Presented by:Stephen H. Klunk, CPA

Colette M. Brownson, Tax AdvisorStambaugh Ness PC

January 19, 2010

Brighten Your Future…

with Tax Tips and Retirement Planning

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Depreciation of AssetsDepreciation of Assets

50 Percent Bonus DepreciationNew depreciable propertyClass life of 20 years or lessTaken on top of regular depreciationExpired 12/31/2009No bonus permitted in 2010

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Depreciation of AssetsDepreciation of Assets

Section 179 ExpensingIncreased expensing of $250,000 Claimed on new or used depreciable propertyIncreased limits expired 12/31/20092010 limit = $134,000

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Depreciation of AssetsDepreciation of Assets

Luxury AutomobilesPlaced in service prior to 1/01/10Cars year 1 limit = $10,960 with bonusTrucks and vans year 1 limit = $11,060 with bonusVehicles in excess of 6,000 pounds

Certain SUVs, vans, trucksLimited to $25,000 (Sec 179 expensing)

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Fringe BenefitsFringe Benefits

Section 125 (Cafeteria) PlanContributions for health, specialized insurance and

medical reimbursementsNot taxable for federal, social security, Medicare,

state, local or federal unemploymentContributions for child care are not taxable for

federal, social security, Medicare or federal unemployment

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Meals and EntertainmentMeals and Entertainment

Must be directly related to active conduct of businessMeal expense directly precedes or follows business

discussionSubject to 50 percent limitation rule

Expenses for recreational, social or similar activities for benefit of employee are 100% deductible

Club dues – generally not deductible (i.e. – Country Club)

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Company Car – Buy vs. LeaseCompany Car – Buy vs. Lease

Purchased car in 2009Subject to 2009 depreciation limitsDeduction for actual expenses or use standard

mileage rateOnce method is chosen, must stay with this

Deduction for interest paid on business portionStandard mileage rate is 55 cents for 2009, 50

cents for 2010

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Company Car – Buy vs. Lease Company Car – Buy vs. Lease continuedcontinued

Leased car in 2009Deduction for entire lease payments made during

the year (business use %)Deduction for actual expenses or use standard

mileage rateNo depreciation deductionAuto lease inclusion

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Company Car – Buy vs. Lease Company Car – Buy vs. Lease continuedcontinued

Auto lease inclusionFMV of business auto is at least $18,500Use IRS Tables to determine income inclusionBased on FMV at start of leaseTable amount multiplied by business use percentage

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Company Car – Buy Company Car – Buy vs. Lease vs. Lease Comparison 2009Comparison 2009

(assumes 100% (assumes 100% business use of business use of auto)auto)

Buy 2009

Lease 2009

Purchase Price

$50,000 $50,000

Lease Payments in year (876*12)

$0 $10,512

Interest paid in year 1 (5% rate)

$2,433 $0

Depreciation year 1

$10,960 $0

Actual expenses

$2,500 $2,500

Auto Lease Inclusion

$0 ($78)

Total deduction

$15,893 $12,934

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Company Car – Buy Company Car – Buy vs. Lease vs. Lease Comparison 2010Comparison 2010

(assumes 100% (assumes 100% business use of business use of auto)auto)

Buy 2010

Lease 2010

Purchase Price

$50,000 $50,000

Lease Payments in year (876*12)

$0 $10,512

Interest paid in year 1 (5% rate)

$2,433 $0

Depreciation year 1

$2,960 $0

Actual Expenses

$2,700 $2,700

Auto Lease Inclusion

$0 $(78)

Total deduction

$8,093 $13,134

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Tax CreditsTax Credits

Disabled Access CreditSmall business (<$1 million in gross receipts or <30

full-time employees)Amounts paid to comply with American Disabilities

ActAcquire or modify equipment or devices for individuals

with disabilitiesExpend at least $250 and up to maximum of $10,250 Credit is 50% of eligible access expenditures

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Tax CreditsTax Credits

Work Opportunity CreditCredit for hiring individuals in targeted group

Unemployed veterans, qualified veteranSNAP recipient, SSI recipientDisconnected youth (at least 16 but not 25)

Must be issued certification for each employee from State Employment Security Agency (SESA)

Employee hired before September 1, 2011

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Tax CreditsTax Credits

Work Opportunity Tax Credit – continuedCredit up to 40% of qualified first-year wages

Up to $2,400 for each new qualified adult hireUp to $1,200 for each new summer youth hireUp to $4,800 for each new disabled veteran hire

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Sales & Use TaxSales & Use Tax

Taxable ItemsMedical equipmentX-Ray apronsChairs, computer hardware & softwareDie spacersHand tools, plaster, gypsumSterilization solutions

PA Use Tax Postcard

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Sales & Use TaxSales & Use Tax

