The Financial Planning Forum Sponsored by: Hudson Financial Advisors, Inc. Smart Choices Through...

The Financial Planning Forum

Sponsored by:Hudson Financial Advisors, Inc.

Smart Choices Through Trusted and Valued Advice™

Guest Presenter:

Richard K Warfield, CPA

President & Founder ofWarfield & Sender CPAs, Ltd.

Professional Tax and Accounting Services

Welcome toYear-end Tax Planning Tips

Individual/ Small Business Tax Planning Ideas

Corporate, Partnership and other tax law changes for 2009 and future tax years

Overview

A) Consider paying your children a wage up to the current standard deduction amount for light office work performed in your business office:

1. Any children under the age of 18 receiving payments from a sole proprietorship type of business, are not subject to either social security or Medicare taxes (a combined rate of 15.3%).

2. If the child is receiving payments from a C-Corporation, S-Corporation or Limited Liability Company, these companies will have to withhold and pay out these wages with the above applicable social security and Medicare taxes.

3. The advantage of being on the company payroll to the taxpayer:

Income tax savings to the parents from their company earnings that would have been taxed at whatever the prevailing income tax rate they are in each tax year.

The amounts paid out each year can be put into either a college education account for the child/employee, or a ROTH IRA or non-deductible IRA (if put into a ROTH or non-deductible IRA these funds can grow tax free.


B) Consider setting up an IRC Section 529 account for children and contributing into the account for either 2009 or 2010:

These 529 contributions may qualify as a deduction on the State of Ohio tax return if the investment company (i.e. Putnam) is registered as a qualified company with the state.


C) Consider meeting with your financial advisor to sell off some stocks that have appreciated in 2009 or earlier tax years to offset the gain against unused capital loss amounts carried over from a prior tax year:

If you do not have any capital loss amounts from prior tax years then review with your investment advisor any stocks that may be down by the end of the year.

Some shares can be sold to offset any potential reinvested mutual fund dividends or capital gain distributions in the fourth quarter.


D) Individual taxpayers may want to consider paying a 4th estimated tax payment to the state of Ohio or their locality:

Make payment for the estimated 2009 State of Ohio liability and local income tax bill that may normally be due at April 15, 2010.

As long as the taxpayer is not in the alternative minimum tax position for 2009 then these amounts could lower the regular income tax liability for the year.


E) There are now TWO types of tax credits available now for new principal residence buyers:

A new non-first time home buyer tax credit that was passed on November 6, 2009 that is no longer restricted to the first time home owner.

“Long-time residents of the same principal residence” may be eligible for a modified credit

Homebuyers will benefit from the credit but at a reduced amount (max. credit $6,500).

Income thresholds for the homebuyer credit phased out for some.

No repayment provisions with the first-time homebuyer tax credit for principal residences in 2009 and 2010.

Full amount of credit the taxpayer received due on the return for the year in which the residence ceases to be the taxpayer’s principal residence.

Non-first time tax credit is effective for purchases after November 06, 2009.


E) There are now TWO types of tax credits available now for new principal residence buyers:

The original first-time homebuyer credit was set to expire on November 30, 2009, however; this credit has been extended until April 30, 2010.

The current credit amount is set at $8,000.

There are no repayment requirements.

The tax credit may be allocated between two or more married taxpayers using any reasonable method.

Binding contracts before May 1, 2010, to close on the purchase of a principal residence before July 1, 2010?

There is an election now to accelerate claims for the tax credit.

The tax credit is claimed on IRS tax form 5405.


F) There also TWO residential energy tax credits to consider on new purchases or replacements done to the home before year end:

The non-business energy property credit is available to individuals for the installation of non-business energy property.

Dates to know: Before January 1, 2008 and between January 1, 2009, and December 31, 2009.

Taxpayer responsibilities to the installed property.

The tax credit is claimed on IRS tax form 5695 for residential energy credits.

The amount of the credit is equal to the taxpayer’s residential energy property expenditures, plus 10 percent of the cost of the qualified energy efficiency improvement for the tax year.

The amount of the credit a taxpayer may claim is limited to a max. of $1,500.

The definition of Qualifying Energy Improvements.

The definition of Qualified Energy Property.


F) There also TWO residential energy tax credits to consider on new purchases or replacements done to the home before year end:

The other tax credit available is called the Residential Energy Efficient Property credit which is effective for the 2009 tax year through the year 2016.

The tax credit is available to help individual taxpayers pay for residential alternative energy equipment installed on or in connection with a dwelling unit located in the United States and used as a residence by the taxpayer.

The credit is 30 percent of the cost of eligible equipment placed in service before January 1, 2016.

Tax credit limitations in any single tax year.

What is Qualifying solar heating property?

The credit is claimed on IRS tax form 5696.


G) Individual taxpayers that own their own principal residences, if the individual taxpayer does not itemize in a tax year:

May be entitled to extra amount in addition to the standard deduction of up to $500 for a single taxpayer and $1,000 for a married filing joint taxpayers for the real estate taxes paid.

This provision was enacted originally for the tax year 2008.


H) Individual taxpayers should remember that the sales tax paid on the purchase of an automobile before December 31, 2009:


Shown as a above-the-line (AGI) tax deduction.

