BottomLine Just a quick chat from your accounting firm March 2009 NEW PROVISIONS Energy Tax Credits Considering an investment in alternative energy property? The act extends the credit for purchases of energy-efficient improvements to existing homes, adds energy efficient biomass fuel stoves as Hello Durango. property eligible for a consumer tax credit, includes an 8 year extension for residen- tial energy efficient solar, eliminates the $2,000 cap on credit for solar electric investments, provides for tax credits for residential small wind energy property and geothermal heat pumps, and includes a $2,500 – $7,500 credit for plug-in electric drive passenger cars and light trucks. What a ride it’s been the last year or so. I don’t think any of us are surprised that the economy rises and falls throughout Alternative Minimum Tax (AMT) Relief history. It’s just a bit unnerving when we are riding one of the According to the IRS, more and more down cycles. taxpayers are affected by the AMT. The AMT patch protects most middle- income taxpayers by increasing the AMT FredrickZink & Associates is optimistic about the future exemption amounts ($46,200 for single of our economy — both nationwide and locally. And we’re taking taxpayers and heads of household, steps every day to assist our clients and our community to assure $69,950 for married filing jointly, and a smooth ride through some difficult times. $34,975 for married filing separately). In addition, taxpayers can now off-set Sid Zink is the chair elect for the Colorado Society of CPAs. You regular tax and AMT liabilities with might recall that Chuck Fredrick was the chair for the Society a non-refundable tax credits. few years ago. This involvement is important for our firm and EXTENDED PROVISIONS: benefits our clients in that we maintain a close connection to our • The exclusion from gross income for industry and its emerging trends. We’ve added some new people discharges of qualified principal to our fantastic team. Please stop by and welcome Laura E. Lewis, residence indebtedness originally Gina Allman, and Ginny Rogers. Full professional biographies are enacted in the Mortgage Forgiveness available on our website. Debt Relief Act of 2007 has been extended through 2012. • The provision allowing the itemized It’s tax season, so we’ll keep this short. We just wanted to send deduction of state and local sales taxes a message of encouragement and enthusiasm, and offer to assist rather then state and local income you and your business this year and in the years ahead. taxes has been extended. • The above the line deduction for Happy 2009. qualified higher education expenses has been extended. • The above the line deduction for teacher’s educational expenses (up to $250) has been extended. Chuck Fredrick, CPA Sidny Zink, CPA durangocpas.com Today’s Tax Time Tips Your best strategy for minimizing tax liability and Keep in mind that the value of your itemized bolstering your financial position is to stay current deductions will be reduced if your AGI exceeds on tax law. However, in a time of sweeping change, certain limits. new regulations and unprecedented economic woes, doing so can be a challenge. Above-the-Line Deductions In 2008, we saw tax law changes that span the • Teacher classroom expenses full range of categories, from tax benefits for middle- • Student loan interest income and energy conscious taxpayers to tax relief • Alimony expenses for mortgage-strapped individuals and tax credits for • One-half of self-employment taxes RETIREMENT parents. Yet, what remains constant is the need for • IRA Contributions and one-half of contributions SAVINgS TAX in-depth knowledge when preparing your taxes. • to SEP, SIMPLE, and qualified plans Health Savings account contributions BREAKS TAX SAVINg TIPS fOR 2008 • Moving expenses Tax Saving Tips for 2008 provides an overview of • Penalties on early withdrawals from savings Individual Retirement accounts Accounts (IRAs) key tax law changes that may affect your return, and the latest information and practical strategies • Tuition and fees deductions You may contribute up to for minimizing your tax bill. $5,000 to fund a traditional Itemized Deductions or Roth IRA in 2008. Those • Mortgage interest, including interest on home age 50 or older can make an Deductions Even if you do not itemize some above-the-line equity loans up to $100,000. additional catch-up contribution • Points paid for mortgage or refinancing deductions may be available to you. In addition to of $1,000. Traditional IRA above-the-line deductions, you can claim the standard • State and local income taxes and personal contributions may be