2009 Federal Tax Laws Updates

2009 FEDERAL TAX LAWS UPDATESSPONSORED BY ACCUTAX

THE AMERICAN RECOVERY REINVESTMENT ACT (ARRA)

THE AMERICAN RECOVERY REINVESTMENT ACT (ARRA)

• The American Recovery and Reinvestment Act of 2009, abbreviated ARRA is an economic stimulus package enacted by the 111th United States Congress in February 2009.

• The Act of Congress was based largely on proposals made by President Barack Obama and was intended to provide a stimulus to the U.S. economy in the wake of the economic downturn.

• The measures are nominally worth $787 billion. The Act includes federal tax cuts, expansion of unemployment benefits and other social welfare provisions, and domestic spending in education, health care, and infrastructure, including the energy sector. The Act also includes numerous non-economic recovery related items that were either part of longer-term plans (e.g. a study of the effectiveness of medical treatments) or desired by Congress (e.g. a limitation on executive compensation in federally aided banks added by Senator Dodd and Rep. Frank). The government action is much larger than the Economic Stimulus Act of 2008, which consisted primarily of tax rebate checks.

• No Republicans in the House and only three Republican Senators voted for the bill.[1][2][3] The bill was signed into law on February 17 by President Obama at an economic forum he was hosting in Denver, Colorado.[4]

MAKING WORK PAY CREDIT

IRS WORKPAY VIDEO PLAY AUDIO

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OVERVIEW OF WORK PAY

WHAT IS AMT?Alternative Minimum Tax

Alternative Minimum Tax• The Alternative Minimum Tax (AMT) adjusts your tax liability to recapture some tax

benefits. AMT is an alternative method for calculating your taxes. The regular income tax uses your adjusted gross income (AGI), then subtracts your standard deduction or itemized deductions, and then subtracts your personal exemptions, to arrive at taxable income. To calculate AMT, you start with your AGI, and then add or subtract any adjustments allowed under AMT rules, to arrive at taxable income for AMT purposes. You then calculate your AMT tax at a 26% or 28% tax rate.

• Because AMT does not allow the standard deduction, personal exemptions, or certain itemized deductions, your tax under AMT rules may be higher than your tax under regular tax rules.

• Generally, AMT may apply to individuals earning more than $40,250. AMT also applies to people who have a large amount of standard or personal exemptions, exercised incentive stock options, who take a net operating loss deduction, who have certain other types of income, or claimed certain business-related tax credits. AMT is calculated using Form 6251 (PDF) and the Instructions for Form 6251 (Website).

• Congress revised the AMT exemption amounts for 2009 as part of the American Recovery and Reinvestment Act. The revised exemption amounts are higher than they were scheduled to be, thereby preventing approximately 28 million middle-income filers from having to pay the AMT. The AMT exemption amounts for 2009 are:

• $46,700 for single and head of household filers, • $70,950 for married people filing jointly and for qualifying widows or widowers, and • $35,475 for married people filing separately.

Alternative Minimum TaxCONTINUATION

• AMT exemption amount for a child increased. The AMT exemption amount for a child whose unearned income is taxed at the parent's tax rate has increased to $6,700.

• Qualified motor vehicle tax allowed against AMT. If you claim the standard deduction for the regular tax and it includes any state or local sales or excise tax on the purchase of a qualified motor vehicle, that tax is also allowed as a deduction for the AMT.

• Tax-exempt interest on specified private activity bonds issued in 2009 or 2010 exempt from AMT. Tax-exempt interest on specified private activity bonds issued in 2009 or 2010 is not an item of tax preference and therefore is not subject to the AMT. A refunding bond is treated as issued on the date of the issuance of the refunded bond (or, in the case of a series of refundings, the original bond). However, tax-exempt interest on a specified private activity bond issued in 2009 or 2010 to currently refund a private activity bond issued after 2003 and before 2009 is not an item of tax preference.

2009 EARNED INCOME CREDIT CHANGES

2009 EARNED INCOME CREDIT CHANGES

• 2009 Amount of credit increased:

$3043 For 1 qualifying child

$5028 For 2 qualifying children

$5657 For 3 or more qualifying children

$457 No qualifying children (Single must be 24yrs age to qualify)

• 2009 Earned income amount increased:

3 or more qualifying children earn less than $43,279 ($48,279 if married filing jointly)

2 qualifying children earn less than $40,295 ($45,295 if married filing jointly)

1 qualifying child earn less than $35,463 ($40,463 if married filing jointly)

No qualifying child earn less than $13,440 ($18,440 if married filing jointly)

• Investment income amount increased.The maximum amount of investment income you can have and still get the credit has increased to $3,100 for 2009.

