UPDATE an in-house publication of Kaufman, Osit, & Vasquez, P.C. C ERTIF IED P UBLIC A CCOU NTANTS December 2009 Volume 11, Issue 1 Will the new tax saving incentives put more money in your pocket in 2009 or 2010? The latest enhancements to The Ameri- More generous HOPE Scholarship Buying a new car ? There’s a NEW can Recovery and Reinvestment Act of Tax Credit deduction for Sales and Excise 2009 provide lucrative incentives for Taxes imposed on the purchase of a many taxpayers. We’ve highlighted a New (not used) Motor Vehicle after Feb- few changes below in the hope that The HOPE Scholarship Tax Credit is tem- ruary 16, 2009 and before January 1, porarily expanded for 2009 and 2010. This 2010. you’ll be able to benefit from these tax education tax break now allows the tax- breaks. The amount of tax you are able to deduct payer up to a $ 2,500 tax credit per stu- is limited to the tax that is imposed on the dent per year for qualified higher educa- first $ 49,500 of the purchase price of the Homebuyer Tax Credits tion expenses paid during the first four vehicle. Phase out rules apply when modi- years of post-secondary education. You, First-Time Homebuyer fied adjusted gross income exceeds your spouse, or dependent must be en- $ 125,000 ($ 250,000 married filing A first-time homebuyer (buyer who has not rolled at least half-time in an eligible educa- jointly). owned a principal residence during the tion institution. Qualifying expenses now three-year period prior to include course materials, in addition to tui- You can either increase the amount of purchase) may be eligible tion and fees. Now up to 40% of the your standard deduction or you can take it for up to an $ 8,000 refund- amount of the tax credit may be refundable as an itemized deduction (if you are NOT able tax credit. The tax- to the taxpayer (maximum $ 1,000 per stu- electing to take the state and local general payer must buy or enter dent). The HOPE Scholarship Credit is sales tax deduction). into a binding contract to calculated on a per student basis. There- buy a principal residence fore, if a family has multiple students that with a purchase price of $ 800,000 or less, meet the requirements, then multiple HOPE Tax Law Changes Page 1 on or before April 30, 2010 and close by Scholarship credits can be claimed. Eligibil- June 30, 2010. Vacation homes and rental ity is completely phased out when your Energy Credits Page 2 property purchases do not qualify. Income adjusted gross income reaches $ 180,000. FDIC Insurance Limits limits apply. Lifetime Learning Credit Social Security Earnings Limits Page 3 Existing Homeowner Checklist An existing homeowner who has been resid- The Lifetime Learning Credit is still avail- ing in their principal residence for five con- Estimated Tax Payment Info Page 4 able with no changes. It is a tax credit for secutive years out of the last eight and is Unemployment Benefit Extension any person who takes college classes, purchasing a replacement principal resi- even if you take only one class. It provides dence (“repeat buyer”), may also claim a a tax credit of up to $ 2,000 on the first $ Roth Conversions for 2010 Page 5 homebuyer credit of up to $ 6,500. The eligi- 10,000 of college tuition and fees. You can bility period for this credit is for homes pur- claim the Lifetime Learning Credit on your Employer Payroll Tax Update Page 6 chased after November 6, 2009 and before tax return if you, your spouse, or dependent May 1, 2010 (provided closing occurs prior are enrolled at an eligible education institu- Standard Mileage Rates Page 7 to July 1, 2010). tion and you are responsible for paying 2009/2010 Retirement Contribution These two tax credits do not have to be re- college expenses. Eligibility is completely Limits paid unless the home owner sells at a gain phased out when your adjusted gross in- or stops using the home as their principal come reaches $ 120,000. “Thank you” Page 8 residence within three years after the pur- chase. Income limits apply. Energy Efficient Home Improvement Cred- its Bigger & Better