I) Individual taxpayers may consider a charitable contribution in either cash (check) or in a non-cash form before year end:

All cash (check) charitable contributions now required a receipt in order to validate the deduction on an individual taxpayer’s return.

All non-cash donations must be stated in “good condition” in order to claim the amount as a deduction on schedule A and form 8283 (if over $500 in total for the tax year).

Automobiles, if donated by an individual taxpayer to a charitable 501©(3) organization, and then the tax exempt organization sells the auto, the deduction is limited to gross proceeds of the automobile.

If the automobile that is gifted to a qualified tax exempt organization is used to further it’s defined tax-exempt purpose, therefore, the organization uses the automobile to carry on its’ business then the tax deduction is limited to the fair market value of the automobile as defined on the open market (blue book value).


J) The business per diem amount for automobile usage as an employer reimbursement or tax deduction has decreased for 2009:

Due to the reduction in gasoline prices in the past 12 months; the current rate per mile is $.55.

The rate for miles driven for medical purposes and to be deducted on schedule A is set at $.24 per mile.

The rate for a charitable deduction to be taken for to and from “qualified charitable events” or organizations is set $.14 per mile.


K) The education tax credits have been extended again and some of them have been increased for individual taxpayer’s children attending college:

The Hope tax credit is for 100% qualified tuition and related expenses up to $1,200 and 50% of the same expenses up to $2,400, for a total maximum credit of $1,800

(Adjusted gross income (AGI) phase out limits do apply to this credit.)

The “American Opportunity” Education tax credit was enacted for the tax years 2009 and 2010.

For these tax years, the bill would provide taxpayers with this new tax credit of up to $2,500 of the cost of tuition and related expenses paid during the taxable year.

There are AGI phase out limits to this tax credit too.


L) Congress enacted a new tax provision:

Now allows the individual taxpayers to exclude up to $2 million dollars of principal residence debt relief after January 1, 2007, but before January 1, 2012.


Corporate, Partnership and

other tax law changes for

2009 and future tax years

A) A significant tax provision to consider as result of the 2009 tax act passed in February of this year:

Owners of commercial real estate, whereby the real estate property is held in either their business entity (C-Corporation, S-Corporation or Partnership) or in a separate LLC

Tax relief is provided to businesses that reacquire or satisfy, in whole or in part, their own debt at a discount during the tax year 2009 and 2010.

The importance of this new exception under the 2009 Act is that it applies to any business that acquires its debt at a discount, whether the business is solvent or insolvent.

The tax break allows solvent, operating businesses to elect to defer the taxable income completely until 2014 and then report the income ratably (20% of the income each year) over five years.

Corporate, Partnership & other tax law changes for 2009 and future tax years

B) Congress expands the NOL carry-back provision in the new act as signed on November 6th:

Similar to a Net Operating Loss (NOL) provision passed as result of the economy in 2001 (from the post 09/11/2009 terrorist act)

ARRA (American Recovery and Reinvestment Act) of 2009 for eligible small business.

This provision is similar to the 2001 act provision passed, however; with limits.

Available for NOLs incurred in either 2008 or 2009, but not for both years.

Eligible small businesses that elected under the 2009 Recovery Act to carry-back 2008 NOLs may make the election for an additional year.

This requires special consideration to be had with respect to both acts passed in 2009.

Elections must be made by the due date of the tax return (including extensions).

Once the election is made it is irrevocable.


C) Qualifying businesses can continue to expense up to $250,000 of new section 179 eligible property purchased through the date of December 31, 2009:

If the total assets of the company purchased in the tax year 2009 exceed $800,000, then the elected 179 amount will have to be reduced for the total assets amount over $800,000 accordingly.


D) The First year 50% bonus depreciation is retroactively extended:

From January 1, 2009 through December 31, 2009.

For all eligible property placed in service.


E) The maximum amount to be expensed under IRC section 179 for SUVs that weigh over 6,000 pounds:

Remains at $25,000 for the tax year 2009.


F) First year depreciation to be taken on luxury autos has been increased:

By $8,000 for the tax year 2009

An increase to $10,960 in depreciation in year one of the automobile.


G) S-Corp Built-in-Gain holding period was shorted:

From 10 years to 7 years from potential double taxation to the owner/taxpayer.

For C-Corporations that convert to S-Corporation status in tax years that begin in 2009 and 2010.


H) Work Opportunity tax credit was extended:

To ” unemployed veterans” and “ disconnected youth”.

Applies to those hired and who begin work in 2009 and 2010.


I) Corporate Estimated Tax Shift Act of 2009 (Shift Act):

Congress passed in July - revoked provisions of another tax act previously passed with regard to corporate estimated tax payments.

For Corporations with greater than $1 billion in sales, their estimated tax payments are increased to 100.25 percent for estimated payments due in July, August, or September of 2014.

The law increased the required payments factor for large corporations by 33 percentage points.


J) New tax law increased the penalties for failure to file:

Effective for tax returns filed for years beginning after December 31, 2009.

A partnership or S-Corporation returns from $89.00 to $195.00.


Thank you

for joining us today


Hudson Financial Advisors, Inc.

Smart Choices Through Trusted and Valued Advice™


January 21st at 6:30 PM

Hudson Library – Flood Meeting Room

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