ask matt cpa we are free agents nation …

We are already in the last quarter of 2009.  At the beginning of the year, congress passed the American Recovery and Reinvestment Act to boost the economy, which gives a lot of tax goodies.  It is time to take  a quick look so that we won’t miss them before it is too late.  Some of them are expiring.

First time homebuyer credit $8,000

Good for contract signed (not necessary closed) by the expiration date

Current expiration date: 12/1/2009

Possible to be extended for a few months if the Congress feel like doing that later this year

It is time to buy, but those darn short-sales take fever.  Get an agreement before expiration date!  Or hope for the extension that may be coming.

Credit for residential energy-efficient property

30% of costs on installation of solar water heating, and solar electric equipment, small wind turbine on primary or second home; no max limitation (used to be $2,000)

Seriously, one of my neighbors installed a small windmill in their backyard…imagine that scene…hmm…kind of extreme…solar panel is the way to go!

Credit for energy-saving home improvements

30% of costs of energy-saving home improvements (door, windows, etc); Max limitation of $1,500

Back to 10% and limit to $500 in 2010

Nice deal.  Winter is approaching. There is one big storm already in the  San Francisco Bay Area. Early!  Hurry to seal all the windows and doors.

Sales tax for new car purchase

Purchase between 2/16/09 to 1/1/2010 will qualify; only to the cost up to $49,500

It is addition to the standard deduction if you do not itemize (hmm… I figure only people with a house but no mortgage payment would fall into this kind, because they have no large mortgage interest to itemize but still pay property tax every year…wish I was in that category)

It is also addition to the itemized deduction if you choose state income tax deduction, not sales tax deduction in your Schedule A

Only itemizer using sales tax deduction can use this in 2010 (Well, unless they buy a yacht and pay big sales tax, most people have higher state income tax.  So of course they will use state income tax as deduction in Schedule A, so this is not a good deal anymore in 2010)

529 Plans (2009 – 2010)

It is a college tuition savings account that anybody can set up for a kid; investment earnings are tax free

Allow tax free spending to include computer and related expenses such as internet, software, printer, etc.  

(Kidding me? Those computer expenses should be included in education expenses permanently!  Well, I promise we would not buy video games with that…)

American opportunity credit (2009 – 2010)

Expanded Hope Credit of $2,500 to all students in any of the 4 years in college

Available to higher income family or $160,000 if filing join return

Include more qualified expense such as course materials, books

Partly refundable if not used

2008 Hope credit: Max $1,800 only to first 2-year college for a degree; up to $116,000 if filing joint return)

(Nice!  Especially for the families with a couple kids in colleges)

Other education credit/deduction

Lifetime learning credit:  

Max 2,000 for any person in college class  (Good for those who are willing to improve professional skills. Hurry – enroll a class and get yourself upgraded – hey it is good way to get salary raise…well…or at least secure your job)

Education expense deduction:

Max $4,000 deduction for higher income family.  (This is a direct deduction if you failed to take the HOPE credit or the Lifetime Learning credit)

Net Operation Loss (NOL)

2008 NOL carry-back up to 5 years for small business

Possible to allow 2009 NOL to carry back longer than 5 year by Congress

This applies to business losses in corporation, s-corporation, partnership, LLC, 1040 Schedule C

Should review tax returns from 2003 to 2007 for big tax refund opportunities

(It takes a lot of troubles to file the amended returns for multiple years, but believe me, it will feel like winning a lottery when you see a big fat check coming back from IRS)

Depreciation

50% special deprecation allowance for 2009 purchase

Sec 179 write-off of capital purchase in 1st year: $250,000

Max write-off for sport utility vehicle – $25,000

(If you have to invest on something big and expensive for your business it is a good time to do it now.  I knew someone who brought a Hummer, claiming it as marketing expense because he used it as show-off…don’t copy that)

Estimated tax payment

Allow to pay only up to 90% of 2009 or 2008 taxes before the tax filing 

(Well you have to pay anyway…I don’t know what is the big deal for delaying 10%.  Gosh, I need to be more grateful.)

Upcoming changes in 2010 and 2011

People with AGI over 100,000 can convert IRA to Roth IRA in 2010, meaning high income individual can contribute to IRA then convert to Roth IRA to build investment faster with tax-free earnings

Lower AMT exemption until congress change AMT laws; otherwise, more people will be subject to AMT.  (Nasty!!)

Higher tax rates in 2011: return of 36% and 39.6% brackets, eliminating 10% rate; capital gain rate increased to 20% (vs. 5% and 15% now); dividend taxed as ordinary income (higher rates)

Sec 179 is back to lower $125,000 in 2011  ($250,000 this year) 

Hope credit is back to $1,800, for students of the first 2 years in college

No sales tax deduction for purchase of auto

Energy credit is back to 10%, limited to $500

More from Ask Matt CPA

• Gift Tax Exclusion
• Slow Down, Tax Ahead!
• Beyond the Annual Gift Tax Exclusion
• Funny Thing About Home Buyers – Tips for Sellers
• Fines and penalties for late filing are getting ineresting

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