The American Recovery And Reinvestment Act Of 2009


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summary of ARRA 2009 as of June 09

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The American Recovery And Reinvestment Act Of 2009

  1. 1. The American Recovery and Reinvestment Act of 2009 (ARRA) 5/29/09 CPE Summary By Michelle Hughes 6/2009 Braver, PC
  2. 2. Highlights of the Seminar <ul><li>“Making work pay credit” – do I have enough withholding tax? </li></ul><ul><li>First time homebuyer credit </li></ul><ul><li>Automobile sales tax credit </li></ul><ul><li>Education Credits </li></ul><ul><li>Earned income credit </li></ul><ul><li>COBRA health coverage </li></ul><ul><li>Energy Credits </li></ul>
  3. 3. Making Work Pay Credit <ul><li>Automatically handled by employers in April 2009. </li></ul><ul><li>Resulted in more money in our paychecks due to new withholding tables issued in February 2009. </li></ul><ul><li>If you usually get a small refund, you could owe in 2009. </li></ul><ul><li>Credit amounts = $400 single; $800 MFJ </li></ul><ul><li>Phase-out = $75k single; $150k MFJ </li></ul>
  4. 4. Making Work Pay Credit <ul><li>The following groups of people may want to check that they are having enough money being withheld: </li></ul><ul><ul><li>-Those with significant non-government pension income </li></ul></ul><ul><ul><li>-MFJ with two incomes </li></ul></ul><ul><ul><li>-Individuals with multiple income sources </li></ul></ul><ul><ul><li>-Social security recipients who also work </li></ul></ul><ul><ul><li>-Dependents are NOT eligible for the credit </li></ul></ul>
  5. 5. Social Security Recipients <ul><li>$250 was being added to social security checks </li></ul><ul><li>Cannot receive both the social security stimulus and the making work pay credit </li></ul><ul><li>The $250 reduces any “making work pay credit” </li></ul>
  6. 6. Withholding Calculator <ul><li> </li></ul><ul><li>Be prepared to have the following information available: </li></ul><ul><ul><li>Recent pay stub </li></ul></ul><ul><ul><li>Amount of your 2009 itemized deductions </li></ul></ul><ul><ul><li>A bit tricky to use </li></ul></ul>
  7. 7. 1 st Time Homebuyer Credit <ul><li>Close AFTER 4/8/08 </li></ul><ul><ul><li>and </li></ul></ul><ul><li>Close BEFORE 12/1/09 </li></ul><ul><li>Principal residence only </li></ul><ul><li>Fully refundable </li></ul><ul><li>Form 5405 </li></ul>
  8. 8. 1 st Time Homebuyer Credit <ul><li>2008 Purchases </li></ul><ul><ul><li>Up to $7,500 </li></ul></ul><ul><ul><li>Repaid in 15 equal installments </li></ul></ul><ul><ul><li>Begin repayment in 2010 tax year </li></ul></ul><ul><li>2009 Purchases </li></ul><ul><ul><li>Up to $8,000 </li></ul></ul><ul><ul><li>NO payback! </li></ul></ul><ul><ul><li>(unless property is no longer your personal residence within a 3 year period) </li></ul></ul><ul><ul><li>Close after 4/15/09 and claim on either 2008 or 2009 return </li></ul></ul>
  9. 9. 1 st Time Homebuyer <ul><li>Notes regarding the credits: </li></ul><ul><ul><li>No minimum age requirement </li></ul></ul><ul><ul><li>No IRS regulations are yet available </li></ul></ul><ul><ul><li>IRS website Q&A are a bit conflicting with actual code, look for cases and regulations in the future </li></ul></ul><ul><ul><li>One can obtain the $8000 refund at closing through HUD </li></ul></ul><ul><ul><li>Cannot purchase a home from a related party </li></ul></ul><ul><ul><li>Inherited property does NOT count for the credit </li></ul></ul><ul><ul><li>Use Form 5405 to claim the credit. </li></ul></ul>
