It’s that time of year again – tax returns must be filed by Thursday, April 15th! I will begin preparing returns the week of January 18. Appointments will be available Monday through Saturday from 8 am until 4 pm. Evening and Sunday appointments will be available by special arrangement. Please call as soon as possible to schedule your appointment. If you send your material to me, please put it in the mail as soon as you have it organized.
2009 saw many changes to both federal and state tax laws and regulations – more of the same is expected in 2010. I will do my best to keep you up to date on those as they happen. Because of the cost of printing and mailing, 2010 tax updates will only be sent by email. In order to receive those important notices, please make sure I have your current email address.
In September I sent you an email or a letter telling about all the federal and California tax changes I was aware of at that time. To summarize –
1. Three new federal credits – Making Work Pay Credit ($400/$800), Economic Recovery Payments ($250 mailed out in May and June) and Government Retiree Credit ($250). These programs are interconnected – the maximum you can get is $400 for a single person or $800 for a couple. There is a special form to be filled out and submitted with your federal tax return if you are eligible for more than one credit.
2. Federal withholding was decreased in April. California raised tax rates retroactive to January 1, 2009 and increased withholding in June and again in November.
3. California reduced the exemption for dependents from $309 to $99.
4. Mandatory distributions from IRAs were not required in 2009.
5. The first $2400 of unemployment insurance will not be taxable on your federal return.
6. The Hope Credit for college students was expanded to a four-year program and increased to $2500 per year. Books and course materials can now be claimed, along with tuition and fees. The threshold for eligibility has been raised to make more families eligible.
7. The $500/$1000 addition to the itemized deduction for property taxes will be available again in 2009. You can also claim the sales tax paid on a new car, truck, motor home or motorcycle purchased between 2/17/09 and 12/31/09 that cost no more than $49,500. There is a special form to be filled out and submitted with your federal tax return if you are eligible for any of these add-ons to the standard deduction.
8. The Earned Income Credit was increased.
9. Energy credits are back and more generous, particularly those for solar installations.
10. California has sped up the collection of estimated tax payments. In 2010 you’ll pay 30%, 40%, 0% and 30% instead of four equal payments.
There were two items that were up in the air when I wrote the September update and those have now been clarified.
1. If you received a Cash for Clunkers voucher, it will not be considered income for federal tax purposes but will be considered state income if the original cost of the vehicle you traded in was less than the $4500 voucher you received.
2. If you received mortgage assistance in the form of a reduction in the principal owed on your mortgage, the amount “forgiven” will not be considered income for federal tax purposes but will be considered income for state tax purposes.
And as predicted, both Congress and the California Legislature have been busy this fall. These are the new tax provisions that have been enacted recently –
1. The federal First-Time Homebuyer Credit was extended. You are eligible for an $8000 credit if you purchase a home by April 30, 2010. Escrow can close as late as June 30, 2010 IF you have a binding contract to purchase as of April 30th.
2. There is a new $6500 credit available for existing homeowners who buy a new home and have owned a home for five of the last eight years. The existing home doesn’t have to be sold to qualify – you can turn it into a rental and still qualify for the credit on your new home.
3. The income levels have been increased for these homebuyer credit programs to make more people eligible. Adjusted gross income of $245,000 for a married couple and $145,000 for all other filing categories is now the cut-off.
4. States may no longer tax the income of spouses of a nonresident member of the military. For example – a resident of Kentucky is assigned to a duty station in California. The spouse accompanies the member of the military and obtains employment in California. California may not tax the spouse’s income. However, if the member of the military takes a second job in the private sector in California that income can be taxed by California.
5. California has a new job’s credit. If you increased your fulltime staff in 2009, you may be eligible for up to a $3000 credit. Only businesses with 20 or fewer employers are eligible and only full-time employees qualify you. There is only $400 million available for this credit, so if you think you may be eligible, please be sure to schedule an appointment to have your taxes done before March 31st – that’s the first date the state can cut off the credit. And of course, there’s a new form in order to claim the credit.