Qualifying products purchased in 2009 and 2010 are eligible for a tax Extension of FDIC credit equal to 30 percent of the product cost. The maximum amount of homeowner credit for all improvements combined is $1,500 during 2009 DEPOSIT INSURANCE and 2010. Be sure to obtain an itemized invoice from your retailer or in- staller. COVERAGE LIMITS Residential Energy Property Credit Congress has extended the increase in FDIC de- posit insurance from $100,000 to $250,000 for Tax credits are available at 30% of the cost, up to $1,500, in 2009 & each depositor, per insured bank, through De- 2010 (for existing homes only) for purchases including: cember 31, 2013. On January 1, 2014, the stan- • Windows and Doors dard insurance amount will return to $ 100,000 per depositor for all categories except for IRAs and • Insulation other certain retirement accounts which will re- main at $ 250,000. • Roofs (Metal and Specific Asphalt) • HVAC The FDIC defines coverage for different account holders by some common "ownership" types as • Furnace / Boilers (Must meet certain efficiency ratings) follows: • Water Heaters (non-solar) Single accounts—deposit accounts (e.g., check- • Biomass Stoves ing, savings) owned by one person. FDIC insur- ance covers up to $250,000 per owner for all sin- gle accounts at each bank. The credit limits per improvement vary. Some additional examples of qualifying improvements include: main air circulating fans, natural gas, Joint accounts—deposit accounts owned by two propane, oil furnaces or hot water boilers, etc. or more people. FDIC insurance covers up to $250,000 per co-owner for all joint accounts at each bank. Residential Energy Efficient Property Credit Certain retirement accounts—accounts such as IRAs and self-directed defined contribution plans. Tax credits are available at 30% of the cost, with no upper limit FDIC insurance covers up to $250,000 for all de- through 2016 (for existing homes & new construction) for pur- posits in such retirement accounts at each bank. chases of energy efficient property, including: • Geothermal Heat Pumps • Solar Panels • Solar Hot Water Heaters • Small Wind Energy Systems • Fuel Cells (Must meet certain efficiency ratings) Page 2 2010 Social Security Earnings Limitations No change—same as 2009 There will be no cost of living increase for SSA recipients in 2010 Age Earnings Limit Reduction Rate Age 62 to “full retirement age” $ 14,160 Benefits reduced $ 1 for every $ 2 over the limit “full retirement age” and above Unlimited No reduction in benefits Note : One dollar will be withheld for every $ 3 in earnings above the limit of $ 37,680 in the year an individual reaches full retirement age. This rule only applies to earnings for the months prior to attaining full retirement age. Fu l l R et i r e ment Ag e v a r i es and is b as ed up on t h e y ea r you we r e b o rn . To d et e r min e yo u r “ fu l l r et i r e men t ag e ” v i si t w ww .s s a.g ov Think you give a lot to Uncle Sam today? Just be Checklist thankful you weren’t paying income tax in 1945, when the coun- Here are 7 common pieces of information missing when per- try’ s top earners doled 94 percent of sonal tax data is submitted to us: their salaries over to the government, mostly to recoup Real Estate Taxes paid costs incurred from Personal Property Taxes (Car Taxes) paid the war effort. Taxa- tion rates for the high- Charitable Contributions with Receipts est income brackets hovered between 82 Childcare Expenses, Address and Federal ID# of provider and 92 percent until 1098’s Mortgage Interest Paid 1963. Source : Yahoo Use- ful Tax Facts HUD-1’s (if you purchased or sold a home) Energy Efficient Home Improvements Double check to include all necessary information when send- ing or bringing in your paperwork. Volume 11 , Issue 1 Page 3 IMPORTANT 4 th Quarter Income Tax Estimated Payment Information for Individuals Did you know that ….. Effective for taxable year 2009, the highest marginal tax rate for Connecticut income tax purposes has increased to 6.5% for the • Taxpayers with taxable