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The Representor, The Subject is Taxing!, Winter 2010 Issue |
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About the Worker, Home Ownership and Business Assistance Act of 2009
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The last new tax law somehow went through Congress in November 2009. Missing and not addressed were all the tax-saving measures expiring on Dec. 31, 2009, and rescue of the Estate (Death) Tax which also expired for just the one year of 2010. Both of these measures were going to be addressed; the House passed the tax-saving extension measures, but the Senate could only express optimism that it would get to it and make it retroactive.
Nobody is talking about the Estate Tax; people dying right now have no estate tax liability but also no step-up of asset basis upon death, leaving a potential nightmare for beneficiaries receiving long-held assets of the deceased where the original cost and additional investments might never have been memorialized. That said, it's an improvement to owe 20 percent instead of 45 percent. In 2011, the Estate Tax will resume and the exemption will fall back to $1 million from the $3.5 million exemption per decedent available in 2009, unless there's a retroactive law for that, too.
Meanwhile, back at the Capitol, the law in the headline above made a number of changes to existing law. It improved the loss carryback rules for regular C corporations. The law passed in 2008 allowed small corporations the opportunity to carry back losses for five years instead of two years. The new law allows all corporations to do that. Small corporations - defined as corporations with less than $15 million in sales on the average over the last three years including the loss year - can carry back two years of losses (years beginning or ending in 2008 and 2009). Large corporations can select only one year to carry back, and in the fifth year back, only 50 percent of the profit is available to them for offset.
This takes us to one of the most irritating penalties of all time. Filing an S-Corporation or a partnership/LLC return late will cost $195 per owner per month for up to a year instead of the 2009 penalty of $89 per month. It seems that Congress thinks this is an easy way to collect huge sums of penalty money.
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by Stanton B. Herzog
ERA CPA & Audit/
Accounting Consultant
Stanton B. Herzog, CPA,
principal in the firm of
Applebaum, Herzog
& Associates, P.C.,
Northbrook, Ill., serves as
ERA's accountant and is
a regular contributor
to The Representor. He is
available to speak at chapter
or group meetings on a variety
of financial and tax-related
topics. He also
participates in Expert Access,
the program that offers
telephone consultations to
ERA members.
You can call Stan Herzog at
847-564-1040,
fax him at 847-564-1041,
or e-mail him at
sherzog@theahagroup.com.
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The New Home Buyer credit rules are really interesting. A new home buyer was previously defined as someone who hadn't owned a home for three years. But we have a new entrant here - someone who has in fact occupied their own home for five of the last eight years.
There are a number of limitations:
- The new house must be in binding agreement by April 30, 2010, and the sale completed by July 31, 2010.
- The purchase price cannot exceed $800,000.
- There is a limitation on the income of the buyer. The tax credit begins to phase out when income as a single person exceeds $125,000 and is gone at $145,000. For joint returns, the limits are between $225,000 and $245,000.
The credit amount is the lesser of $8,000 or 10 percent of the purchase price for new homeowners, and the lesser of $6,500 or 10 percent for the new group of long-term householders. This appears to be a bonanza for old-timers who want to move to smaller quarters; they can get the credit for economizing. Note that there's no requirement to sell the old residence before buying the new one.
There are a couple of important provisions in this, i.e.: the house can't be purchased from a relative; and a copy of the closing statement must accompany the tax return.
There are other items of significance for 2010. The auto mileage reimbursement rate for 2010 is 50 cents per mile, down from 55 cents. Medical mileage has increased to 24 cents per mile. So far the Required Minimum Distribution rules apply for 2010; the waiver only covered 2009. Individuals over 70.5 years will need to withdraw from their retirement funds based upon their life expectancy for age achieved in 2010, from the balance of retirement funds as of Dec. 31, 2009.
There are many changes to the 2009 returns; I can't cover all of them in this space, but here are a few:
- The first $2,400 of unemployment compensation is not taxable.
- Individuals who received the 65 percent Cobra discount from their employer will have to repay it proportionately as income reaches between $125,000 and $145,000 for a single individual; joint return phase-out is between $250,000 and 290,000. It is due with the 2009 tax return.
- The Hope credit is now a four-year plan and is worth $2,500 credit per year.
- Energy credits are back.
- The make-work credit has been prepaid for most people through lowered withholdings. However, the credit itself is $400 (single) or $800 (joint) on the tax return, and it is adjusted downward when adjusted gross income exceeds $75,000 for a single person and $150,000 on a joint return. Moreover, people on Social Security received $250 during 2009; this amount also reduces the allowable credit. The credit could therefore be illusory while repayment of under-withholding is real.
Happy tax preparation!
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© 2010 Electronics Representatives Association (ERA), Chicago, IL 60611
Originally printed in the Winter 2010 issue of The Representor
Cannot be reprinted without the permission of the Electronics Representatives Association (ERA) |
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