deductible deduction or choose to itemize your deductions. property taxes depending on your AGI and In general you should itemize if your total • Health insurance costs and medical expenses whether you or your spouse allowable itemized deductions are more than the in excess of 7.5% of AGI (if filing jointly) are covered standard deduction, although there are exceptions. – Prescription eyeglasses, contacts, and by an employer’s pension plan. hearing aids Roth IRA contributions are not The basic standard deduction for 2008 is $5,450 – Crutches, canes, and orthopedic shoes deductible, but the earnings for single or married filing separately, $10,900 for – Medical transportation accumulate tax-deferred and married filing jointly or qualifying widow(er), and – Cost of alcohol or drug abuse treatment may be withdrawn tax-free $8,000 for head of household. Taxpayers age 65 • Charitable contributions if you meet the qualified and older and/or the blind receive an additional • Mileage and expenses associated with standard deduction of $1,050 for married filing volunteer work distribution requirements. jointly or married filing separately, and $1,350 • Unreimbursed casualty and theft losses • Miscellaneous expenses (in excess of 2% of AGI) Employer-Sponsored for single or head of household. – Income tax preparation software and fees 401(k)s – Job search expenses Pre-tax contributions to The standard deduction can be increased up to $1,000 for a joint return or $500 for a single return – Investment expenses employer-sponsored retirement – Unreimbursed employee business expenses plans reduce your taxable if you paid real estate taxes in 2008 but choose not to itemize your deductions. – Professional investment advisory fees wages. Matching contributions and income earned within your plan are also tax-deferred. The employee contribution TAX CONSIDERATIONS FOR INVESTORS limit for 2008 is $15,500 Long-Term Capital Gains and Dividends | The maximum tax rate on net long-term capital gains remains ($16,500 in 2009). Employees at 15%. For taxpayers in the 10% and 15% tax brackets, the tax rate on long-term capital gains is zero for age 50 or older by the end of 2008 through 2010. To qualify as a long-term capital gain, the asset must be held for more than one year 2008 may make an additional before selling. Capital gains on investments held for one year or less are taxed at regular income tax rates catch-up contribution of – as high as 35%. Qualified dividend income from a domestic or qualified foreign company is taxed at a top $5,000 for 2008 ($5,500 rate of 15% (zero for taxpayers in the 10% and 15% tax brackets in 2008). for 2009). Offset Capital Gains with Losses | Net capital losses are fully deductible against capital gains. If your capi- tal losses exceed your capital gains, you can deduct up to $3,000 against ordinary income ($1,500 if married filing separately). Any remaining capital losses may be carried over to the next year. durangocpas.com CHILD AND EDUCATION RELATED TAX BREAKS Be prepared Dependent Care Credit Parents who must pay for the care of a dependent under age 13 in order to work for unforeseen events may be eligible for a tax credit of between 20 and 35% of qualifying expenses. For 2008, the maximum amount of expenses on which the credit can be claimed is $3,000 for the care of one dependent or $6,000 for two or more. On February 22, 2008 disaster struck Durango. A fire started in the duct work at Seasons Rotisserie & Grill, destroying the restaurant, two neighboring businesses, Education Tax Credits Two popular credits can help defray the cost and damaging five others. A year later, Seasons has announced that they are of higher education. The Hope Credit, worth prepared to re-open. Where would you be a year from now if your place of up to $1,800 for each qualifying student, is business was destroyed tomorrow? available for the first two years of college. If you’re a business owner ask yourself the following questions: Am I prepared A Lifetime Learning Credit of up to $2,000 to relocate temporarily? What would happen if any of my suppliers shut down? per year is available for undergraduate, Do my employees know what to do in case of an emergency? Do I have the right graduate, and professional degree courses. kind of business insurance? You cannot claim both credits for the same According to the Institute for Business and Home Safety an estimated student in the same year. 25% of businesses do not reopen following a major disaster. Having a disaster 529 Plans preparedness plan may not prevent a disaster, but it will be an invaluable tool The tax benefits of 529 college savings should the unthinkable