To Our Dearest Clients:
We are updating for Mid Season News Letter
Come back lter in the week Please
Transfer Tax Exemptions and rates for 2009 – 2013
Estate Tax 1
Generation Skipping Transfer (GST)
Highest Gift, Estate and GST tax rates
0% for GST
Hopefully this information was helpful and got you thinking about issues that may arise in the coming year. Feel free to let us know if you have any questions.
Gidney & Company, P.A., CPAs
We are amazed how quickly the year has passed. Congress continues to work on last minute income tax bills as this letter goes to press, but we will stay abreast of all the latest changes as they occur.
Attached is our tax information questionnaire to assist in organizing your tax information. Below are some significant items to bring to your attention. For links to these and other important sites, please visit our website at www.gidneycpa.com.
Cash for Clunkers
Good news — if you traded in that old junk vehicle under the "cash for clunkers bill" you do not have to pay tax on the credit you received. We don't even need to know about it unless you use your car for business, and even then you don't pay tax on the credit.
• First-time homebuyers. Qualifying first-time homebuyers (you or your spouse have not owned a home during the three years prior to purchase) purchase a home on or after January 1, 2009 through April 30, 2010 (June 30, 2010 if under binding contract by April 30, 2010) may be eligible for a tax credit of 10% of the purchase price, up to a maximum credit of $8,000.
• Existing homebuyers. Qualifying existing homeowners who have owned and lived in a principal residence for at least five consecutive years (during the eight years prior to purchase) may qualify for a tax credit for the purchase of a different principal residence. The tax credit is 10% of the purchase price, up to a maximum credit of $6,500, under the same income restriction, and schedule as first-time homebuyers.
• Some restrictions apply. To qualify for the credit, purchased homes must be used as the purchaser's principal residence for at least 36 months (vacation homes are not eligible). Other restrictions include: income limitations, age and dependency disqualifiers, and related party sales.
New Anti-fraud Protections
Under the new law, homebuyers must support credits claimed on 2009 and 2010 returns by attaching properly executed real estate settlement sheets to their returns. Also, the IRS can now automatically deny credits that appear to be claimed in error.
New Cars or Trucks
Several new tax deductions and credits are available this year if you bought a new car, light truck (GVW<8,500), motorcycle or motor home of any weight during the year. If you bought a new vehicle please provide a copy of the invoice with your tax documentation.
Recent IRS scrutiny of home mortgage interest deductions now require us to carefully track re-financings and the use of loan proceeds. Please provide us with any new home loan information, closing statements from any re-financings, and a summary of how any additional loan proceeds were used.
An IRS court case from 2008 reminds us of the rules on charitable contributions. ALL deductions of any amount must have a receipt. Any individual contribution over $250 must also have an acknowledgment letter from the charity, and the letter must be dated by the date we file your return. The letter must show the date and amount of any individual contribution over $250, and must also state that no goods or services were received in return for the contribution. Therefore, no documentation, no deduction, no exceptions.
Individual Retirement Accounts (IRA's)
As a reminder, the IRS has waived the minimum distribution requirement for Individual Retirement Accounts for 2009. Direct gifts from IRA's to qualified charitable organizations are still allowed for taxpayers over age 70.
There is a new special property tax deduction available in 2009 for property tax paid on your personal residence. Everyone who paid property tax in 2009 should provide the amounts.
You may have heard that the IRS is looking closely for offshore accounts. If you have an account or signature over an account with in a foreign country, or a foreign business ownership (not through a mutual fund) please let us know as some special rules will apply to you and you may have to file forms with a June due date.
Deductible mileage rates changed for 2009. Please provide us with the number of business miles, medical miles and charitable miles you drove during the year for this deduction.
A major change of college credits has provided us with the new "American Opportunity Credit", a special credit for undergraduate college students. If you have children in college, please discuss some options with us to ensure that you receive the best benefit for these costs. Also a major tax court case has changed Graduate school tuition deductions, please provide those cost too.
Roth IRA Conversions
You will be hearing from lots of "experts" this year that you need to convert your retirement accounts to Roth IRAs. While there are a number of advantages to conversions, there are an equal number of disadvantages that carry some major tax consequences. If considering Roth conversion, please contact us to discuss the tax implications.
Effective 1/1/2009 the amount you may give to one person in one year without any return filing requirements has been increased to $13,000.
The residential energy credit has been reinstated starting in January of 2009. If you added storm windows, doors, insulation or a furnace, the Federal credit is 30% of the cost of the product, plus installation fees for furnaces, up to a maximum of $1,500 for your home. There are also tremendous credits available for solar power, geothermal and wind energy that you should discuss with us if you are considering these changes. There is still a special tax credit for some new hybrid cars bought in 2009, so please bring that information (Sales receipt) to us as well.
