Thursday, August 27, 2009
Qualified Tuition Programs (Section 529 Accounts)
Tax on Purchase of New Vehicle
Comment: Motor vehicles include passenger vehicles, light trucks, and SUVs.
If you are an itemizer, the new law expands the definition of deductible taxes to include qualified motor vehicle taxes, which are state or local sales or excise
taxes imposed on the purchase of a qualified motor vehicle. Until now, you generally could deduct these taxes only if you elected to deduct state and local sales taxes in lieu of state and local income taxes — and even then, only certain sales taxes were deductible. If you are a non-itemizer, the new law adds a new motor vehicle sales tax deduction to the standard deduction.
Comment: For both itemizers and non-itemizers, the deduction can be claimed in computing both regular tax and alternative minimum tax liability.
The deduction is not without limitations. First, the amount of tax you can deduct is limited to the tax on the first $49,500 of the purchase price. In the case of a car, truck, SUV, or motorcycle, the gross vehicle weight rating must not exceed 8,500 pounds. In addition, the deduction is phased out for taxpayers with modified adjusted gross income between $125,000 and $135,000 ($250,000 and $260,000 in the case of a joint return). Finally, the increased standard deduction is not available if you make the election to deduct sales tax rather than income taxes for the year.
Comment: A proposed deduction for car loan interest was not included in the final version of the Act.
Credit for First-Time Homebuyers-Extended and Expanded
Comment
Perhaps more significant is the fact that the credit is no longer treated as a zero-interest loan that must be paid back over 15 years. Instead, the credit needs to be paid back only if, within 36 months of purchasing the home, you either sell it or you (and your spouse)stop using it as your principal residence. Even though the credit is available for houses purchased in 2009, you can claim the credit on your
return for 2008 by electing to treat the purchase as occurring in 2008. This election will not affect the application of the 15-year repayment provision — it
will not apply to purchases in 2009 even if they are treated as occurring in 2008 for purposes of claiming the credit in 2008.
The credit can now be claimed for the purchase of a residence financed by the proceeds of a mortgage revenue bond. For residents of Washington, D.C., this credit is now the default credit, instead of the $5,000 credit solely for D.C. fi rst-time homebuyers. Under the prior law, D.C. homebuyers were entitled to the D.C. credit, not the first-time homebuyer credit. However, no first-time homebuyer credit is available to any taxpayer who claimed the D.C. homebuyer credit in any prior year.
$250 Credit for Certain Government Retirees
(1) During your first tax year beginning in 2009, you must receive some amount as a pension or annuity for service performed in the employ of the United States, any state, or any instrumentality thereof, that is not considered employment for Federal Insurance Contributions Act (social security tax) purposes.
(2) You must not receive an economic recovery payment during the tax year.
(3) Your tax return must include your social security number. A joint return must include the social security number of at least one of the spouses.
Wednesday, August 26, 2009
Alternative Motor Vehicle Credit as Nonrefundable Personal Credit Against AMT
Monday, August 24, 2009
Retirement planning
Year-end planning for 2009 also involves maximizing annual contributions to your retirement plan accounts, since one year's limit cannot be added to the next year's if not taken in time. While contributions to IRAs may be applied retroactively if made before the filing deadline, an individual's elective deferral contribution made as an employee to a qualified plan must be made before the end of the calendar year.
Maximizing contributions to your retirement plan (or plans) before year end also allows you to reduce your adjusted gross income in direct proportion to those contributions. This in turn can give you the benefit of increasing the deductibility of medical and other deductions subject to adjusted gross income floors.
As many 401(k) plan account owners have realized in 2009, managing a tax-deferred retirement account is not a "set it and forget it" proposition. Although sheltered from tax, a 401(k) or other defined contribution plan also requires careful management of the performance of those investments and re-allocation of assets whenever appropriate. Unfortunately, losses on any 401(k) plan are not tax deductible; nor can they offset capital gains in non-tax sheltered accounts.
Portfolio timing
The end of the year is the right time to examine your investments (winners and losers over the course of the year) to take the steps necessary to minimize your capital gains income and maximize the benefit of any capital losses. Especially this year, when the stock market took its roller-coaster ride, gathering your portfolio's records for the entire year can make a difference in not only what you might buy or sell in November and December but what estimated tax you will need to pay (or not pay) for the fourth quarter of 2009.
Long-term capital losses can be used to fully offset long-term capital gains. Losses taken in excess of gains can also be used to offset up to $3,000 in ordinary income (or $1,500 for a married couple filing separately). The strategy for short-term gains and losses follows a similar game plan, although coordinating the two sometimes takes special care. Unlike excess business losses that can be carried back two years to net an immediate refund in many cases, an individual's net capital losses unfortunately can only be carried forward.
In calculating gains or loss for purposes of balancing your gains and losses at year end, remember that, for tax purposes, it's not how much your stocks have gone down for the year but rather have much gain or loss you've realized since purchasing them. For example, you still may owe capital gains tax on stock acquired in 2001 at $15/share even though it may have dropped $20 in 2009 from a high of $65 to $45 when you sold it. You still have capital gain of $30/share on the sale.