happen. Here is a list of ideas to help initiate your plans, which were to expire in 2010, disaster preparedness plan. are now a permanent part of the tax code. These plans give parents and other relatives • Meet with your insurance provider and review your policy for physical losses, a tax-advantaged way to save money for flood coverage, and business interruption. Know what your policy covers higher education expenses. Funds in the and what it doesn’t. Identify what records your insurance company will need account grow tax-free and withdrawals are in an emergency and store them in a safe place. Then create an inventory list also tax-free if they are used to pay for of equipment, computers, software, etc. that you can later provide to your qualified educational expenses. insurance company. Enhanced or Additional Child Tax Credit • Keep copies of important records like a building map, insurance policies, For 2008, the Child Tax Credit is worth employee contact information, bank account information, supplier and client $1,000 for each qualifying child under age contact information, and computer backups in a waterproof and fireproof 17 at the end of the calendar year and who container. Keep copies at an off-site location. qualifies as a dependent. The credit begins • Back up your records and critical data regularly. Keep the backup off-site. to phase out when modified AGI exceeds • Create an emergency contact list and plan how you will communicate with certain limits ($110,000 for married filing your employees in an emergency. Make emergency preparedness part of your jointly, $55,000 for married filing separately, company culture and communicate your plan regularly with your employees. $75,000 for single, head of household, and • Identify essential equipment needed to keep your business open and create a qualifying widow(er)). list of suppliers to replace and/or repair it. Don’t limit yourself to one vendor. • Decide in advance what you will do if your building is unusable. Build relationships with other business owners to use their facilities in the event that your building becomes unusable. • If you haven’t already, buy a fire extinguisher and smoke alarm and consider installing automatic sprinklers. • Maintain an emergency supply kit. • Maintain your HVAC system and make sure your building meets current standards and codes. • Develop a safety/emergency response team and provide the team members with proper training. For more information, visit the U.S. Department of Homeland Security’s disaster preparedness website at www.ready.gov. Did I receive a rebate check? If you’re not certain that you received a rebate check, or are wondering how much you received, finding out is easy with the IRS’s How Much Was My 2008 Stimulus Payment? All you need to know is your social TAX BREAKS fOR HOMEOWNERS security number, 2007 filing status, and the number of exemptions you claimed on your 2007 tax return. Interest and Property Taxes Go to: http://www.irs.gov and click on “How Much Was Home mortgage interest on up to $1 million of home acquisition loans secured My Stimulus Payment?” in the left column under Online by your principle residence and/or second home is fully deductible. You may also Services. Follow the instructions to get the amount. deduct mortgage interest on a home equity loan or line of credit up to $100,000. Points paid to secure a loan for the purchase or improvements of a principal residence are usually fully deductible in the year you pay them. Points paid to EMERGENCY ECONOMIC STABILIZATION refinance an existing mortgage must be deducted over the life of the loan. ACT OF 2008. We all know by now that on October 3, Real estate taxes and local property taxes on all of your real estate are deductible. 2008 President Bush signed into law the Emergency Exclude Capital gains Economic Stabilization Act of 2008, but what does When you sell your principal residence, you can exclude from income up to it mean to you? The effects of the act for individual $250,000 in gains ($500,000 if married and filing jointly). To qualify you must taxpayers include energy tax credits, alternative have owned and used your home as a principal residence for at least two years minimum tax (AMT) relief, and the extension of several during the five-year period ending on the date of sale. Limitations apply if you provisions that were set to expire at the end of 2007. use the property as rental property. & Associates 954 East Second Avenue | Durango, Colorado 81301 In times of change, one thing is for sure.... there’s lots to talk about! Open up to find out more.
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