Did You Miss These 2009 Tax Law Changes?

We saw many tax changes in 2009.  While some will carry over into 2010, some will expire at the end of this year.  Once January 1 gets here it’s too late to reduce your 2009 tax bill, so take advantage of these tax breaks now.

RMDs Suspended for 2009

One of the biggest changes for 2009 was the suspension of the rules requiring individuals over age 70 ½ to make withdrawals from certain retirement accounts.  This suspension applies to 2009 only, so seniors will have to resume taking their required minimum distributions in 2010.

First Time Homebuyer Tax Credit

In an effort to stimulate the housing market, a “first-time” homebuyer was established back in July 2008, but new legislation in 2009 gave the credit new life.  The first credit was actually a loan (up to $7,500) that had to be paid back over 15 years; this credit applied to first-time homebuyers who purchased homes between April 9, 2008 and July 1, 2009.

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Tax Carnival 46 – Inauguration Day

The 46th Tax Carnival is posted.  And since today is Inauguration Day, Kay Bell (keeper of the Tax Carnival) has chosen the inaugural process as the theme.

Here are a few articles you’ll find in this week’s tax carnival:

Pragmaticsage has some advice in Choosing a tax preparer: Do you need a CPA?

Robert D Flach, THE WANDERING TAX PRO of the Web, tells us WHAT NOT TO DO! when searching for a tax pro.

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More About Obama’s Proposed ‘Paycheck Bonus’

One of the tax cuts I talked about in ‘Obama’s Proposed Tax Cuts Total $300 Billion’ was the payroll tax cut for low to mid-income workers.

Since this is the tax break that will affect most American’s I wanted to share some more details on what is being called Obama’s paycheck bonus (the official name, right now anyway, is the ‘Make Work Pay Credit’.

The details are still being hammered out, but basically it looks like the tax plan will include a payroll tax break that will mean anywhere from $83 to $166 extra per paycheck for workers, during the first quarter of the year.

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Obama’s Proposed Tax Cuts Total $300 Billion

In an earlier post, I asked ‘How Will Obama’s Tax Plan Affect Self Employed Americans?’.  Well, more details are emerging as Obama proposes $300 Billion in tax cuts.

Presidential Elect Obama is working with Congress on a tax cut proposal that would make up about 40% of a $775 billion economic stimulus package.

Cuts would be aimed at both individuals and businesses.  At the moment, these are just proposals, but here’s what’s being discussed so far:

• The largest piece of the tax relief package is a payroll tax break of $500 for individuals and $1,000 for couples aimed at low- and moderate-income workers.  I’m wondering if this will also apply to self employed people, but am unsure of the answer so far.
• Relief for businesses include a provision that would allow companies to write off huge losses incurred last year, as well as any losses from 2009, to retroactively reduce tax bills dating back five years.  While businesses would have been able to claim most of the tax write-offs on future tax returns anyway, the proposal accelerates those write-offs to make them available in the current tax season.  This will help companies who are experiencing cash flow problems due to credit being unavailable.
• The Obama plan also proposes to increase the Section 179 deduction up to $250,000 in 2009 and 2010. Currently, the limit is $175,000.  This probably won’t help most small businesses, but those that are expanding or need new equipment will benefit.
• Finally, businesses that create jobs here in the US or avoid future layoffs would receive a tax credit.  Hopefully this will reduce the amount that unemployment is expected to rise in 2009.

While I like the idea of the payroll tax credit, it really needs to apply to self employed people as well.  I’ve heard rumors that self employed people may get to reduce their 1st quarter estimated tax payment, and will confirm or deny as soon as more details become available.

Remember these are just proposals right now.  There will be lots of debate and changes before the final bill is approved.

Savers Credit Helps Low to Middle Income Taxpayers Save for Retirement

Not many people are aware of the saver’s credit, which helps offset part of the first $2,000 that taxpayers contribute to IRAs , Roth IRAs, 401K and other retirement plans.  This credit is also known as the retirement savings contributions credit.

The saver’s credit is available in addition to other tax deductions and credits that a person may qualify for, so taxpayers who take a deduction for contributions made to IRAs, 401Ks and other tax-deferred retirement accounts, and who also qualify for the saver’s credit, essentially get a double tax break.

You still have time to make contributions to your retirement accounts and get the saver’s credit, if you qualify.  The deadline for setting up or adding money to IRAs and still get credit for 2008 is April 15, 2009.  But if you’re planning on contributing to your 401K or other employer sponsored plan, you need to get your contributions in by the end of the year.

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Year End Tax Tips

It’s hard to believe we’re almost at the end of the year already.  As I write this, there are only a few weeks left in 2008.

Most people probably aren’t thinking about taxes yet, but the time to do tax planning is before the year ends.  Once December 31 has passed, there’s very little you can do to help reduce your 2008 taxes.

The first step in tax planning is to determine where you are for the year.  Pull out last year’s tax return for a reference.  You also need your most current profit and loss statement, so if your books aren’t up to date, now’s the time to get caught up.

Compare your income and expenses to last year’s tax return.  Is your income up?  Do you have the same amount of deductions as last year?  If your income is up, or if your expenses were down, you may owe more taxes than you did last year.

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Key Provisions in The Housing and Economic Recovery Act of 2008

On July 30, 2008, President Bush signed H.R. 3221, the Housing and Economic Recovery Act of 2008 (the “Act”).

The Housing Act is intended to revamp the housing finance industry, encourage home ownership and help prevent foreclosures. Below is a summary of some of the tax provisions in the bill that will affect current and future home owners:

* The Hope for Homeowners Program: The Act creates a new Federal Housing Authority (FHA) program designed to help borrowers in danger of losing their homes to foreclosure. Eligible homeowners may be able to pay off their original (foreclosing) lenders with a fixed-rate, 30-year-term mortgage for up to 90 percent of the appraised value of the property. Eligible homeowners are those who originated their loans before January 1, 2008, spend more than 31 percent of their monthly income on their mortgage, and are currently in danger of foreclosure. Borrowers would have to share future equity with the FHA. The program is completely voluntary; banks may elect not to participate. The program begins on October 1, 2008 and ends in September of 2011.

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