• Advance payment of the credit. If you get advance payments of the credit from your employer with your pay, the total advance payments you get during 2009 can be as much as $1,826.

Economic Recovery Payment

Economic Recovery Payment2 new Economic credits you may be able to take for 2009

• Making work pay credit. You may be able to take this credit if you have earned income from work. Even if your federal income tax withholding is reduced during 2009 because of the credit, you must claim the credit on your return to benefit from it.

You cannot take the credit if:

Your modified AGI is $95,000 ($190,000 if married filing jointly) or moreYou are a nonresident alienYou can be claimed as a dependent on someone else's return

The credit is 6.2% of your earned income but cannot be more than $400 ($800 if married filing jointly)

The credit will be reduced if:

You receive a $250 economic recovery payment (described earlier) during 2009Your modified AGI is more than $75,000 ($150,000 if married filing jointly)You take the government retiree credit discussed next

• Government retiree credit. You can take this credit if you receive a pension or annuity payment in 2009 for service performed for the U.S. Government or any U.S. state or local government (or any instrumentality of one or more of these) and the service was not covered by social security. The credit is $250 ($500 if married filing jointly and both you and your spouse receive a qualifying pension or annuity). However, you cannot take the credit if you receive a $250 economic recovery payment during 2009. If you file a joint return, both you and your spouse receive a qualifying pension or annuity, and both of you receive an economic recovery payment, no government retiree credit is allowed; if only one of you receives an economic recovery payment, the credit is $250.

Economic Recovery PaymentCONTINUATION

• To take either credit, you must include your social security number (if filing a joint return, the number of either you or your spouse) on your return. A social security number does not include an identification number issued by the IRS.

• Schedule M. Generally, you will use new Schedule M (Form 1040A or 1040) to figure both the making work pay credit and the government retiree credit. Both credits are refundable, which means they are treated like payments you made and may give you a refund even if you had no tax withheld from your pay or your pension. If you are filing Form 1040EZ, you can take the making work pay credit on that form and do not have to file Schedule M.

2009 ADDITIONAL CHILD TAX CREDIT

2009 ADDITIONAL CHILD TAX CREDIT

• This credit is for certain individuals who get less than the full amount of the child tax credit. The additional child tax credit may give you a refund even if you do not owe any tax.

TO CLAIM THE ADDITIONAL CHILD TAX CREDIT

2008 – The earned income had to exceed at least $8500

2009 – The earned income has to exceed at least $3000

WHICH ALLOWING MORE TAX PAYERS TO CLAIM THE CREDIT

SPECIAL RULESFOR TAXPAYER IMPACTED BY

HURRICANES:KATRINA, RITA, & WILMA

HURRICANE RULES• If you claimed a casualty or theft loss deduction and in a later year you received more

reimbursement than you expected, you generally do not recompute the tax for the year in which you claimed the deduction. Instead, you must include the reimbursement in your income for the year in which it was received, but only to the extent the original deduction reduced your tax for the earlier year.

• However, an exception applies if you claimed a casualty or theft loss deduction for damage to or destruction of your main home caused by Hurricane Katrina, Rita, or Wilma, and in a later year you received a hurricane relief grant. Under this exception, you can choose to file an amended income tax return (Form 1040X) for the tax year in which you claimed the deduction (and for any tax year to which such deduction was included in a net operating loss carryback or carryforward) and reduce (but not below zero) the amount of the deduction by the amount of the grant. If you choose to file an amended return reducing the prior deduction, any underpayment of tax resulting from the reduced deduction will not be subject to any penalty or interest as long as the additional tax is paid not later than 1 year after the filing of the amended return.

• If you make this choice, you must file Form 1040X by the later of:

The due date for filing your tax return for the tax year in which you receive the grant (including extensions), or July 30, 2009

UNEMPLOYMENT

UNEMPLOYMENT• For any tax year beginning in 2009, each recipient of unemployment compensation

can exclude from gross income up to $2,400 of the amount he or she received during the year.

UNEMPLOYMENT IRS VIDEO

2009 ITEMIZED DEDUCTIONS

2009 ITEMIZED DEDUCTIONS

The itemized deduction phase-out income limits have increased for 2009

• If your AGI is above a certain amount, you may lose part of your itemized deductions. In 2009, this amount is increased to $166,800 ($83,400 if married filing separately).

