Tax Savings for 2009

Following is a quick run down of 10 important tax savings available on the 2009 Form 1040. However, many of the tax savings come with limitations, so if you have any questions about these changes, please don’t hesitate to contact your Ghirardo CPA tax professional. 
1. AMT exemption. The maximum alternative minimum tax (AMT) exemption has increased to $70,950 from $69,950 for married filing joint filers and surviving spouses, $46,700 from $46,200 for unmarried individuals, and $35,475 from $34,975 for married individuals filing separately in 2009.

2. Child tax credit. The child tax credit remains the same at $1,000 for each qualifying dependent child under age 17, however the refundable portion of the credit has increased to 15% of earned income in excess of $3,000 as opposed to 15% of earned income above $8,500.

3. College expenses tax credit. The Hope Scholarship credit has been expanded and renamed the American Opportunity Credit. Currently, the maximum credit is expanded to $2,500 from $1,800 and the credit is allowed for the first four years rather than only two years of post-secondary education. The modified adjusted gross income range for phase out of the credit is increased from $80,000 to $90,000 for individuals and from $160,000 to $180,000 for joint filers.

4. Personal energy property credit. Make energy-efficient home improvements and you can claim up to $1,500. The credit is calculated as 30% of the purchase price, subject to the $1,500 credit limit, for qualifying solar heating, insulation, windows, doors, roofs, heat pumps, hot water heaters, or boilers. This credit can also be used against AMT!

5. Homebuyer credit. You’ve probably already heard about the First-Time Homebuyer Credit which gives a tax credit of $8,000 towards the purchase of your home if you don't already own one. The extension bill (which extended the program through April 30, 2010) also included a provision for some current homeowners to be eligible for a $6,500 credit on the purchase of a new home.

6. Kiddie tax threshold. The “kiddie tax” rules generally tax excess investment income of those under age 19, or under age 24 at the end of 2009, if full-time students, at their parents’ highest marginal tax rate. For 2009, the threshold to which these rules apply is unearned income in excess of $1,900.

7. Making work pay credit. In 2009 the new making work pay credit reduces tax liability by up to $400 per person (up to $800 per couple on a joint return). However, watch out for the eligibility rules, as some people whose withholding was reduced are not actually eligible for the credit due to phase out in the modified adjusted gross income range of $75,000 to $95,000 per persona and $150,000 to $190,000 per couple.

8. Motor vehicle sales tax. Sales tax paid on the purchase of a new motor vehicle from February 17 through December 31, 2009 is deductible, whether you itemize your deductions or not. The deduction is limited to the tax on up to $49,500 of the vehicle’s purchase price, and the deduction phases out for a taxpayer with modified adjusted gross income between $125,000 and $135,000 and $250,000 and $260,000 on a joint return.

9. Standard deduction. The basic standard deduction amounts are $11,400 for joint return filers and surviving spouses, $8,350 for heads of households, and $5,700 for others in 2009, an increase from $10,900, $8,000, and $5,450, respectively, in 2008. So, for some individuals who itemized deductions in prior years, it may be more beneficial to claim the standard deduction for 2009.

10. Unemployment compensation. Up to $2,400 of unemployment compensation benefits per person are completely tax-free in 2009. These benefits are not included in your adjusted gross income, so could help you to qualify for other tax benefits that have AGI restrictions.

Client Alert

The IRS is warning taxpayers to be on the alert for e-mails and phone calls which claim to come from the IRS or other federal agencies and which mention their tax refund or economic stimulus payment. These are almost certainly a scam whose purpose is to obtain personal and financial information — such as name, Social Security number, bank account and credit card or even PIN numbers — from taxpayers, which can be used by the scammers to commit identity theft. The e-mails and calls usually state that the IRS needs the information to process a refund or stimulus payment or deposit it into the taxpayer's bank account. The e-mails often contain links or attachments to what appears to be the IRS Web site or an IRS “refund application form.” However genuine in appearance, these phonies are designed to elicit the information the scammers are looking for. Be aware that the IRS does not send taxpayers e-mails about their tax accounts.

