees

  • Certain government retirees can claim a refundable $250 tax credit for their first tax year eginning in 2009 or $500 on a joint return if both spouses are eligible.
  • To be eligible, you must meet all the following tests:
  1. During your first tax year beginning in 2009, you must receive some amount a a pension or annuity for service performed in the employ of the United States, any state or any instrumentality thereof, that is not considered employment for Federal Insurance Contribution Act purposes.
  2. You must not receive an economic recovery payment during the tax year.
  3. Your tax return must include your social security number of at least one of the spouses.

Making Work Pay Credit

  • In both 2009 and 2010, many individuals are eligible for a refundable credit equal to either (1) $400 ($800 for married taxpayers filing jointly) or (2) 6.2 percent of earned income, whichever is less.
  • The credit is not included in taxable income.
  • Credit is not available to nonresident aliens, individuals that can be claimed as dependents by any other taxpayer, or estates or trusts.
  • Credit is phased out at a rate of 2 percent of modified adjusted gross income (MAGI) above $75,000 ($150 for join filers), and is totally eliminated if you have a MAGI of $95,000 or greater ($190,000 for joint filers).
  • If you receive the $250 economic recovery payment as a veteran, recipient of social security, and certain other individuals, or the $250 special credit to government retirees, that payment of credit reduces the Making Work Pay Credit.
  • Earned income is defined as it is for purposes of the earned income credit, with two modifications:
  1. It includes combat pay excluded from income, even for taxpayers that do not elect to include it in income for the earned income tax credit.
  2. It does not include net earnings from self-employment that are not taken into account in computing taxable income, such as a parsonage allowance.

Refundable Child Tax Credit Increased

  • If you have children younger than 17, you may be eligible for a larger child tax credit for 2009 and 2010.
  • Currently, you can claim $1,000 for each child, but this amount is decreased if you make more than $75,000 and are single or $110,000 and file a joint return.
  • New law increases the amount of the credit that is refundable to you if the credit exceeds your tax liability.
  • For 2009 and 2010, the credit is refundable to the extent of the 15 per cent of your earned income in excess of $3,000.
  • Unless Congress changes the law, the refundable portion of the child tax credit is set to disappear after 2010, and the amount you can claim per child is set to decrease to $500.

Credit for First-Time Homebuyers Extended and Expanded

  • If you bought a house before December 1, 2009, you may be eligible for the newly expanded First-Time Homebuyers Credit.
  • Credit has been extended through November 30, 2009.
  • You can claim $8,000 or 10% of the purchase price whichever is lower.
  • Credit is phased out for taxpayers with adjusted gross income over $75,000 or $150,000 for married taxpayers filing jointly.
  • Credit is not treated as a zero-interest loan that must be paid back over 15 years as was the case on the original First-Time Homebuyers Credit available in tax year 2008.
  • Credit must be paid back only if you sell the home or stop using it as your principal residence within 36 months of purchasing the home.
  • You can claim the credit on your 2008 return even if purchased in 2009.

American Opportunity Tax Credit

  • Provides a temporarily enhanced Hope scholarship credit for 2009 and 2010.
  • Enhanced credit is available for higher amount of tuition.
  • Is available for up to the first four years of post-secondary education and related expenses.
  • The amount of the credit is allowed on the first 100% of qualified tuition and related expenses up to $2,500 a year.
  • Prior to this change, the credit only allowed 100% of the first $1,200 of qualified tuition and related expenses and 50% of the next $1,200 for a maximum credit per student of $1,800.
  • Expenses for room and board are not included in qualified tuition and related expenses.
  • The Hope scholarship is phased out starting with adjusted gross income of $50,000 or $100,000 for joint returns.
  • A taxpayer claiming the credit can receive a refund greater than the amount of tax liability, as 40% of the credit is refundable, except in the case of a child whose income is subject to tax at the parent’s income tax rate.

