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.

Changes to the California Use Tax

A recent law change requires many businesses that do not currently hold a seller’s permit to register with the BOE (Board of Equilization), and report and pay, by April 15, any use tax due from purchases made in the preceding year. Taxpayers who must register will be required to file a Form BOE-401-A, State, Local, and District Sales and Use Tax Return, or a BOE-401-EZ, Short Form — Sales and Use Tax Return, even if they owe zero tax.

Who must register A qualified purchaser that must register with the BOE is a business that:

  • Is not required to hold a seller’s permit with the BOE;
  • Is not required to be registered, and is not otherwise registered with the BOE;
  • Is not a holder of a use tax direct payment permit; and
  • Receives at least $100,000 in gross receipts per year from business operations.

The new law applies to purchases made during the 2009 calendar year. Returns to report use tax on 2009 untaxed purchases are due on April 15, 2010.

Because of the quick start date, some businesses may not have kept track of their purchases that were subject to use tax and may have a difficult time determining their correct use tax liability.


The BOE will begin sending letters to taxpayers, informing them of the new registration requirement, over the next few months.

They are reviewing IRS data from 2007 returns, and they will send letters to taxpayers with at least $100,000 in business gross receipts who are not already registered with BOE, and do not hold a seller’s permit.

The taxpayers will be asked to verify their contact information, and then the BOE will register them. Once taxpayers are registered, the BOE will send them an account number and log-in information so that they can e-file their returns.

If the taxpayers do not respond to the letter, the BOE will register them automatically. Taxpayers that no longer meet the registration requirements should report that when they receive the letter.

After taxpayers are registered, the BOE will ask them to verify that they reported and paid their use tax for 2007 and 2008. The BOE is likely to waive any penalties on unpaid use tax, but taxpayers will be required to pay interest.

Registered taxpayers will also be required to file a use tax return for 2009 and later years, even if they do not owe any tax.


The legislation does not provide for any specific additional penalty for not registering. There is also no penalty for failure to file a use tax return if there is no tax due. However, there is a penalty if those taxpayers fail to file returns and pay their use tax.

Taxpayers who fail to properly pay their use tax will be subject to a penalty of 10% of the tax owed plus interest.

Gross receipts test

All businesses with operations in California that receive at least $100,000 in gross receipts from business operations worldwide will be required to register with the BOE.

Gross receipts from business operations are defined as “all receipts” of the business operation. Gross receipts include all income, whether the income is from in-state or out-of-state operations.

This means that many tax professionals will be required to register, even if they are not required to pay any use tax. Furthermore, taxpayers who are required to register with the BOE will not be permitted to report and pay their use tax on their FTB returns (such as Forms 540, 100, or 100S). These taxpayers will be required to file a separate use tax return with the BOE.*

Click here for registration forms and other answers to frequently asked questions from the BOE website.

*Spidell's California Taxes On-Line.

IRS Issues Guidance on 2009 Required Minimum Distribution Waiver

The Internal Revenue Service has provided guidance for retirement plan administrators, plan participants and retirees regarding recent legislation affecting required minimum distributions. The Worker, Retiree and Employer Recovery Act of 2008 waives required minimum distributions for 2009 from certain retirement plans. Generally, a required minimum distribution is the smallest annual amount that must be withdrawn from an IRA or an employer’s plan beginning with the year the account owner reaches age 70 1/2. The 2008 law waives required minimum distributions for 2009 for IRAs and defined contribution plans (such as 401(k)s) and allows certain amounts distributed as 2009 required minimum distributions to be rolled over into an IRA or another retirement plan.

Notice 2009-82 provides relief for people who have already received a 2009 required minimum distribution this year. Individuals generally have until the later of November 30, 2009, or 60 days after the date the distribution was received, to roll over the distribution. read more...

The notice also provides guidance for retirement plan sponsors. It contains two sample plan amendments that plan sponsors may adopt or use to amend their plans to either stop or continue 2009 required minimum distributions. Both sample amendments provide that participants and beneficiaries can choose to receive or not to receive 2009 required minimum distributions. Also, both sample amendments allow the employer to offer direct rollover options of certain 2009 required minimum distributions.

Plan sponsors may need to tailor the sample amendment to their plan’s particular terms and administration procedures and must adopt the amendment no later than the last day of the first plan year beginning on or after January 1, 2011 (January 1, 2012 for governmental plans).

Winner! Best Places to Work in the North Bay

The North Bay Business Journal has named 55 winners for its annual Best Places to Work competition, and Ghirardo CPA is pleased to have made the cut for the fourth consecutive year! The winners were selected by the Business Journal editorial department based on several criteria.

We would like to thank the North Bay Business Journal for recognizing Ghirardo CPA as one of the Best Places to Work. We are honored to be among this elite group of companies. Click here for the full North Bay Business Journal article.

September is College Savings Month

With actual and proposed changes to the popular 529 Savings Plans, make sure you have all the latest information! One change allows families saving for college to use 529 plans to pay for a student’s computer-related technology needs. The new American Opportunity Credit allows more parents and students to use a federal education credit to pay part of the cost of college. For a more comprehensive look at the different programs available, please visit our website or contact your Ghirardo CPA representative.

Is this the recovery??

“If this is the recovery, then I’m really in trouble”, a small business owner recently confided. Many small business owners can sympathize with that sentiment. While the stock market is up nearly 50% from March, unemployment is still growing and most importantly, sales are still down compared to last year. The good news is that you have made it this far; the bad news is that the recovery may be slow and uneven. If this sounds like your situation, it may be time to improve your current level of profitability and position your company for revenue growth, despite a challenging economy. Some of the following initiatives may be in order: Profitability Improvement: Evaluate the profitability of your business by customer, product, project, territory, salesperson, etc. to find out where you are making money and just as importantly, where you are not. This sometimes leads to benchmarking your pricing and product offering in comparison with the market. Oftentimes this work identifies pricing opportunities that lead to a quick boost in profit margins.

Sales Management and Compensation: The profitability analysis can lead to a change in the size and/or composition of the sales force or sales compensation plans to ensure that your company has the right number of salespeople focused on where your company makes money.

Business Development Plan: Finally, this work sets you up well for a more formal business development plan (especially if bank financing will be required to finance that business development effort). In today’s market, this effort requires a more systematic approach:

Define your company’s target markets, current and desired customer profile, competitive strengths and weaknesses and unique selling proposition

  • Identify and prioritize business development strategies designed to leverage your strengths with your target market
  • Develop implementation timelines and resource requirements
  • Establish metrics and measure results

How do you get all this done while still focusing on your business? Give us a call; we have experienced professionals ready to help. Contact Paul Breimayer, our Director of Business Consulting at 415-408-5021 for more information.

How a SBA Loan Can Help Your Business - Workshop

Spend 75 minutes with Paul Breimayer, Director of Business Consulting at Ghirardo CPA and John Connally, Vice President and Client Relationship Manager at Circle Bank to learn what you need to know about the major recent improvements in the Small Business Lending loan programs and how you can put these loans to use in financing your business. Plus we'll help you discover:

  • What are the big advantages with SBA financing
  • What businesses qualify for SBA financing
  • How long does it take/what do I have to do to obtain SBA financing

**Limited space available for only 15 particpants!**

Seminar Details

Date: August 13, 2009

Time: 12:00 to 1:15 p.m.

Location: Circle Bank, San Rafael Branch 1200 Fifth Ave., San Rafael

Admission: No cost - invitation only!

Reservations: Paul Breimayer at 415-408-5021

Lunch will be provided.