2009 Rule Changes
Keep These in Mind While
      You Gather Records

Some of the rules you knew for 2008 are different for 2009.

Look For Documentation! Most of the items here are new. IRS has the job of policing tax laws. They will be required to check (audit) some returns claiming new benefits. Face it - some folks who arc not entitled will try to take advantage of the new laws, and IRS will be looking for them. For our mutual protection I'll be copying/scanning more documents this year. If we face an audit, I'd like to know we can quickly settle any doubts.

First-Time Homebuyer Credit. If you bought a home in 2009 before December 1, there might be a BIG credit for you. If you didn't own a "principal residence" inside the US for a full three years prior to buying the home, you get 10% of the cost (capped at $8,000) as a direct tax rebate. There's talk of extending the program, but as I write this, it ends after November 30.

Sales Tax On New Cars. If you bought a new car (not a used car) after February 16 this year, there's a valuable deduction for any sales or excise tax you paid. You get it even if you don't normally itemize your deductions. I'll want to see a copy of the purchase contract.

Government Retirees may get a special $250 tax credit this year. r f you collect any government pension for work that was exempt from social security you may qualify. This can include school districts, libraries, law enforcement - any government work at all. You can lose the credit if you collect social security or if you're still working.

Non-Filers. There's a catch you must file a tax return to get this credit. Perhaps an older member of your family earned a government pension, but no longer needs to file tax returns, I can help this person collect the $250 - but a 2009 tax return MUST be filed.

Home Energy Credits. Two different kinds of credits here.

Conservation. Energy-saving improvements to your main home can cut your taxes in 2009 and 2010. Main home only - not for rental or vacation properties. You get 30% of the first $5,000 you spend in '09-'10 for installing new insulation, doors, windows, skylights, certain furnaces, heat pumps, and air conditioners. IRS says you can rely on the manufacturer's statement that a given device qualifies. I recommend you keep the brochure, or print out the information from their website.

Generation. Bigger credits apply if you generate energy. Solar systems, fuel cell equipment, wind, and geothermal devices give a 30% credit. There's no upper limit. The credits apply for any property where you reside, even a vacation home. These are definitely more expensive projects. This credit is available through 2016. With both credits you may count costs of materials, plus costs to install.

College Expenses. Special credits have been available since 1997. But, rules for 2009 and 2010 are more liberal than ever. The only problem is we must segregate the costs into several categories.

General Costs. First: tuition and fees for college classes. Schools send out Form 1098-T in January reporting tuitions paid. It's sent to the student's address, but credits belong on the return claiming the student's "personal exemption". Usually it's the parents' return. In 2009 and 2010 there's a new benefit. You can also claim costs for books, course materials, and class supplies. That's our second category. The credit can be up to $2,500 - full rebate of the first $2,000 spent, plus 25% of the next $2,000. It phases out for higher incomes, but income limits are higher than in the past.

College Savings Plans. If you set up a "section 529" plan to pay for your child's education, you must show that withdrawals were spent on education, or you can face a tax. The costs above count, but you may also add room and board - a third category. For 2009 and 2010 there's a fourth category. You can claim costs for the student's computer, software, and on-line fees.

Over 701/2 IRA Rules. Two special rules if you have "mandatory distributions" from your IRA. Both are set to expire this year, but could be extended.

No 2009 Distribution. You are free to not take any distribution this year. Take as much or as little as you wish. This was intended to help compensate for dramatic losses in financial markets. However, it also offers a planning opportunity. If you have not yet taken a distribution, you might be able to take some amount at lower tax rates.

Directly To A Charity. If you have your IRA Custodian send a check to a charity, the amount can be excluded from your income. You don't need to itemize deductions, so you get full value for the gift.

Non-Itemizers. If you don't have many tax deductions, we use the "standard deduction". For 2009, there are two deductions you can claim even if you can't itemize.

(1) Sales tax on new cars bought after February 16, 2009. (2) Up to $500 of real estate taxes on any property you own ($1,000 for a couple). Please be sure to remind me if either of these apply to you.

Mortgage Insurance. Last year for this one. Form 1098 will show the interest you paid on your mortgage. It should also show any mortgage insurance. We can deduct this along with the interest.

Foreclosures. If you lost a property this year, I need lots of details. Your problems are not behind you until we deal with the income tax issues. You might have income from the cancellation of the mortgage. Official forms may have arrived - 1099-A and/or 1099-C. I must see these. I'll need as much information as possible about what really happened. I need to know the complete history of loans for the property. It will help if I can see the last few mortgage statements. These cases involve more than simply tax law, so please be as thorough as possible.

