Newsletter Archives


Volume 6                                                                             December 2009 

Dear Client,

As we “go to press” we are just in the midst of a very changeable tax year full of changes; and first impressions point to even more changes coming in the following months as we move past a bad economy.  If you have not already, you can also view details of major popular changes having already taken place in 2009 at our website; . “Newsletters”.

To recap the in-place changes so far:

1 - The 1st $ 2,400 of taxpayer (and additional $ 2,400 for spouse) Unemployment Compensation benefits is exempt from Federal tax.

2 A) – Under the American Recovery and Reinvestment Act of February, 2009, 1st time homebuyers can take a Tax Credit of 10% of 1st $ 80,000 of purchase price of their first home, up to an $ 8,000 credit amount.   Either an Amendment to 2008 Federal taxes or can do on 2009 Federal Income Tax return.

2 B) – Under the Worker, Home Ownership & Business Assistance Act of November, 2009 signed November 6, 2009, the 1st Time Homebuyer Credit deadline was extended to April 30, 2010.   Also now current homeowners who have lived in their home for 5 continuous years out of last 8 years can qualify for a Replacement Homebuyer’s Tax Credit of up to $ 6,500 (Married-Joint filing amount) if they enter into the buying Contract by April 30, 2010 and close by June 30, 2010.

Single taxpayers whose Gross Income is below $ 125,000 ($ 225,000-joint filers) qualify for this Credit; the phase-out amounts rise and eliminate at $ 145,000 ($ 245,000-joint filers).   The preceding only applies to this new law; NOT the previous $ 8,000 credit.   Further, No credit is available if purchase price of home exceeds $ 800,000.   Also, purchasers who are on active military duty AND currently serving outside the U.S. have an extra year to buy this residence.

One other important note; Taxpayers qualifying under this law have an extra filing requirement of attaching a copy of Closing Statement documentation to their tax returns as a prerequisite of qualifying for the Credit.

3 – Up to $ 1,500 Energy Credits for items purchased collectively in 2009 or 2010 include: windows, furnace, air conditioning, insulation, exterior doors and hot water tanks.   Remember to purchase ONLY those items with the Energy Star label; this ensures that what you bought qualifies for the Credit.

4 – If you purchased (not leased) new vehicles totaling less than $ 49,500 in 2009, you can deduct Sales Tax on the purchase(s) from taxable income.

5 – Social Security recipients may receive a check of an undetermined amount (thought to be around $ 250) to replace the annual Cost of Living increases you usually get.   This law was signed because the Cost of Living went down for 2009.   The check received will be subject, at this time, to Federal taxation as income.

6 – Taxpayer who currently own Traditional IRAs and have incomes higher than $ 100,000 can, after January 1, 2010, convert them to Roth IRAs, even if filing Married-Separate.  Prior rule prohibited those high-income earners from converting.

Those taxpayers can get a head start in 2009 by making a non-deductible Traditional IRA contribution, and then convert it to a Roth in 2010.   Thus, only earnings on this are taxed.

7 – Making Work Pay Credit.   This was the $ 400 credit workers received in their paychecks and retirees in their pensions.   It was only available to workers and retirees with Gross Income of under $ 75,000 ($ 150,000-joint filers).   Warning:  some taxpayers may owe extra tax due to their ineligibility under the rules; those who have multiple jobs and where all employers gave them extra credits, etc.

8 – American Opportunity Tax Credit, aka HOPE Tuition Credit.   The HOPE Credit increased to max of $ 2,500 per eligible student, is now applicable to first 4 college years and includes expenses for course materials.

9 – Earned Income Credit percentage is increased to 45% of first $ 12,750 of Earned Income for taxpayers with THREE or more qualifying children.   Prior, Credit was only 40% of two or more children.

10 – Alternative Minimum Tax Patch for 2009 features the exemption amounts:

·        Married-Joint:  $ 70,950

·        Single and head of Households:   $ 47,200

·        Married-Separate:   $ 35,475

The main point here is that there is an AMT exemption patch in place, put in back in February.   Again, it is only a one-year patch and if Congress does not reenact it in 2010, millions of taxpayers will be then subject to the AMT additional tax on their incomes.   The AMT is now affecting middle-class taxpayers who are general Gross Incomes exceed a general threshold of around $ 130,000.   Without this patch, that general guideline threshold falls to around two-thirds of your eligibility.


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