Employee Spotlight - Jennifer Guglielmo

Jennifer Guglielmo, CPA, MS Jennifer Guglielmo, a Senior Tax Professional with Ghirardo CPA, received her Certified Public Accountant License with the California Board of Accountancy in October 2009. The State of California requires that applicants pass all four parts of a rigorous exam, possess a bachelor’s degree and have a minimum of one year of public accounting experience, among other requirements. Jenny also earned her Master’s in Taxation from Golden Gate University.

Jenny joined the Ghirardo CPA team in January 2006. Her responsibilities include preparing and reviewing individual, trust, and business income tax returns, and handling various accounting and consult projects.

A Novato native, Jenny graduated from Novato High School and went on to receive her BS in Mathematics and a minor in Spanish from the University of California, Davis. She played club soccer at UC Davis all four years and served as president of the club for three. Jenny also spent the summer of 2005 abroad studying at the University of Costa Rica.

Buying (or Selling) a Business?

Make the most of opportunities in today’s economy! We are pleased to announce an upcoming seminar, hosted by the San Rafael Chamber of Commerce. This event will feature three experts in the field of business succession, including Ghirard CPA's Director of Business Consulting, Paul Breimayer, Al Statz, President of Sunbelt Business Advisors and John Connelly, Vice President, Small Business Lending of Circle Bank. The workshop will cover:

Why buy or sell a business in today's economy?

What is your business worth?

The top 10 steps to prepare your business for sale.

How to conduct a successful business acquisition.

How to finance your business acquisition.

Date: Thursday, March 18

Time: 12—1:30 p.m.

Location: Embassy Suites, San Rafael

To receive a complimentary ticket, please call Paul Breimayer at 415-408-5021.

Will the Tax Changes Affect You?

In addition to the budget proposal released by the President on February 1st, there are a number of other bills that are keeping lawmakers on Capital Hill busy. With all the changes being proposed, do you know if and how you will be affected? The FY 2011 Budget Proposal

In summary, President Obama’s 10-year, $3.8 trillion budget proposal would provide: tax breaks for middle-income families and small businesses, tax increases for upper-income individuals and corporations, international tax rules reform, an end to tax preferences for large oil and gas companies and closing of corporate loopholes.

For Individuals

For lower- and middle-income individuals, the president proposes to make permanent the Bush-era tax cuts that are scheduled to expire at the end of this year. He’s also proposed to, among other things, extend the Making Work Pay Credit, increase the Child and Dependent Care Tax Credit, increase the child care tax credit, and extend the Savers Credit.

For individuals earning over $200,000 per year and families earning over $250,000 per year the budget would reinstate the 39.6 percent tax rate for ordinary income, and 20 percent for capital gains and qualified dividends, limit the itemized deductions, allow the 2001 and 2003 tax cuts to expire and modify the estate and gift tax valuation discount rules.

For Businesses

To ease the tax burden on small businesses, the administration would extend the increased section 179 expensing limit on qualified property and eliminate the capital gains tax on investment in small business stock. Other proposals include making permanent the research credit, extending temporary bonus depreciation and extending and modifying the New Markets Tax Credit. The administration would also extend for two years a number of temporary business tax incentives such as the subpart F exception for active financing income and the lookthrough exception for controlled foreign corporations and 15-year depreciation for qualified leasehold improvements and qualified restaurant property.

Senate Approves Bill to Fix Small Business Tax Penalty

The Senate recently passed the Small Business Penalty Fairness Act of 2009. This measure prevents small businesses from incurring tax penalties aimed at large corporations and wealthy individuals investing in tax shelters. The bill requires the IRS to assess penalties for failure to disclose such investments in proportion to the benefits received and ensure small businesses do not suffer excessive fines. The measure revises Code Sec. 6707A to set the penalty for failure to disclose reportable transactions to the IRS at 75 percent of the tax benefit received.

The Senate Jobs Bill

A scaled-down jobs creation package, The Hiring Incentives to Restore Employment (HIRE) Act, was proposed on February 11. A quick summary of some of the tax incentives for employers follows.

Employers who hire displaced workers would be exempt from paying payroll tax on wages for new hires beginning after the date of enactment and ending on December 31, 2010.