Tax on Purchase of New Vehicle

  • Starting on February 17, 2009, both itemizers and non-itemizers are allowed a deduction for sales and excise taxes incurred on the purchase of a new motor vehicle, motorcycle, or motor home during 2009.
  • If you itemize, the deductible taxes include state or local sales or excise taxes imposed on the purchase of the vehicle regardless of your election to deduct state and local sales taxes in lieu of state income taxes.
  • Limitations of the deduction:
    • Limited to the first $49,500 of the purchase price
    • For a car, truck, SUV, or motorcycle, the gross vehicle weight rating must not exceed 8,500 pounds
    • Deduction is phased out for taxpayers with adjusted gross income between $125,000 and $135,000 ($250,000 and $260,000 for joint return)
    • The increased standard deduction is not available if you make the election to deduct sales tax rather than income taxes for the year

Qualified Tuition Programs (Section 529 Accounts)

  • Distributions for qualified tuition programs are tax-free if they are used to pay a beneficiary’s qualified educational expenses.
  • Qualified educational expenses are tuition, fees, books, supplies and equipment required for enrollment at an eligible educational institution and room and board expenses for students enrolled at least half time.
  • For 2009 and 2010, the law expands expenses to include the purchase of computer technology or equipment, internet access and related services if used by the beneficiary and the beneficiary’s family during any of the years the beneficiary is enrolled at an eligible educational institution.
  • Does not apply to expenses for software designed for sports, games, or hobbies unless it is primarily educational in nature.

Unemployment Compensation

  • Is included in gross income for federal tax purposes.
  • If unemployment compensation is received during 2009, $2,400 can be excluded from gross income.

AMT RELIEF

Increased Exemption Amounts for 2009

  • $70,950 for married individuals filing a joint return and surviving spouses
  • $46,700 for unmarried individuals
  • $3,5475 for married individuals filing a separate return
  • Unchanged for corporations, estates and trusts
  • Unless the AMT is extended, the exemption amounts for 2010 will be:
  1. $45,000 for married individuals filing a joint return and surviving spouses,
  2. $33,750 for unmarried individuals, and
  3. $22,500 for married individuals filing a separate return

BUSINESS

DEPRECIATION and EXPENSING

Increased Section 179 Deduction

  • In lieu of depreciation, can elect to write off the cost of a limited amount of property for the year it is placed in service.
  • For 2008 and 2009, the amount has been increased to $250,000, phased out to the extent the total amount of property placed in service exceeds $800,000.
  • Section 179 property is depreciable tangible personal property that is purchased for the use in the active conduct of a trade or business.
  • Off-the-shelf computer software placed in service in tax years beginning before 2010 is also treated as Section 179 property.

Bonus Depreciation

  • The 50% first-year bonus depreciation deduction for qualified property placed in service in 2008 is extended to property placed in service in 2009.
  • Allowance is available for property whose original use begins with the taxpayer and
  1. Is depreciable under MACRS and has a recovery period of 20 years or less,
  2. Is MACRS water utility property,
  3. Is off-the-shelf computer software depreciable over three years, or
  4. Is qualified leasehold improvement property.
  • Property that must be depreciated using the alternative depreciation system (ADS) does not qualify, nor does listed property (e.g. passenger automobile) that is used 50% or less for business and intangible property.
  • Time requirements with respect to use and acquisition are:
  1. Original use of property must commence after December 31, 2007 and before January 1, 2010, or
  2. Acquired by the taxpayer as a result of a written binding contract entered into after December 31, 2007, and before January 1, 2010.

ENERGY

INDIVIDUAL ENERGY PROVISIONS

Credit for Residential energy Property Extended and Modified

  • Under the old law, the credit was limited to 10% of certain costs and to a fixed amount of other costs.
  • New provision allows for a credit of 30% of the cost of installing energy efficient improvements and energy efficient property, such as certain insulation materials, windows, exterior doors, metal roofs, circulating fans, boiler, heat pumps, air conditioners, and heaters.
  • The amount of the credit that can be claimed by any taxpayer is limited to a total of $1,500 for 2009 and 2010.
  • The new law requires that:
    • Heat pumps, central air conditioners, and insulation meet certain energy standards in effect for 2009
    • Water heaters have an energy factor of at least 0.82 or a thermal efficiency of at least 90%
    • The 0.75 thermal rating of wood stoves be measured using a lower heating value
    • Natural gas furnaces and propane furnaces have an annual fuel utilization efficiency rate of not less than 95
    • Gas hot water boilers, propane hot water boilers, oil furnaces, and oil hot water boilers have an annual fuel utilization rate of not less than 90
    • Exterior windows and doors are required to have a U-factor at or below 0.30 and a seasonal heat gain coefficient (SHGC) at or below 0.30
  • If you hit the previous $500 lifetime maximum in 2006 and/or 2007, you can now incur additional qualifying property costs in 2009 and/or 2010 and be eligible for a credit of up $1,500 over both years.

