Change has come Doster Associates Home casualty by benbenzhou


More Info
									                                                                                                            J a n u a r y 2 , 2 0 09
                                                                                                           V olume 9, Issue 1

T AX B IZ 2009
Doster & Associates, 2960 Memorial Drive SE, Atlanta, Georgia 30317 (404) 377-2195 • (404) 377-3631fax

Change has come…                                                 INSIDE THIS ISSUE
By Patricia Doster                                               Change has come…                                              1
H appy New Year!!!!... as we begin a journey of                  Stimulus Rebate…is it income on the 2008 Tax Return?         1

national and international “change”…and yes,                     Military Issues                                              2

change has also come to the tax code affecting                   Retirement Planning: Tax-Free Deferrals                      3

your 2008 and beyond tax returns. The Economic                   National Disaster Relief                                     3
                                                                 Tax Summary Insert Inside
Stimulus Act of 2008 (along with numerous other
                                                                 Financial Distress Issues                                    5
legislation and rulings), brings sweeping changes
                                                                 New Credits and Deductions for Homeowners                    5
to tax preparation for 2008 and beyond. The ESA
brought tax changes both for individuals and
businesses. The tax provision most spoken of is                property acquired and placed in service during
the Stimulus Rebate Check provision payable to                 calendar year 2008. Qualifying property includes
individual taxpayers whose income ranges within                off-the-shelf-computer software, leasehold
guidelines or whose income is otherwise non-                   improvements to interior, non-common area of
taxable. Rebates ranging from $300 to $600 per                 nonresidential building by an unrelated lessee or
family member began paying out on April 28,                    lessor, automobiles, equipment and other business
2008. Business owners were also afforded benefit               property with depreciative life of less than 20
under the ESA. The first provision increases the               years. Automobiles with gross vehicle weight
limit up to which a business can expense property              (GVW) of 6,000 or fewer pounds historically are
purchased and placed in service during its 2008                capped with regard to the amount of depreciation
tax year. The second provision provides an                     taken annually. The ESA increased the cap to
additional 50% special depreciation allowance for              $8,000 plus a 50% additional first year
                                                               depreciation. The GVW is located on Driver’s Door
                                                               of your vehicle.
Stimulus Rebate…is it income on the 2008 Tax Return?
One of the most frequently asked questions is,                 ask for verification of the Stimulus Rebate amount
“Will the Advanced Stimulus Rebate check I                     received during 2008. Understand however, that
received be taxed when I file my 2008 tax                      the amount is not taxable income. You should
return?”…the answer is “No”. However, it will be               also be aware that because the credit or rebate is
important for us to know the amount you received               treated as a payment of tax, it is subject to the
in a payment of Stimulus Rebate because you may                refund offset provisions for past-due debts such
either (1) qualify to receive an additional credit,            as child support, tax liabilities (federal and state),
depending upon 2008 income and qualifying                      student loans, etc. It is also not includable in
children, or (2) qualify to receive a rebate credit            gross income, and it does not reduce withholding.
because you did not receive the advance rebate                 It is not taken into account for the month of
payment during 2008. So don’t be surprised if we               receipt or the following 2 months as income or

                                                               Please see Stimulus Rebate… on page 4
Page 2                                                                                     Tax Biz 2009