6. The income limit for converting traditional IRA’s to Roth IRA’s has been eliminated and taxpayers have choices about when to report conversion income. Taxes must be paid on the money moved from a traditional IRA to a Roth IRA, so be sure to discuss your options with me before proceeding.
2009 saw many changes to both federal and state tax laws and regulations – more of the same is expected in 2010. I will do my best to keep you up to date on those as they happen. Because of the cost of printing and mailing, 2010 tax updates will only be sent by email. In order to receive those important notices, please make sure I have your current email address.
In September I sent you an email or a letter telling about all the federal and California tax changes I was aware of at that time. To summarize –
1. Three new federal credits – Making Work Pay Credit ($400/$800), Economic Recovery Payments ($250 mailed out in May and June) and Government Retiree Credit ($250). These programs are interconnected – the maximum you can get is $400 for a single person or $800 for a couple. There is a special form to be filled out and submitted with your federal tax return if you are eligible for more than one credit.
2. Federal withholding was decreased in April. California raised tax rates retroactive to January 1, 2009 and increased withholding in June and again in November.
3. California reduced the exemption for dependents from $309 to $99.
4. Mandatory distributions from IRAs were not required in 2009.
5. The first $2400 of unemployment insurance will not be taxable on your federal return.
6. The Hope Credit for college students was expanded to a four-year program and increased to $2500 per year. Books and course materials can now be claimed, along with tuition and fees. The threshold for eligibility has been raised to make more families eligible.
7. The $500/$1000 addition to the itemized deduction for property taxes will be available again in 2009. You can also claim the sales tax paid on a new car, truck, motor home or motorcycle purchased between 2/17/09 and 12/31/09 that cost no more than $49,500. There is a special form to be filled out and submitted with your federal tax return if you are eligible for any of these add-ons to the standard deduction.
8. The Earned Income Credit was increased.
9. Energy credits are back and more generous, particularly those for solar installations.
10. California has sped up the collection of estimated tax payments. In 2010 you’ll pay 30%, 40%, 0% and 30% instead of four equal payments.
There were two items that were up in the air when I wrote the September update and those have now been clarified.
1. If you received a Cash for Clunkers voucher, it will not be considered income for federal tax purposes but will be considered state income if the original cost of the vehicle you traded in was less than the $4500 voucher you received.
2. If you received mortgage assistance in the form of a reduction in the principal owed on your mortgage, the amount “forgiven” will not be considered income for federal tax purposes but will be considered income for state tax purposes.
And as predicted, both Congress and the California Legislature have been busy this fall. These are the new tax provisions that have been enacted recently –
1. The federal First-Time Homebuyer Credit was extended. You are eligible for an $8000 credit if you purchase a home by April 30, 2010. Escrow can close as late as June 30, 2010 IF you have a binding contract to purchase as of April 30th.
2. There is a new $6500 credit available for existing homeowners who buy a new home and have owned a home for five of the last eight years. The existing home doesn’t have to be sold to qualify – you can turn it into a rental and still qualify for the credit on your new home.
3. The income levels have been increased for these homebuyer credit programs to make more people eligible. Adjusted gross income of $245,000 for a married couple and $145,000 for all other filing categories is now the cut-off.
4. States may no longer tax the income of spouses of a nonresident member of the military. For example – a resident of Kentucky is assigned to a duty station in California. The spouse accompanies the member of the military and obtains employment in California. California may not tax the spouse’s income. However, if the member of the military takes a second job in the private sector in California that income can be taxed by California.
5. California has a new job’s credit. If you increased your fulltime staff in 2009, you may be eligible for up to a $3000 credit. Only businesses with 20 or fewer employers are eligible and only full-time employees qualify you. There is only $400 million available for this credit, so if you think you may be eligible, please be sure to schedule an appointment to have your taxes done before March 31st – that’s the first date the state can cut off the credit. And of course, there’s a new form in order to claim the credit.
6. The income limit for converting traditional IRA’s to Roth IRA’s has been eliminated and taxpayers have choices about when to report conversion income. Taxes must be paid on the money moved from a traditional IRA to a Roth IRA, so be sure to discuss your options with me before proceeding.
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