2009 EDUCATION RELATED CHANGES

2009 EDUCATION RELATED CHANGES• Education Savings Bond Exclusion

For 2009, the amount of your interest exclusion is phased out (gradually reduced) if your filing status is married filing jointly or qualifying widow(er) and your modified adjusted gross income (AGI) is between $104,900 and $134,900. You cannot take the exclusion if your modified AGI is $134,900 or more.For all other filing statuses, your interest exclusion is phased out if your modified AGI is between $69,950 and $84,950. You cannot take the exclusion if your modified AGI is $84,950 or more

• Expanded Definition of Qualified Expenses for Qualified Tuition Programs

One piece of the American Recovery and Reinvestment Act of 2009 expands the definition of qualified education expenses.

For 2009 and 2010, qualified education expenses include computers, computer software, peripheral equipment and even internet expenses. This means that distributions from 529 accounts, qualified tuition programs, can be used for these expenses as long as they will be used by the beneficiary or his/her family during the years he/she is enrolled at an eligible educational institution. The expanded definition of qualified higher education expenses does specifically exclude computer software that is designed for games, sports or hobbies unless that software is “predominately educational in nature.”

529 OVERVIEW PLAN529 VIDEO

2009 EDUCATION RELATED CHANGESCONTINUATION

• Hope and Lifetime Learning Credits For tax years 2009 and 2010, the following changes have been made to the Hope credit. The modified credit is also referred to as the American opportunity tax credit.

• The maximum amount of the Hope credit increases to $2,500 per student. The credit is phased out (gradually reduced) if your modified adjusted gross income (AGI) is between $80,000 and $90,000 ($160,000 and $180,000 if you file a joint return).    Exception. For 2009, if you claim a Hope credit for a student who attended a school in a Midwestern disaster area, you can choose to figure the amount of the credit using the previous rules. However, you must use the previous rules in figuring the credit for all students for which you claim the credit.

• The Hope credit can now be claimed for the first four years of post-secondary education. Previously the credit could be claimed for only the first two years of post-secondary education.

• Generally, 40% of the Hope credit is now a refundable credit, which means that you can receive up to $1,000 even if you owe no taxes. However, none of the credit is refundable if the taxpayer claiming the credit is a child (a) who is under age 18 (or a student who is at least age 18 and under age 24 and whose earned income does not exceed one-half of his or her own support), (b) who has at least one living parent, and (c) who does not file a joint return.

• The term "qualified tuition and related expenses" has been expanded to include expenditures for "course materials." For this purpose, the term "course materials" means books, supplies, and equipment needed for a course of study whether or not the materials are purchased from the educational institution as a condition of enrollment or attendance

2009 EDUCATION RELATED CHANGESCONTINUATION

• For 2009 the amount of your lifetime learning credit is phased out (gradually reduced) if your modified adjusted gross income (AGI) is between $50,000 and $60,000 ($100,000 and $120,000 if you file a joint return). You cannot claim a lifetime learning credit if your modified AGI is $60,000 or more ($120,000 or more if you file a joint return). For more information, see chapter 3 in Publication 970. 

• STUDENT LOAN INTEREST DEDUCTIONS

For 2009, the amount of the student loan interest deduction is phased out (gradually reduced) if your filing status is married filing jointly and your modified adjusted gross income (AGI) is between $120,000 and $150,000. You cannot take the deduction if your modified AGI is $150,000 or more.

For all other filing statuses, your student loan interest deduction is phased out if your modified AGI is between $60,000 and $75,000.  You cannot take a deduction if your modified AGI is $75,000 or more.

• TUITION AND FEES DEDUCTIONS

You may be able to deduct qualified higher education tuition and required enrollment fees up to $4,000 that you pay for yourself, your spouse or a dependent.

This break, first established in the early part of the decade, was extended for 2008 and 2009 in the financial bailout legislation in October.

2009 EDUCATION RELATED CHANGESCONTINUATION

You do not have to itemize to take this deduction. However, a taxpayer cannot take both the tuition and fees deduction and either the Hope or Lifetime Learning education credits for the same student in the same year.

But since those credits have income limits, this deduction is important to taxpayers who don't otherwise qualify for either credit

2009 FIRST TIME HOME BUYER

2009 FIRST TIME HOME BUYER

First-Time Homebuyer Credit Expands

• The American Recovery and Reinvestment Act of 2009 expanded the first-time homebuyer credit by increasing the credit amount to $8,000 for purchases made in 2009 before Dec. 1.

• For home purchased in 2009, the credit does not have to be paid back unless the home ceases to be the taxpayer's main residence within a three-year period following the purchase.