Military Issues…Change has Come!                                           We Salute Our Military Men and
                                                                           Women…Thank you for your
Several changes affect income reporting for
members of our military services. Some of these
                                                               before dying.
changes include the following:
                                                          5. Qualified retirement plans may be
                                                               amended to treat a former employee
   1. Nontaxable combat pay may continue to
                                                               who left for qualified military service but
      be included in income for earned income
                                                               who cannot be re-employed because of
       credit computation.
                                                               death or disability resulting from the
   2. Reservist called to active duty for at least
                                                               military service as if the individual had
       180 days may withdraw funds, penalty free
                                                               been rehired on the date before death or
       from civilian employer’s healthcare flexible
                                                               disability and terminated employment
       spending account for any purpose;
                                                             on the date of death or disability.
       reservist may also withdraw funds, penalty
                                                          6. Retroactive Disability Pay is non-taxable
       free, from tax-advantaged retirement
                                                               even for pay received as much as 5 years
       plans. They may make an after-tax
                                                               before disability is declared if disability
       contribution to an IRA within 2 years after
                                                               is retroactive to retirement date.
       the end of the active duty period to
                                                               Veteran may amend return to claim
       replenish their retirement savings. The
                                                               refund on taxed portion of retirement
       repayment is limited to the amount
                                                               based upon percentage of disability.
       withdrawn as a qualified reservist
                                                               Claims for refund on disability
                                                               determinations made prior to June 17,
   3. Survivors who receive military death
                                                               2008 must be filed no later than June
      benefits may contribute the full amount to
                                                               17, 2009.
       a Roth IRA or a Coverdell Educational
                                                          7.   The State of Georgia continues to allow
       Savings Account (ESA). Tax advantage: the
                                                               a tax credit to members of the National
       death benefit is tax-free, and is treated as
                                                               Guard or Air National Guard who are on
       basis in the Roth IRA or the Coverdell ESA.
                                                               active duty for a period of more than 90
   4. Qualified Retirement Plans must be
                                                               consecutive days against their income.
       amended to enhance survivor benefits for
                                                               The credit cannot exceed the amount
       employees who die while they are absent
                                                               expended for qualified life insurance
       for qualified military service. The survivors
                                                               premiums or the taxpayer’s income tax
       should receive the benefits that would be
       payable if the employees returned to work

            "Now, more than ever, we must rededicate ourselves to the notion
               that we share a common destiny as Americans – that I am my
            brother’s keeper, I am my sister’s keeper. Now, we must all do our
             part to serve one another; to seek new ideas and new innovation;
                      and to start a new chapter for our great country."
                          Holiday Message: President Elect Barack Obama 2008
Tax Biz 2009                                                                                                     Page 3

Retirement Planning: Tax-Free Deferrals
There are a lot of mixed feeling about 401(k) plans
among investors and employers alike. Long-term
however, the plans are still one the best tax-shelters
against income for the average taxpayer. Individuals,
who are 10 plus years away from retirement, can’t go
wrong with this investment even though it may not                                      You Decide Where You’re
“feel” like it at the moment. You should know that                                     Headed…Be Proactive!
you do have some “say-so” about how your plan is
                                                               recover!!! Many employment plans for retirement
invested and you can decide how investments are
                                                               offer matched payments by the employer and for
allocated within the portfolio. Contact your plan
                                                               2009 you may contribute up to $16,500 to your
advisor if you believe your investments are too
                                                               plan. This reduces the amount of tax you pay on
heavily weighted in high risk securities or not
                                                               earned wages. Leaving or have left your company?
distributed more appropriately considering the
                                                               You may qualify to Rollover your 401(k) to Roth IRA
current economic climate. YOU GET TO DECIDE…be
                                                               in 2008, you can roll over distributions directly from
proactive! Short of reviewing your plan for
                                                               a qualified retirement plan to a Roth IRA, if for the
appropriate distribution, it does no good to
                                                               tax year of the distribution, your modified adjusted
continually look at the losses and make yourself sick
                                                               gross income is not more than $100,000, and your
about it. You have time to recover...and you will
                                                               filing status is not married filing separately. Those

                                                               Please see Retirement Planning on page 4

National Disaster Relief
Several measures provide relief for taxpayers in
                                                           presidentially declared disaster occurring after December
any location that the president declares to be a
disaster area in 2008 or 2009. In addition, Hurricane      31, 2007, and before January 1, 2010, over personal
                                                           casualty gains. Net disaster losses are treated as a
Katrina provisions are extended to victims of severe
                                                           separate deduction from non-disaster casualty and theft
storms, tornadoes, and floods in the Midwest. Some of
                                                           losses, and the 10%-of-AGI floor is waived for a net
these changes relate to personal losses, while others
                                                           disaster loss.
apply only to business and investment property losses.