Increase for employers the current-year general business credit (section 38(b)).

Extension of the increased small-business expensing limits under section 179 to 2010.

Check back for more on the Jobs Bill as it makes it way through Senate in the coming weeks.

Ghirardo CPA Celebrates its 20th Anniversary this Year

Ghirardo CPA is proud to announce that 2010 marks 20 years of service in the North Bay. In 1990, Novato natives Jerry and Steve Ghirardo acquired the CPA practices of their father, Edward T. Ghirardo and Dean Moser thus founding Ghirardo CPA. They have built the firm on two simple business premises: quality and personalized service, a formula that has served the firm well as it continues to grow and expand. “We’re thrilled to be celebrating such a significant milestone,” said Jerry Ghirardo, Managing Partner. “Over the past two decades we have grown our business, expanded our service offerings and made meaningful connections with our clients, partners and the community of Novato. We are blessed to have such a diverse and talented team, who make Ghirardo CPA the success it is today.”

Over the past 20 years, Ghirardo CPA has established itself as one of the premier professional services firms in Marin County. One of the fundamental reasons for our success is the strength of our talented and multi-disciplinary team of professionals. We are currently home to 39 full- and part-time employees, including 18 CPAs and 10 members with advanced degrees, including MBAs and masters in taxation. In January 2008 Greta Hoversten became the third Principal in the firm alongside founders Steve and Jerry Ghirardo.

We would like to extend our sincere appreciation and thanks to our clients, friends and associates who have made this exciting milestone possible.

2009 Year-End Tax Planning

With the end of the year rapidly approaching, now is the time to consider what you can do to take maximum advantage of current tax law to reduce your overall tax burden. Considering the current economic volatility and future expected rise in tax rates, there are a number of opportunities to consider which may significantly benefit your wealth-preservation efforts. Here are some of the recent tax law changes and a few general year-end strategies for your consideration. For Individuals:

• Roth IRA Conversions: Starting January 1, 2010, there is no longer an income limitation for converting an IRA to a Roth IRA. Also, for 2010 only, taxpayers have the option of splitting the tax burden associated with the conversion between 2011 and 2012. However, if income tax rates rise in 2011, as many observers expect them to, it might be advantageous to pay the tax at the 2010 rates instead of in later years.
• First-Time Home Buyer Credit Extended: You've probably already heard about the First-Time Home Buyer Credit which gives a tax credit of $8,000 towards the purchase of your home if you don't already own one. The extension bill (which extended the program through April 30, 2010) also included a provision for some current homeowners to be eligible for a $6,500 credit on the purchase of a new home.
• Sales Tax Deduction for Auto Purchase: Set to expire at the end of this year is the ability to deduct sales tax paid on the purchase of a new motor vehicle. This deduction is in addition to the state income tax deduction you probably already claim. This is also a deduction for alternative minimum tax (AMT)!
• Deduct "Madoff" Losses: If you lost money in a Ponzi-like scheme, the IRS has issued taxpayer-favorable rules regarding how to deduct those losses. Specifically, they can be treated as ordinary losses instead of capital losses, and aren't subject to the 10% of AGI limitation associated with most theft losses.
• Energy-Saving Home Improvements: The 30% credit for installing solar panels and solar water heaters has been extended through 2016, with the maximum credit increasing substantially beginning in 2009. Additionally, the $1,500 lifetime credit for energy-saving upgrades to a principal residence, including windows, doors, skylights, roofs, insulation systems, water heaters and central air conditioners, has been reinstated, and increased, for 2009 and 2010. This credit is can also be used against alternative minimum tax (AMT)!
• High-Income Tax Relief in 2010: For 2010 only, individuals with adjusted gross income (AGI) over $166,800 will no longer have their itemized deductions or personal exemptions phased out. Note that these changes will not affect the AMT calculations.
• NOL Carryback Extended and Expanded: The ability to carry back a business net operating loss (NOL) five years instead of the usual two has been extended again for 2009 NOL's, and has been expanded to include all businesses.