• First-time homebuyers who purchase a home in 2009 can claim the credit on either a 2008 tax return, due April 15, 2009, or a 2009 tax return, due April 15, 2010. The credit may not be claimed before the closing date. But, if the closing occurs after April 15, 2009, a taxpayer can still claim it on a 2008 tax return by requesting an extension of time to file or by filing an amended return

FIRST TIME HOME BUYER VIDEO

NEW VEHICLE PURCHASES

NEW VEHICLE PURCHASES

• The American Recovery and Reinvestment Act permits taxpayers to take a deduction for state and local sales and excise taxes paid on the purchase of qualified new cars, light trucks, motor homes, and motorcycles. (weight rating of 8500 pounds or less. The deduction is available on new vehicles purchased from Feb. 16, 2009, through Dec. 31, 2009. In states that don't have a sales tax, the law provides a deduction for other taxes or fees paid. This deduction is available whether or not a taxpayer itemizes deductions on Schedule A.

• The deduction is limited to the taxes and fees paid on up to $49,500 of the purchase price of an eligible vehicle. The deduction is reduced for joint filers with modified adjusted gross incomes (MAGI) between $250,000 and $260,000 and other taxpayers with MAGI between $125,000 and $135,000. Taxpayers with higher incomes do not qualify.

NEW VEHICLE PURCHASE VIDEO

ENERGY EFFICINECYREAP TAX REWARDS

Energy OverviewPlay Audio

AccuTax Background

2009 $250 ECONOMIC RECOVERY PAYMENT

2009 $250 ECONOMIC RECOVERY PAYMENT

A one-time payment of $250 will be made in 2009 to:

• The IRS will not make this payment, unlike last year's economic stimulus program. Individuals who may qualify for this year's economic recovery payment should contact their respective agency for more information.

• The Social Security Administration Web site has a special section on the economic recovery payment.

• The economic recovery payment will be a reduction to any Making Work Pay credit for which the recipient qualifies. The Making Work Pay credit will be claimed on the recipient's 2009 tax return filed in 2010.

• Taxpayers who can't recall if they received the economic recovery payment should contact their respective agency for confirmation before completing and filing their 2009 tax return in 2010.

INFORMATION FOR BUSINESS

INFORMATION FOR BUSINESSSome of the provisions of the law primarily affect businesses

• Making Work Pay Tax Credit. Businesses should use the new withholding rates for their employees. For pension plan administrators, new optional withholding procedures are available to supplement the February withholding tables.

• Work Opportunity tax credit. This newly-expanded credit adds returning veterans and "disconnected youth" to the list of new hires covered by the credit that businesses may claim. Certification by the state work force agency is required.

• COBRA: Health Insurance Continuation Subsidy. The IRS has extensive guidance for employers, including an updated Form 941, as well as information for qualifying individuals.

• Energy Efficiency and Renewable Energy Incentives. See what businesses can do to reap tax rewards.

• Net Operating Loss Carryback. Small businesses can offset losses by getting refunds on taxes paid up to five years ago. Information on the carryback, an expanded section 179 deduction and other business-related provisions, is now available.

• Municipal Bond Programs. There are new ways to finance school construction, energy and other public projects. 

DECREASED ESTIMATED TAX PAYMENTS FOR SMALL BUSINESS

ETP OVERVIEW

DEDUCTION FOR CREDIT / DEBIT CARDCONVENIENCE FEE

OVERVIEW

EXCLUSION OF INCOME FORFIREFIGHTERS/EMERGENCY RESPONDERS

OVERVIEW

INCREASE IN CASUALTY & THEFT LOSSESOVERVIEW

TAX RATE ON DIVIDENDS & CAPITAL GAINS REDUCEDOVERVIEW

New Rules for Children of Divorced or Separated ParentsOVERVIEW

FAILURE TO FILE INCOME TAX RETURN INCREASEDOVERVIEW

RECOVERY REBATE CREDITOVERVIEW

2009 Standard Mileage Rate

For 2009, the standard mileage rate for the cost of operating your car for business use is 55 cents per mile. Car expenses and use of the standard mileage rate are explained in chapter 4 of Publication 463, Travel, Entertainment, Gift, and Car Expenses.

Medical- and move-related mileage. For 2009, the standard mileage rate for the cost of operating your car for medical reasons or as part of a deductible move is 24 cents permile.See Transportation under What Medical Expenses Are Includable in Publication 502 or Travel by car under Deductible Moving Expenses in Publication 521, Moving Expenses..

Charitable-related mileage. For 2009, the standard mileage rate for the cost of operating your car for charitable purposes remains 14 cents per mile.

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