Non-taxable ItemsMasksBridges, crowns, dentures, filings, inlaysSyringesDisposable toothbrushes, toothpaste, dental floss

Still non-taxable if sold to patients

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New Car PurchasesNew Car Purchases

Purchasers of new vehicles for 2009 Above-the-line deduction State and local sales taxes or excise taxes paid on the

purchase Two limits on this new deduction Deductible sales tax cannot exceed the portion of the

tax attributable to the first $49,500 of the purchase price of any one vehicle. (For PA =$2,970)

Deduction will be phased out beginning at AGI exceeding $125,000 ($250,000 joint) 

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Sale of Principal ResidenceSale of Principal Residence

Up to $500,000 of gain on a joint return can be excluded ($250,000 on a single return)

Owned & occupied as your principal residence for at least 2 of the last 5 years preceding the sale

If only portion of 2-year ownership & use requirement is met – exclusion amount is reduced on pro rata basis

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Expanded & Extended Homebuyer CreditExpanded & Extended Homebuyer Credit

Worker, Homeownership and Business Assistance Act of 2009 (signed Nov. 6, 2009)

Eligible taxpayer must buy, or enter into a binding contract to buy, a principal residence On or before April 30, 2010, and close on the home no

later than June 30, 2010First-time homebuyer

Has not owned a primary residence in the last 3 years Maximum credit of $8,000

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Expanded & Extended HomebuyerExpanded & Extended Homebuyer Credit Credit continuedcontinued

Increased income limits on purchases after 11/6/09Full credit to taxpayers with MAGI up to $125,000, or

$225,000 for joint filers Reduced credit for MAGI between $125,000 and

$145,000, or $225,000 and $245,000 for joint filersFor qualifying purchases in 2010, claim the credit

on 2009 or 2010 return

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Expanded & Extended Homebuyer Expanded & Extended Homebuyer Credit Credit continuedcontinued

Long-time resident creditUp to $6,500

Do not qualify as “first-time” homebuyerOwned & used the same home for 5 consecutive

years of the last 8 yearsMust be used as primary residence

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Energy CreditsEnergy Credits

Qualifying home improvements and equipmentFor personal residencePurchased in 2009 or 2010

Exterior doors, windows, insulation systems, furnaces, water heaters

Must obtain manufacturer’s certificationAfter 5/31/09 – energy star labels don’t automatically

qualify

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Energy Credits Energy Credits continuedcontinued

No income limits for credit Credit equals 30% of amount paid Maximum credit over both years is $1,500

Additional energy credits available for geothermal heat pump, solar water heating equipment, wind energy equipment No income limits on these credits Credit equals 30% of amount paid Available 2009 through 2016

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Section 529 PlanSection 529 Plan

Contributions to college savings fundAdministered by PA State Treasury DeptPA 529 Guaranteed Savings Plan

Tied to rate of college tuition inflationPA 529 Investment PlanPay for most college expenses

Tuition, room & board, books, mandatory feesMust be 18 and PA resident upon enrollment

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Section 529 Plan Section 529 Plan continuedcontinued

Tax-deferred growthContributions up to $13,000 per beneficiary in

2009 are deductible in computing PA taxable income

Federal & PA income tax-free withdrawals for qualified education expenses

Gift, estate and inheritance tax benefits

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American Opportunity Tax Credit (Hope American Opportunity Tax Credit (Hope Credit)Credit)

Up to $2,500 per studentAvailable first four years of post-secondary

educationEnrolled at least half-timeQualified tuition and related expenses

Includes books, supplies & equipment neededCannot claim credit if claiming Lifetime Learning

Credit

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American Opportunity Tax Credit (Hope American Opportunity Tax Credit (Hope Credit) Credit) continuedcontinued

Generally, 40% of credit is refundablePhase out at MAGI between $80,000 and $90,000

($160,000 and $180,000 if you file a joint return)

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Lifetime Learning CreditLifetime Learning Credit

20% of the first $10,000 of out-of-pocket expenses Qualified tuition and related expenses All eligible family members

Not required to be enrolled at least half-time Phase out at MAGI between $50,000 and $60,000

($100,000 and $120,000 joint return)

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Tuition & Fees DeductionTuition & Fees Deduction

Above-the line deduction up to $4,000 Cannot claim education credits and this deduction

for same student Cannot claim deduction for expenses paid with tax-

free scholarship, fellowship, grant or education savings account fund

Can deduct qualified expenses paid with that part of the distribution that is a return of your contribution to the plan

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Student Loan InterestStudent Loan Interest

Deduction up to $2,500 Does have income limitations Loan to pay qualified education expenses

Traditional IRAsTraditional IRAs

ContributionsFor 2009 – can contribute up to $5,000 Age 50 or older – additional $1,000 contributionAllowable deduction can be limited (member of a plan)