Income greater than following individuals: $ 410,000 are in the top 1% of all taxpayers in the country. The top 1% of taxpayers pay 40% of all income • Individuals whose Connecticut filing status is “Single” taxes. or “Separately” and whose Connecticut taxable in- come is more than $500,000. • Taxpayers with taxable income greater than • Individuals whose Connecticut filing status is “Head of $ 160,000 are in the top 5% . . Household” and whose Connecticut taxable income is The top 5% of taxpayers pay 60%. more than $800,000. • Individuals whose Connecticut filing status is “Jointly” • Taxpayers with taxable income greater than or “Qualifying Widow(er)” and whose Connecticut tax- $ 113,000 are in the top 10%. able income is more than $1 million. The top 10% of taxpayers pay 71%. • Taxpayers with taxable income greater than $ 66,500 are in the top 25%. If you are within one of the above income brackets and you are required to make estimated income tax payments for the 2009 The top 25% of taxpayers pay 86%. taxable year, your January 15, 2010 estimated payment must take into account the 6.5% rate. • Taxpayers with taxable income greater than $ 32,800 are in the top 50%. Please contact your tax advisor for more information. The top 50% of taxpayers pay 97%. Connecticut Unemployment Benefits (Only the 26 weeks of regular state unemployment can be for sure. All other weeks are “possible”) 26 Weeks Regular Unemployment 20 Weeks Tier 1 EUC08 14 Weeks Tier 2 EUC08 13 Weeks Tier 3 EUC08 Effective August 1, 2009 13 Weeks State Extended Benefits (EB) Massachusetts Sales Tax = 6.25% 7 Weeks State High Extended Benefits (HEB) 93 (CT) Weeks Total available to collect unemployment benefits Under the new law, you can exclude from your taxable income up to $ 2,400 in unemployment compensation you receive during 2009. Amounts in excess of that remain fully taxable. Page 4 Roth IRA Conversions in 2010 “A Golden Opportunity” If you have funds in an individual retirement account, converting them into a ROTH IRA in 2010 pre- sents a golden opportunity to build tax-free retirement income. Background With a traditional IRA, money can be placed into an account on a pre-tax (tax-deductible) and after- tax basis. That investment is allowed to grow on a tax-deferred basis until withdrawn in retirement. If an individual wants to convert a traditional IRA to a ROTH IRA they have to pay federal and state income taxes on any pre-tax contributions as well as any growth in the investment value. The converted contributions grow tax free so you don’t have to pay any tax upon withdrawal in retirement. In addition, Roth IRAs aren’t subject to the same minimum distribution requirements as traditional IRAs, so you don’t have to begin withdrawals from your ROTH IRA at age 70 1/2. Pre—2010 Rules Up until 2010, individuals who had adjusted gross incomes of more than $ 100,000, were not eligible to make such a conversion. Plus, if you earned more than $ 120,000 ($ 176,000 married joint filers), then you were not eligible to even contribute to a Roth IRA. These two provisions precluded upper income taxpayers from enjoying the benefits of converting their traditional IRA to a Roth or funding one. That is until now… 2010. Taking advantage of the 2010 Rule For 2010, and beyond, all taxpayers will be allowed to convert from a traditional IRA to a Roth IRA. The advantage of a 2010 conversion, is that the income taxes due on the 2010 conversion can be spread over the next two years, (if elected to do so), whereas conversions in subsequent years are included in income during the tax year in which the conversion is completed. Removing the Roth IRA conversion cap, however, does not mean anyone can fund a Roth IRA, but it does mean that anyone can convert an existing IRA to a Roth IRA. Factors to consider There a few important factors to consider before making a conversion. How much time before you retire? Will you need the money converted? How much will you owe in taxes on the conversion? And do you have the funds to pay the taxes due on the conversion? What