Miscellaneous Items. A host of other provisions are set to expire after 2009. We can deal with these at the time offiling your return. Businesses. Liberal rules for depreciation were extended to 2009. Vehicle deductions are normally limited by "luxury car caps", but for 2009 we can claim an extra $8,000 in the first year you own the car.

Hybrid Car Credits are drying up. No more credits for Honda and Toyota/Lexus vehicles. Ford and Mercury hybrids get full credits for purchases before April, 2009. From April I to September 30, the credit is 50%. As of October I, it's 25%. Full credits still apply for hybrids from GM, Mazda, and Nissan.

2010 Withholding Issues. I'd like to check your withholding. For the first time in history IRS adjusted withholding tables mid-year.

A 2009 program gives special tax credits to most workers. Instead of sending checks, IRS was told to take less withholding. They revised the tables in April. Problem: for many folks, the withholding reduction is greater than their tax credits. They must pay back the difference at tax time. Folks with multiple jobs (or families where both spouses work) got too much take-home pay. Folks with civilian pensions get no credits, but had less withholding. Tables for 2010 are also reduced. Will you have too little withheld?

I can help, but I need to know your withholding "status". You filled out Form W-4 (W-4P for pensions). You asked to be treated as either "single" or "married", and claimed some "allowances". Find this information and I can help.

Prepare Early. This will be a special year. We don't want to miss anything. Prepare carefully, and there are two benefits: (1) You'll see the maximum tax savings, and (2) my fee will be as low as possible. We may even have a little time to plan for future savings!

Do You Need To Send Form 1099?

You may need to send Form 1099 to someone. There are two cases:

• Business/Rental. You must report payments to others for services.
• “Nominee” amounts. If you are named as receiving income, but part of the income belongs to another, you are a nominee.

You must issue Form 1099 to the other party by February 1. Copies are due at IRS by March 1. There are penalties for not sending them!

Business/Rental. If you paid $600 or more to anyone during 2009 you may need to issue a form. Applies to "business" expense only. There is no need to report payment for personal expenses or any payments made to a corporation.

Was any part of the payment for services? If so, you must report the total amount on Form 1099. Rents you pay to a manager (but, not to the landlord) are excepted. Same if you pay for merchandise alone. Check your records for repairs, painters, consultants, builders and the like.

Get name, address, and Tax ID. Number. Call or use Form W -9. T f someone gives his/her name, get a Social Security Number (looks like 555-55-5555). If a business name is used, get an Employer LD. Number (looks like 55-5555555).

Rental Managers. A property manager who runs your rental sends Form 1099 to you reporting the rents. Ask if the 1099's for service people were sent. The law here is not clear, so play it safe. Ask if they issued a 1099 to themselves for what you paid them. If not, you should do it!

Nominees. Limits are lower. If you pay $10 or more to another, you may need to send the form. You file the same type of 1099 as you received, but you are filing as a "middle man".

Getting the Forms. I can help, or you can get forms from IRS and do them yourself. If you need my help, please call early! My tax season is hectic, and the February I deadline comes up quickly. If you need forms from IRS you can reach them at 1-800-829-3676, or download forms at www.irs.gov. You'll need Form 1099 and Form 1096.

IRA To Roth -- New Rule in 2010

Roth accounts are very popular. Why? Easy - you pay no tax on the growth if you follow the rules. But, not everyone can have Roth accounts.

There are income limits that don't allow wealthier folks to contribute to Roth Accounts.

You can convert a traditional IRA account to a Roth account if you're willing to pay tax on the growth to date. But, there's an income-based limit here, too. Conversions are not allowed if income is over $100,000.

Beginning in 2010 anyone is free to make such conversions.

Warning: This is not as simple as it seems. First, you must pay any tax due on the converted IRA. For 2010 conversions the tax is spread over years 20 II and 2012. Then you must wait until the later of five tax years or age 59~1/2 before the Roth account's growth is free from tax. And that's the easy part. The second issue - how much of your IRA is taxable? Many folks have multiple IRA accounts, but tax laws forces us to combine all such accounts into one big pile for this calculation. If you wish to make a conversion in 20 10, we really should look at the figures. I'll need information on the balances at December 31 for all IRA accounts you may have. Plus, the history was the account funded by your contributions, or was it a pension rollover? If your case is complex, I may ask you to wait until my busy tax season is done before I can give you the answers you seek.

Would you like to read a past issue. Please check out one of these issues:
 
Fall 2009
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