Taxpayers might reduce their contribution to the IRS if they are aware and exercise some of the changes in the tax law that are in force for 2009.
To help Marion County taxpayers navigate through key federal income-tax changes for 2009, financial and tax businesses in Marion and Hillsboro were asked to offer their expertise.
Representatives from Waddell and Reed Financial Services, Accounting and Financial Initiative LLC, Edward Jones Financial Services, Adams, Brown, Beran & Ball and Ken Koslowsky Accounting Service spoke on behalf of their respective businesses.
First-time home buyers
Bryce Wichert, Accounting and Financial Initiative LLC in Hillsboro, said two important changes include first-time home buyers and Making Work Pay Credit or MWPC.
The change in first-time homebuyer credit is a difference between $7,500 in 2008 and $8,000 in 2009, but there are some conditions.
“The first-time home buyer credit is 10 percent of the purchase price of the residence,” he said, “but the credit is maxed at $8,000.”
Wichert said limations are based on income, what constitutes qualifying as a first-time home buyer and some recapture consequences if the home is not owned for a certain period of time.
“For those who do qualify and make a purchase before Dec. 1, however, they could see significant benefit from this credit,” Wichert said.
Bill Glazner of Adams, Brown, Beran & Ball, said the first-time home buyer tax credit is another way to help people buying their first home, or those who have not purchased a home in the past three years.
“A credit for first-time buyers was on the books, but it had to be repaid over 15 years,” he said. “This tax credit in 2009 will not have to be repaid, making it more significant.”
Making Work Pay Credit
Another change Wichert said will be noticeable to many wage earners is the MWPC.
“The MWPC is a refundable credit available to eligible individuals for tax years 2009-10,” he said.
For 2009 and 2010, the Making Work Pay provision will establish a refundable tax credit of up to $400 for working individuals and $800 for married taxpayers filing joint returns.
This tax credit will be calculated at a rate of 6.2 percent of earned income and will phase out for taxpayers with adjusted gross income in excess of $75,000, or $150,000 for married couples filing jointly.
For people who receive a paycheck and are subject to withholding, the credit will typically be handled by their employers through automated withholding changes in early spring.
But certain employees (such as an employee with more than one job, or an employee who is married with combined income that will put him or her in a higher tax bracket) are told they may need to file a new Form W-4 with their employer, Wichert said.
“The reason is because the amount of the withholding tax reduction could be significantly different than the credit that they can claim on their 2009 personal income tax return.”
If these taxpayers don’t adjust their withholding, he said, it is a possibility they could be under-withheld when they file their tax returns next year.
Glazner said anyone that works can qualify for the Work Pay credit.
“No check is involved, but rather a reduction in withholdings begins this spring.”
RMD for 2009
Advisers with Edward Jones and Waddell and Reed Financial Services talked about Required Minimum Distribution relief in 2009 from retirement accounts.
RMDs are withdrawals taken over someone’s life expectancy, and/or their beneficiaries, according to information provided by Tom Kimbrel, Edward Jones Investments in Marion.
Marc Penner with Waddell and Reed Financial Services said people who have IRAs and reach age 701⁄2 must take annual distribution from their retirement plan.
But with RMD relief, those with an IRA do not have to take out the required distribution in 2009, according to Penner.
Both financial advisers said this relief can help.
Kimbrel’s information stated that the federal government recognizes the major market declines in 2008, which increased the risk that retirees might outlive their savings.
Selling potentially depreciated securities to fund a required distribution helps to magnify the effect of the withdrawal.
By not requiring the withdrawals in 2009, the government is allowing those with IRAs to withdraw as much or as little as needed.
Both Kimbrel and Penner think this is a good time for those in retirement, or considering retirement, to take distributions from their plans and to evaluate their retirement and investment strategies.
Penner also said for those younger than 50, now is the best buying opportunities for stock and mutual funds.
“I have faith in our economy,” he said, “and I think people who are investing (buying on the low) will be coming out of this recession smelling like a rose.”
Several new tax laws are coming out to support energy efficiency. One of those is energy efficiency credits, which Glazner said has been around before and disappeared in 2008.
“It’s now back with higher limits in 2009 and more enhanced credits for personal residents,” he said.
Ken Koslowsky, who operates an accounting service in Hillsboro, agreed that energy credits for residential purposes will have a big impact in this area in the coming year.
“Certain calibers of energy efficient appliances not previously accepted in 2008 are back in 2009,” Koslowsky said.
The American Recovery and Reinvestment Act of 2009 (commonly called the stimulus package) extends the federal tax credits for improvements to energy-efficient existing homes.
In 2009 and 2010, according to information provided by the IRS, the amount of tax credit increases to 30 percent of the cost of qualified energy efficient windows, doors, insulation, high-efficiency heating and cooling systems and water heaters (non solar) during the taxable year.
Other credits in 2009
Although not related to the Work Pay Credit, Glazner mentioned that people on Social Security will get a check in June for $250.
“It’s a rebate for those who are retired, but it’s not from IRS,” he said.
One education tax credit coming in 2009 is the Hope credit and the lifetime learning credit.
This credit, area tax officials said, will help parents and students pay for post-secondary education.
“The IRS has increased the amount of credit a taxpayer can take,” Glazner said, “extending it from the first two years to now all four years.”
For business owners,
Business owners and farmers will also see changes in the 2009 tax year. Extended into 2009 are first year or “bonus” depreciation allowances.
One example sited was buying a new farm tractor at $50,000 and, under the extended laws, $25,000 could be taken off for depreciation in the first year.
This depreciation allowance would be in addition to the amount of depreciation otherwise allowable in the first year.
Another tax extended from 2008 has to do with Section 179 property placed in service in tax years that begin in 2008, which has increased to a $250,000 limit, up from $125,000.
Section 179, according to the IRS, was enacted to help small businesses by allowing them to take a depreciation deduction for certain assets (capital expenditures) in one year, rather than depreciating them over a longer period of time. Taking a deduction on an asset in its first year is called a “Section 179 deduction.”
This limit is reduced by the amount by which the cost of Section 179 property placed in service in the tax year exceeds $800,000.
It also included putting items in service that were new and used, excluding real estate.