For Businesses:

• NOL Carryback Extended and Expanded: The ability to carry back a business net operating loss (NOL) five years instead of the usual two has been extended again for 2009 NOL's, and has been expanded to include all businesses.
• Immediate Deduction for Capital Assets: The limit on the amount of tangible business assets (not including land or buildings) eligible for immediate expensing remains at $250,000 through the end of 2009.
• 50% First-Year Bonus Depreciation: In addition to the above, businesses may take 50% first-year bonus depreciation on "original use" tangible business assets purchased in 2009.
• Depreciable Lives: The shorter 15-year recovery period for leasehold improvements and qualified restaurant property is effective through the end of 2009.

Year-End Tax Planning Strategies:

• As mentioned earlier, income tax rates are generally expected to rise over the next few years. While many observers do not expect the rates to change until after 2010, it may actually be tax-efficient to accelerate income and defer deductions this year.
• Unless Congress acts, after 2010 dividends will be taxed as ordinary income (instead of the capital gains tax rates they get now), and capital gains tax rates are also expected to rise to pre-2003 levels. Please keep that in mind as you analyze your investment holdings.
• Potential rate changes are also pertinent to owners of closely-held corporations or S-corporations with accumulated earnings and profits. It may be beneficial to pay yourself dividends now while the rates are still low.
• Consider using year-end bonuses with catch-up withholding to reduce corporate taxable income and to avoid underpayment penalties on insufficient withholdings and estimated payments during the year.
• Businesses should consider buying new assets before the end of the year in order to take advantage of the additional first-year deductions which are set to expire after 2009.
• Evaluate retirement plan opportunities, such as a SEP-IRA, 401(k) or defined benefit pension plan, to defer taxes. In many cases, contributions after year-end can still count as current year deductions; however, new 401(k) and profit-sharing plans still need to be set up before year-end. Even if you or your spouse are covered by your employer's plan, you may still be eligible to contribute to a self-funded retirement plan.
• Bunching certain itemized deductions into a single year may provide a deduction that ordinarily would have been lost. This is especially true for medical expenses and miscellaneous itemized deductions.
• Consider using up the remainder of your $13,000 annual gift exclusion (per giver, per receiver) before year-end.
• Donating appreciated stock allows you to deduct the full market value of the stock while avoiding tax on capital gains.
• If you purchased a home in California in the last few years, you may be able to reduce your property tax bill by disputing your home's assessed value as determined under Prop. 13.
• If you are over 70 and don't need all of your IRA (or Roth IRA) money to live on, you and your spouse (if you have separate IRA's) can each donate up to $100,000 directly to a charity, tax-free. Note that this option is set to expire after 2009.
• Net capital losses can offset ordinary income by up to $3,000. Consider realizing enough losses to exceed capital gains by $3,000, then purchasing the same stock no earlier than 31 days after the sale, thereby realizing a $3,000 deduction while preserving your investment portfolio.
• If you, like many others, realized significant capital losses last year remember that those losses carry forward to offset future gains. If you are in a better position now, remember that you can realize capital gains to the extent of the losses that carried forward from prior years and pay no tax on this year's gains.
• Paying expenses with a credit card allows you to take a deduction this year while delaying the payment until next year.
• Depending on your particular situation, you may want to consider deferring a debt-cancellation event until 2010

Estate Tax Planning Strategies:

• Consider using up the remainder of your $13,000 annual gift exclusion (per giver, per receiver) before year-end.
• There are a number of techniques available to reduce overall taxes by taking advantage of historically-low market conditions and interest rates. The current market conditions offer unique opportunities to save estate tax in the future.
• There is talk in Congress of eliminating the practice of discounting the transfer value of minority interests in closely-held businesses. If you hold equity in a closely-held business and were planning on gifting portions of your interest in the business, it may be beneficial to speed up the timeframe of your planned gifting.

The key to successful tax planning is considering the overall impact of various strategies on both the current and subsequent years as you weigh your options. The tax professionals at Ghirardo CPA can help you determine which of these and many other strategies are optimal for your specific situation. Remember to include your investment advisor in any investment-related decision you may make. Please contact our office as soon as possible so that we can begin planning to reduce your taxes.