to do? We highly recommend that you consult with your KOV tax professional to determine if taking advantage of this new tax provision is right for you. Volume 11 , Issue 1 Page 5 Employer 2010 Payroll Tax Update EMPLOYER TAX RATE 2010 MAXIMUM WAGE CAP AMOUNT SOCIAL SECURITY 6.2 % Kaufman, Osit & Vasquez, P.C. .PARTNERS$ 106,800 $6,621.60 .CALCULATORS .CONTACT US Certified Public Accountants MEDICARE 1.45 % NO MAXIMUM NO MAXIMUM SELF-EMPLOYMENT 15.3 % $ 106,800 15.3% OF INCOME UP TO $ 106,800 2.9% OF THE EXCESS FUTA 0.8% $7,000 $ 56 PER EMPLOYEE CT SUTA VARIES BETWEEN 1.9% - 6.8% $ 15,000 AMOUNT CALCULATED PER EMPLOYER (3.0% FOR NEW EMPLOYERS) BASED UPON ASSIGNED RATE AND NUMBER OF EMPLOYEES Connecticut’s Minimum Wage increases to $ 8.25 per hour on January 1, 2010 Section 179 and Bonus Depreciation Bonus Depreciation : Bonus Depreciation allows investments in tangible business property, computer software, or qualified improvements to leased property to be depreciated much faster in 2009. The first 50% of the asset’s cost may be written off prior to calculating the normal depreciation deduction. Used assets do not qualify for this break. Most other assets are eligible… those depreciable over 20 years or less. Bonus Depreciation was extended to include assets acquired in 2009 BUT it will no longer be available after December 31, 2009 unless extended by law. Section 179 Depreciation allows businesses to expense the cost of any 2009 tangible business purchases (not including buildings, but including computer software), of up to $250,000 instead of depreciating them. Firms purchas- ing more than $ 800,000 in qualifying assets will not be eligible for this deduction, but can still use the 50% bonus de- preciation (at least in 2009). After December 31, 2009, the maximum amount of Section 179 Depreciation a business can take in any given year will be $ 134,000 unless extended by law. All businesses are eligible. (excludes Estates & Trusts) Page 6 Standard Mileage Rates Purpose Rate Business Miles 2010…………………………………… Not available at time of publication 2009…………………………………… 55 cents per mile Medical & Moving Miles 2010 ………..………………………… Not available at time of publication 2009 ………………………………….. 24 cents per mile Charity Miles 2010 ………..………………………… Not available at time of publication 2009 ………………………………….. 14 cents per mile 2009 / 2010 Retirement Plan Contribution Limits Account Type Limit Definition 2010 Limit 2009 Limit IRA Traditional and Roth IRA Contribution Limit $5,000 $5,000 Catch-up Limit age 50+ $1,000 $1,000 SIMPLE IRA Elective Deferral Limit $11,500 $11,500 Catch-up Limit Age 50+ $2,500 $2,500 SEP IRA Maximum SEP Contribution $49,000 $49,000 SEP Compensation Exclusion 401(k), SARSEP,403(b),457(b) Elective Deferral Limit $16,500 $16,500 Catch-up Limit age 50+ $5,500 $5,500 Highly Compensated Employee Limit $110,000 $110,000 Profit Sharing, 401(k), SEP and Defined Contribution Limit $49,000 $49,000 Money Purchase Pension Employee Annual Compensation Limit $245,000 $245,000 Top Heavy Plan Key Employee Compensation $160,000 $160,000 Limit In 2009, taxpayers 70 1/2 and older were given an exemption to the mandatory withdrawals from IRAs and plans. This exemption will not be extended beyond 2009. In 2010, the mandatory withdrawal rules return. Volume 11 , Issue 1 Page 7 “Thank you” Kaufman, Osit & Vasquez, would like to thank you for the opportunity to have you as our trusted and most valuable client. It continues to be our privilege to provide you with professional expertise regarding your tax, financial and ac- counting needs. We look forward to working with you in the years ahead. Luigi G. Vasquez, CPA Steven M. Levin, CPA Raymond P. Bengtson, CPA Judith E. Pollack, CPA Christine M. Smith, CPA Wishing you, your family and your business a very happy, healthy and successful 2010….. Daylight Savings 860-678-5170 fax March 8, 2009 860-678-5160 phone Farmington, CT 06032 20 Waterside Drive Suite 101 Certified Public Accountants Kaufman, Osit & Vasquez, P.C.
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