Five-year Carry back Privilege for Business Losses Is Extended
The American Recovery and Reinvestment Act of 2009 (ARRA) that passed earlier this year allowed an eligible small business taxpayer to carry back a Net Operating Tax Loss (NOL) for either three, four, or five years. This is a beneficial exception to the two-year carry back rule that usually applies. However, the expanded NOL carry back privilege was only allowed to an Eligible Small Business (ESB) for a calendar year 2008 NOL or for an NOL generated in a fiscal tax year that began or ended in 2008. To be an ESB, the business must have had average annual gross receipts of no more than $15 million for the three-year period that ended with the loss year.
The new WHBAA now gives a similar expanded NOL carry back privilege to virtually all businesses, large and small alike. Specifically, the new expanded carry back deal is allowed for an NOL that is generated in a tax year that ends after 2007 and begins before 2010 (which means 2008 and 2009 for a calendar-year taxpayer). An NOL generated in one of these years can be carried back for three, four, or five years. Once again, this is a beneficial exception the two-year carry back rule that applies to most NOLs. However, the new election generally can only be made for one tax year that ends after 2007 and begins before 2010.
An election to take advantage of the new expanded NOL carry back privilege must be made by the due date (including any extension) of the return for the taxpayer’s tax year that begins in 2009. Once made, the election is irrevocable.
Small Businesses Can Use Expanded NOL Carry back Privilege for Two Years.
Say an eligible small business taxpayer took advantage of the prior-law expanded NOL carry back privilege (allowed by the ARRA) for its calendar-year 2008 NOL. If the business also has an NOL for calendar-year 2009, it can take advantage of the new expanded carry back privilege allowed by the new law for its 2009 NOL. In other words, the taxpayer can benefit twice from the expanded NOL carry back privilege: once with the prior-law deal for its 2008 NOL and again with the new deal for its 2009 NOL.
Higher Failure-to-file Penalties for Partnerships , S Corps and Individuals
The WHBAA hikes the penalty for failing to file a partnership return on Form 1065, or failing to provide required information on Form 1065, from the current $89 per partner per month to $195 per partner per month. The penalty can be assessed for up to 12 months. The higher penalty applies to Forms 1065 required for tax years beginning after 12/31/09.
The WHBAA also hikes the penalty for failing to file an S corporation return on Form 1120S, or failing to provide required information on Form 1120S, from the current $89 per shareholder per month to $195 per shareholder per month. The penalty can be assessed for up to 12 months. The higher penalty applies to Forms 1120S required for tax years beginning after 12/31/09.
Future Income Tax Rates & Other
With record Federal deficits predicted for the next 10 years, it is a foregone conclusion that future tax rates will be substantially higher than today. If you are considering selling property or stock there is a good chance that 2010 will be the lowest capital gains rates any of us will ever see again, and the 2010 rates continue to be the lowest rates since before World War II. You might want to discuss some tax strategies with us if you are expecting a major asset sale in 2010. Warning keep current on the tax laws, if you cannot please call us and make an appointment before and major transactions so that we can advise you.
There are literally hundreds of other changes, extensions and deletions that we will consider this year while preparing your return. Because of these changes we are requesting that everyone have their tax information to us by your suggested drop off date and no later than March 27, 2010. If you've gathered all your information prior to your suggested drop off date please feel free to drop it off earlier. Rest assured that we will utilize our best resources to provide you with timely, complete and accurate service while keeping your tax burden to the lowest legal amount.
For those who have difficulty “getting it all together” on time, please note that the Internal Revenue Service automatically permits a one hundred eighty (180) day extension for filling a return. However, this does not allow the taxpayer additional time to pay any taxes or estimated taxes that are due and if the taxes are not paid, the IRS will assess penalties to anyone who owes and filed an extension and has the option of not accepting the extension and charging additional penalties. Additional penalties may also be incurred depending on the amount of underpayment. Extensions will be considered and completed by April 7, 2010 for those requesting an extension or those with late information. We will make every attempt to complete your return, but depending on our workload at that time an extension may be required, and any taxes owed will need to be paid. Please note that we will not automatically apply for an extension without prior notification by taxpayer. Therefore, contact us as soon as possible if you need an extension, so that we may allocate our time effectively. The final day to pick up your return is April 14, 2009. At any time of pick up, we welcome the opportunity to discuss your return with you, and remind you that all invoices are payable at that time.
Thank you in advance for the opportunity to be of service to you.