 Under the old rules, individual taxpayers may deduct as   In addition, an individual’s standard deduction
                                                           is increased by the disaster loss deduction (i.e.,
an itemized deduction property losses arising from fire,
                                                           the net disaster loss). The disaster loss component
storm, shipwreck, or another casualty, or from theft.
                                                           of the standard deduction is allowed in computing
Personal casualty or theft losses are considered only if
                                                           AMTI. The changes apply to the taxpayer’s last tax
they exceed a $100 floor per casualty or theft, and
                                                           year beginning before 2008 solely for determining
aggregate net casualty and theft losses are deductible
                                                           the amount allowable as a net disaster loss deduction
only to the extent they exceed 10% of the taxpayer’s
                                                           for that year if the prior-year loss deduction is elected.
adjusted gross income (AGI). If the loss occurs in a
                                                           These changes do not apply to disasters that are
presidentially declared disaster area, the taxpayer may
                                                           covered by the Midwest disaster area provisions.
elect to deduct the casualty loss in the tax year
immediately preceding the loss year.
Under the new rules, a “net disaster loss” is the
excess of personal casualty losses attributable to a
                                                               Please see National Disaster Relief on page 4
 Page 4                                                                                               Tax Biz 2009

 Stimulus Rebate… from page 1

 resources for determining eligibility for benefits                 Individuals deemed nonfilers, i.e. taxpayer
 for assistance under any federal program or any
                                                                     who should file a tax return, but have not
 state or local program financed with federal
                                                                     filed timely
 dollars. Ineligible individuals for the rebate or
 credit include:                                                    Filers with a zero net income tax liability and
                                                                     qualifying income that is less than $3,000 for
          Individuals with no tax liability, if their only          2007 or 2008 tax year
           source of income is nonqualifying income                 Filers who can be claimed as a dependent on
           including pensions and annuities, rents                   someone else’s return (even if they are not
           and royalties, interest and dividends,                    claim but can be, i.e. student on parent’s
           capital gains, and ministers’ housing                     return)
           allowances that are excluded from gross
                                                                    Filers without valid social security numbers
                                                                    Filers who are nonresident aliens
National Disaster Relief from page 3

Business Clean-up Expense

A taxpayer may elect to deduct any qualified
disaster expense for the tax year in which it is paid          Retirement Planning… from page 3
or incurred. A qualified disaster expense is an
otherwise capitalizable expenditure for a trade or
business or business-related property that is paid or         who are at retirement age or already retired may,
incurred for:                                                 unfortunately be the most adversely affected by this
                                                              market. You may need to explore other investment
1. Abatement or control of hazardous substances
that were released as a result of a federally                 and/or asset liquidation options which will satisfy
declared disaster ;                                           your current living standards. We are also seeing far
                                                              too many retirees returning to work to make ends
2. Removal of debris from, or the demolition of
structures on, real property damaged or destroyed             meet. Contact your plan advisor to discuss your
as a result of a federally declared disaster;;                options or engage the services of a Certified Financial
3. Repair of business-related property damaged as
a result of a federally declared disaster Business-           Keep in Mind…many 401(k) plans allow employees to
related property is property held by the taxpayer for         make a hardship withdrawal because of immediate
use in a trade or business, for the production of             and heavy financial needs. Generally, hardship
income, or as inventory. A federally declared
                                                              distributions from a 401(k) plan are limited to the
disaster is any disaster occurring after 2007 and
before 2012 that is determined by the president to            amount of the employees' elective deferrals only, and
warrant assistance under the Robert T. Stafford               do not include any income earned on the deferred
Disaster Relief and Emergency Assistance Act.                 amounts or contributed by the employer. Hardship
                                                              distributions are not treated as eligible rollover
                                                              distributions. With exception to some public safety
         “Hardship withdrawals from 401(k)
                                                              employees, distributions received before age 59 1/2
            may include withdrawals for
                                                              are subject to an early distribution penalty of 10%.
      medical, tuition, funeral or disaster
         recovery purposes where no other
            resources such as loans or
              insurance are available.”
 Tax Biz 2009                                                                                                    Page 5