Credit for Residential Energy Efficient Property Increased

  • From 2006 through 2016, you can claim a credit for 30% of the cost of installing solar electric property or fuel cell power plant to generate electricity for your home, or for installing solar water heating property to heat water in your home.
  • From 2008 through 2016, you can claim the credit for 30% of the cost of installing a small wind turbine to generate electricity for hour home or for installing a geothermal heat pump system to heat or cool your home.
  • New law remove caps effective for 2009 except for fuel cells which remains limited to $500 with respect to each 0.5 kilowatt of capacity ($1,667 with respect to each 0.5 kilowatt in the case of a house that is jointly occupied and used by multiple people).

Plug-in Electric Drive Motor Vehicles

  • Starting in 2009, you can claim a credit for the purchase of new plug-in electric drive motor  vehicles.
  • Beginning in 2010, it also adds a new credit for two-wheeled, three-wheeled, and low-speed plug-in electric vehicles.
    • Low-speed vehicle is one that has four wheels, a maximum speed no more than 25 miles and hour on paved level surface and a gross weight of less than 3,000 pounds
    • Vehicle must be made by a manufacturer
    • The original use must begin with the taxpayer
    • Vehicle must be manufactured primarily for use on public streets, roads, and highways
    • Must have a gross vehicle weight rating of less than 14,000 pounds
    • Vehicle must be propelled to a “significant extent” by an electric motor drawing power from a battery that can be recharged from an external source
  • And in 2010, it adds a credit for conversion kits.
    • Conversion credit is equal to 10% of the cost of converting the vehicle, up to $40,000, for a maximum credit of $4,000
    • Credit is available for property placed in service after February 17, 2009, but will not apply to conversions made after December 31, 2011
    • The vehicle for which the conversion credit is claimed must satisfy the qualifying plug-in electric drive motor vehicle requirements that are in effect during the tax year the credit is being claimed, expect the original use of the vehicle begin with the taxpayer and be made by a manufacturer do not apply to the plug-in conversion credit

HEALTH

COBRA Premium Assistance

  • The Act enhances COBRA continuation coverage by offering a premium subsidy for eligible individuals who are involuntarily terminated from their employment.
  • An eligible individual is treated as having paid the premium required for coverage if the individual pays 35% of the premium.
  • The individual is provided with a 65% reduction in premiums for the first 9 months for which COBRA coverage is required.
  • The employer is reimbursed for the premium not paid in the form of a credit against payroll taxes

Client Organizer for Tax Year 2009

This is the 2009 Client Tax Organizer for Coyner CPA.

My existing clients are sent a version of this with appropriate information filled out beforehand. This is for the preparation of taxes for the 2009 tax year. Please click on the image get the PDF version of the organizer.

Please contact me with any questions you may have regarding this tax organizer or client questions.

client tax information organizer 2009 Austin Texas

Why you need a competent CPA

There are some simple tax and accounting issues can be taken care without the help of a CPA.  If you are preparing a 1040EZ form, there is no need to consult me.  However if your return is complex in that it involves business income, investment income with rentals and net operating loss/profit, or any special situation is it advisable to get a competent professional to plan and prepare your taxes.   The following are a couple of examples of common mistakes.   There are hundreds of others that can occur for a variety of reasons. Let us help you with your particular situation.

Example of mistake – Double counting of tax due to exercise of stock options:

In over 25 years as an accountant you see many interesting and surprising things.  One example that reflects the importance of proper tax planning and preparation is the case of individuals paying taxes on their stock option twice, thereby doubling the taxes they pay on their income.

On multiple occasions I have seen that people have paid tax due from the exercise of nonqualified stock options and then also paid capital gains on the same amount!  This happens because they don’t recognize that the stock option gain is included on their W-2 total compensation.  They then incorrectly use Schedule D to calculate a gain which results in an overpayment of tax.

Example of mistake -Incorrect allocation of tax payment:

I had a case recently that involved a couple of hundred thousand dollars of misallocated payments.  The client had unintentionally sent payment for their dividend withholding taxes as a payment toward employee taxes.  This issue took months to resolve.  Attention to the correct detail would have avoided that headache for the business owner.

It is important to have a competent professional for any tax situation that is not simple.  You never know when you are missing something.  Please call us with any questions you may have.