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Springfield Business Journal Articles
Sarah Delano Pavlik and Tom Pavlik write a monthly column on legal and business issues for the Springfield Business Journal.


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There are several recent tax law changes that might affect you. Here are some of the highlights. Keep in mind, however, that everything is subject to change with the new administration.

AMT. Congress has enacted another one year patch to "solve" the AMT problem. AMT exemptions for 2008 are now $69,950 for joint filers, $46,200 for single filers, and $34,975 for married taxpayers filing separate returns. Although these exemption amounts are only slightly higher that the 2007 amounts, they are considerably higher than the exemption amounts that would have applied in 2008 without action from Congress – $45,000 for joint filers, $33,750 for single filers, and $22,750 for married taxpayers filing separate returns.

In addition, taxpayers may now use all their "nonrefundable personal credits" (such as the child and dependent care credit and education credits) to offset AMT in 2008. This is a one-year extension of a rule that expired in 2007.

You may also have relief from AMT if you exercised incentive stock options ("ISOs") in 2008 but later sold the stock at a loss. Income tax is due based on the value of the stock at the time the option is exercised. If your later sell the stock at a loss, you have what is called "phantom income." The new law forgives tax, interest and penalties outstanding on October 3, 2008 (date of enactment) if they are attributable to the AMT adjustment for ISOs.

Tax Credit for First-Time Home Buyers. This tax credit is really an interest-free loan of up to $7,500 for first-time home buyers. To qualify, you must purchase a residence between April 9, 2008 and July 1, 2009. You will then have to pay the amount back to the government in equal installments over 15 years. The credit begins to be phased out for single taxpayers making $75,000 and for married couples making $150,000.

Estate and Gift Taxes. The estate tax exemption amount increases to $3,500,000 on January 1, 2009. Under the current law, there will be no estate tax in 2010, and the exemption amount will decrease tp $1,000,000 on January 1, 2011. You can expect Congress to take some action on the estate tax in 2009. President-elect Obama indicated during the campaign season that he was in favor of an exemption of $3,500,000, so hopefully that amount will not be reduced.

The lifetime gift tax exemption amount remains at $1,000,000. The annual gift tax exclusion amount increases to $13,000 in 2009. This is the amount each taxpayer can give to another person without filing a gift tax return or using any lifetime exemption.

For an estate of a decedent dying in calendar year 2009, the maximum decrease in the value of qualified farmland resulting from a special use valuation election is $1,000,000.

For taxable years beginning in 2009, recipients of gifts from certain foreign persons may be required to report these gifts if the aggregate value of gifts received in a taxable year exceeds $14,139.

Retirement Plans. The maximum amount that you can contribute to your retirement plan in 2009 is: IRAs – $5,000 ($6,000 if age 50 or over); Roth IRA phase out income levels – $105,000 - $120,000 for single taxpayers, $166,000 - $176,000 for married filing jointly; 401(k) plans – $16,500 ($22,000 if age 50 or over); Simple IRAs – $11,500 ($14,000 if age 50 or over); SEP IRAs – $49,000; and 403(b) plans – $16,500 ($22,000 if age 50 or over).

Taxpayers over age 70_ can again make tax-free distributions from IRAs for charitable purposes through December 31, 2009. The maximum contribution limit for 2009 is $100,000.

Other Income Tax Changes. For taxable years beginning in 2009:

  • The maximum depreciation deduction under Section 179 is $133,000.
  • The standard income tax deductions for 2009 will be: married individuals filing joint returns and surviving spouses – $11,400; heads of households – $8,350; unmarried individuals – $5,700; and married individuals filing separately – $5,700.
  • The personal exemption amount for 2009 is $3,650.
  • Itemized deductions will begin to be phased out at income of $166,800 (or $83,400 for a separate return filed by a married individual).
  • The credit allowed for an adoption of a child with special needs is $12,150 and the maximum credit allowed for other adoptions is the amount of qualified adoption expenses up to $12,150. The available adoption credit begins to phase out for taxpayers with modified adjusted gross income in excess of $182,180 and is completely phased out for taxpayers with modified adjusted gross income of $222,180 or more.
  • The maximum Hope Scholarship Credit is $1,800. The credit is 100% of qualified tuition and related expenses not in excess of $1,200 plus 50% of those expenses in excess of $1,200, but not in excess of $2,400. For taxable years beginning in 2009, a taxpayer's modified adjusted gross income in excess of $50,000 ($100,000 for a joint return) is used to determine the reduction in the amount of the Hope Scholarship and Lifetime Learning Credits otherwise allowable.
  • The term "high deductible health plan" means: (1) for self-only coverage, a health plan that has an annual deductible that is not less than $2,000 and not more than $3,000, and under which the annual out-of-pocket expenses required to be paid (other than for premiums) for covered benefits do not exceed $4,000; and (2) for family coverage, a health plan that has an annual deductible that is not less than $4,000 and not more than $6,050, and under which the annual out-of-pocket expenses required to be paid (other than for premiums) for covered benefits do not exceed $7,350.
  • Homeowners who are not able to itemize deductions can deduct their real estate taxes as an additional standard deduction of up to $1,000 for married couples filing jointly or $500 for single taxpayers.
  • Certain energy efficient home improvements such as windows, insulation materials and other property placed in service during 2009 can yield a credit of up to $500. The residential energy credit may offer a tax break on a 2009 return if all installation is done and/or work was completed in 2009. Residential energy credits apply to homes, houseboats, mobile homes, condominiums, and qualifying manufactured homes. This credit expired at the end of 2007 and is not available for 2008.
Effective January 1, 2009, the mileage reimbursement rate is $.55 per mile (down from $.585).
Posted in: December, 2008
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