   Financial Distress Issues

 The present economy has adversely affected the lives          borrowed amount as income because there is an equal
 and properties of many taxpayers. The tax                     and offsetting obligation to repay the loan. No wealth is
 consequences vary for as it concerns property, credit         realized if the loan is repaid. However, if the loan is
 and the need to file an action of bankruptcy. This            forgiven rather than repaid, the taxpayer does have an
 article attempts to capsulate some of these issues and        increase in wealth because his or her obligation to repay
 is by no means exhaustive in its presentation. Specific       is reduced without an equal cash payment. This
 questions should be directed to your tax professional.        increase in wealth must generally be reported as
                                                               cancellation-of-debt income (CODI). The CODI is equal
 Property Transfers                                            to the difference between the principal balance owed on
                                                               the debt and the amount accepted in satisfaction of the
 Transferring property because of financial distress           debt. If property is repossessed, its FMV is treated as a
 triggers the same income tax consequences as                  cash payment. A repossessed automobile may also fall
 transferring the property when financial distress is not      within the prevue of this rule. Most creditors and
 present. Gain or loss is realized to the extent of the        mortgagors report these transactions on Form 1099-A or
 difference between the property’s fair market value           1099-C.
 (FMV) and the taxpayer’s basis in the property. Both
 an involuntary repossession (i.e., foreclosure) and a
 voluntary sale trigger the realization of gain or loss.                                Some taxpayers may continue to dodge a
 Tax rates on these gains can range from 0% to 28%                                      bullet on foreclosed personal residence by
 depending upon your own tax bracket.                                                   excluding cancellation of debt income
                                                                                        from taxable income; also if the property
 Loan and Credit Card Indebtedness                                                      is determined to have “declined” in value
                                                                                        and CODI occurs the valuation may be
 Taxpayers who borrow money do not include the                                          non-taxable.

New Credits and Deductions for Homeowners
Changes for homeowners include a first-           in that capacity functions as an interest free loan.
time homebuyer credit, a property tax             Buyers may opt to “repay” the credit in higher
deduction for non-itemizers, an extension         increments during the 15 year period. Selling the       Funded Down
of the deduction for qualifying mortgage          property within this time period may also trigger           Payment
insurance premiums, foreclosure provision         the recapture. A first-time homebuyer is defined           Assistance
and additional opportunities for some             as an individual who had no ownership interest in
taxpayers to exclude gain on sale of their        a principal residence in the United States during
main home.                                        the 3 year period prior to the new purchase date.
                                                                                                             have been
                                                  The credit may not be taken by residents of              banned when
First Time Homebuyer Credit                       Washington DC who qualify for the DC homebuyer             applied to
                                                  credit, or by residents who are financed through
For those who purchase their primary              tax-exempt mortgage revenue bonds, residents is
                                                                                                          insured loans.
residence in the United States between April      a nonresident alien, residents who acquire the
9, 2008 and before July 1, 2009 a first-time      home from a related party or inherit the home, or        Buyers must
homebuyer refundable tax credit valued up         if by residents who dispose of the residence (or         now make at
to $7,500 ($3,750 if married filing               residence no longer functions as the primary              least a 3.5%
separately) is available on the 2008/2009         residence) before the close of the tax year for
                                                                                                          down payment
tax return. The credit is also a “repayable”      which the credit would otherwise be allowable.
credit which the taxpayer must repay over a       There is also an income phase-out for qualifying            on home
15 year period much as $500 per year) and                                                                      loans…
                                                      Please see New Credits and Deductions For
                                                      Homeowners on page 6
                                           New Credits and Deductions For Homeowners from page 5
              Doster & Associates
             2960 Memorial Dr. SE           taxpayers: modified adjusted gross income between $75,000
              Atlanta, GA 30317             and $95,000 ($150,000 and $170,000 if married filing jointly).
                    Phone:                  Certain foreign earned income must be included in MAGI when
               (404) 377-2195               determining eligibility for credit. A “recapture provision”

                      Fax:                  permits purchasers of a residence before July 1, 2009 to claim a
               (404) 377-3631               credit on the 2008 return. In this instance, taxpayer would
                                            need to amend the 2008 return.

                                            Property Tax Deduction for Non-Itemizers
          Wisdom is the principal thing;    Taxpayers who’ve paid property tax or their primary residence
        therefore get wisdom. And in all    or 2nd home and are unable to itemize deductions, may now
       your getting, get understanding.
                   Prov. 4:7                include the property tax as part of their standard deduction.

                                            Mortgage Insurance Premiums

                                            The MIP deduction has been extended through 2011 for
               We’re on the Web!
                                            premiums paid on VA, FHA or RHA mortgage loans as well as
                   Visit us at:
                                            private mortgage insurance. The premium payments are
                                            treated as “mortgage interest” for tax purposes.

Doster & Associates
2960 Memorial Drive SE
Atlanta, GA 30317

To top