Phase-out between $55,000 and $65,000 for single (HOH plan participant)

Phase-out between $89,000 and $109,000 for joint (plan participant)

Phase-out between $166,000 and $176,000 for joint filer (non-plan participant married to plan participant)

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Retirement Planning

Traditional IRAs Traditional IRAs continuedcontinued

ContributionsCan be made as late as due date of return

Excluding extensions (April 15, 2010)Cannot make contributions if over 70½

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Retirement Planning

Traditional IRAs Traditional IRAs continuedcontinued

DistributionsRequired minimum distributions Calculate by totaling all traditional IRA accountsCertain distributions may include nondeductible

contributionsTo calculate nontaxable amount

Nondeductible Contributions x Distribution = NontaxableBalance of all IRA Accounts Amount

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Retirement Planning

Roth IRAsRoth IRAs

ContributionsFor 2009 – can contribute up to $5,000 Age 50 or older – additional $1,000 contributionReduce maximum amount by any contributions to

regular IRANever deductiblePhase-out between $105,000 and $120,000 for singlePhase-out between $166,000 and $176,000 for joint

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Retirement Planning

Roth IRAs Roth IRAs continuedcontinued

ContributionsCan be made as late as due date of returnExcluding extensions (April 15, 2010)

Can make contributions if over 70½Must have earned income equal to contribution

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Retirement Planning

Roth IRAs Roth IRAs continuedcontinued

NO Required Minimum Distributions for account ownerRMD applies to beneficiaries

Qualified distributions are not taxableMade 5 or more years after established and one of the

following:Account owner is at least 59 ½Made to beneficiary or estate of owner after owner’s deathAttributable to owner’s being disabledFirst-time home purchase ($10,000 lifetime cap)

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Retirement Planning

Roth IRAs Roth IRAs continuedcontinued

Non-qualified distributionsPortion of distribution may be included in gross income

Amounts exceeding owner’s contributions to all Roth IRAs10% early withdrawal penalty may apply Penalty applies to amount of distribution that exceeds

the contributions to Roth

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Retirement Planning

Conversion to Roth IRAConversion to Roth IRA

Starting in 2010, the MAGI limit of $100,000 no longer applies

All taxpayers may convert regular IRA to a Roth IRARegardless of income or filing status

Pay ordinary income tax on converted assetsCan include ½ of the income in 2011 and the other ½

in 2012 Assets with potential for high growth are ideal

investments to convert

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Retirement Planning

Conversion to Roth IRA Conversion to Roth IRA continuedcontinued

Starting in 2010, the MAGI limit of $100,000 no longer applies

All taxpayers may convert regular IRA to a Roth IRARegardless of income or filing status

Pay ordinary income tax on converted assetsCan include ½ of the income in 2011 and the other ½

in 2012 Assets with potential for high growth are ideal

investments to convert

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Retirement Planning

Simplified Employee Pension (SEP)Simplified Employee Pension (SEP)

100% funded by employer Contributions vest immediately Contributions can vary and are discretionary Establish by due date of 2009 tax return including

extensions Contribution must be made by same date

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Retirement Planning

Simplified Employee Pension (SEP) Simplified Employee Pension (SEP) continuedcontinued

Employees who must be coveredAge 21 or overMust have earned at least $550 during the yearHave performed services for employer during any 3 of

last 5 years For 2009 – employer contributions are limited to the

lesser of 25% of compensation or $49,000 Percentage contribution must be same for all

employees

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Retirement Planning

Savings Incentive Match Plans Savings Incentive Match Plans (SIMPLE)(SIMPLE)

Employees are eligible if they received $5,000 of compensation from employer in any 2 preceding years ANDAre reasonably expected to receive at least $5,000 in

the current year Employer can lower minimum compensation limit

but cannot increase

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Retirement Planning

Savings Incentive Match Plans (SIMPLE) Savings Incentive Match Plans (SIMPLE) continuedcontinued

Maximum elective deferral contribution limit is $11,500 for 2009Catch-up contribution is $2,500

No limits can be placed on these amounts by employer Employer matching:

Match employee’s contribution up to 3% of participating employee’s compensation, or

2% of compensation of all eligible employees earning at least $5,000

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Retirement Planning

Savings Incentive Match Plans Savings Incentive Match Plans (SIMPLE) (SIMPLE) continuedcontinued

Matching contributions due by due date of employer’s return including extensions

If eligible employee leaves before employer contribution is madeEmployer must leave account open and still make

required contribution

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Retirement Planning

Age-Weighted Profit Sharing PlanAge-Weighted Profit Sharing Plan

Higher contributions are permitted by the IRS for older plan participants

Limit the employer’s maximum deductible contribution to 25% of the participant’s compensation

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Retirement Planning

Questions?Questions?

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