  10. 10. Automobile Sales Tax Deduction <ul><li>Do NOT need to itemize (standard deduction + Motor vehicle sales tax deduction) </li></ul><ul><li>Purchases after 2/16/09 and before 1/1/2010 </li></ul><ul><li>State, local and excise tax paid on up to $49,500 of purchase price </li></ul>
  11. 11. Automobile Sales Tax Deduction <ul><li>New cars only (not used) </li></ul><ul><li>Motorcycles </li></ul><ul><li>Motor homes </li></ul><ul><li>Light trucks </li></ul>
  12. 12. Automobile Sales Tax Deduction <ul><li>Phase out: </li></ul><ul><ul><li>MAGI between $125,000 and $135,000 for single </li></ul></ul><ul><ul><li>MAGI between $250,000 and $260,000 for MFJ </li></ul></ul>
  13. 13. Education Credits <ul><li>HOPE credit (American Opportunity tax credit) modified for 2009 and 2010 </li></ul><ul><li>Increased to 4 years </li></ul><ul><li>$2,500 per student </li></ul><ul><li>Phase out: </li></ul><ul><ul><li>$80k (or less) - single </li></ul></ul><ul><ul><li>$160k (or less) - MFJ </li></ul></ul>
  14. 14. Education Credits <ul><li>The act treats 40% of HOPE credit as refundable: </li></ul><ul><ul><li>However, if taxpayer claiming it is a child to whom the “kiddie tax” applies, then no refund. </li></ul></ul><ul><ul><li>Essentially $1,000 could be refundable. </li></ul></ul><ul><ul><li>NOTE: the life-time learning credit is the same, no changes. </li></ul></ul><ul><ul><li>NOTE: under section 529 plans, computer equipment is now an allowable expense. </li></ul></ul>
  15. 15. Unemployment <ul><li>No tax on first $2,400 of unemployment benefits </li></ul><ul><ul><li>If you do want to withhold, flat 10% tax </li></ul></ul><ul><ul><li>Use form W-4V </li></ul></ul><ul><ul><li>Applies to each spouse separately </li></ul></ul>
  16. 16. Depreciation & Section 179 <ul><li>Bonus depreciation is extended thru 2009 </li></ul><ul><li>$250,000 section 179 extended </li></ul><ul><ul><li>Reduced if property placed in service exceeds $800,000 </li></ul></ul><ul><ul><li>$25,000 sport utility limit still applies </li></ul></ul>
  17. 17. Depreciation Planning Note <ul><li>Think about depreciation as a timing difference… </li></ul><ul><ul><li>Do you think future tax rates could go up? </li></ul></ul><ul><ul><ul><li>Obama needs to pay for the largest deficit in history some how. </li></ul></ul></ul><ul><ul><ul><li>Taking section 179 or depreciation now, particularly for FINANCED purchases, will result in no (or much less) deductions in future years. </li></ul></ul></ul><ul><ul><ul><li>Just because you can, doesn’t mean you should. </li></ul></ul></ul>
  18. 18. Small Business <ul><li>Estimated tax payments for small businesses </li></ul><ul><ul><li>Reduced to 90% of previous years tax </li></ul></ul><ul><ul><li>Regularly 110% of previous years tax </li></ul></ul>
  19. 19. Small Business NOL <ul><li>2008 loss can be carried back five years rather than two </li></ul><ul><li>Be careful about going back to closed years, we open up the statute for possible audit </li></ul><ul><li>We have the choice of how far to carryback </li></ul><ul><ul><li>Publication 536 is updated </li></ul></ul><ul><ul><li>Form 1045 (application for tentative refund) instructions have been updated </li></ul></ul><ul><ul><li>Form 1139 (corporation application for tentative refund) instructions have been updated </li></ul></ul>
  20. 20. Earned Income Credit <ul><li>Review dependency rules (see next slide) </li></ul><ul><li>Review who is eligible for the EIC </li></ul><ul><li>NOTE: </li></ul><ul><ul><li>Some of our wealthy client's children could potentially claim the EIC </li></ul></ul><ul><ul><li>EIC the recipient must be at least 25 years old (many college grads cannot find jobs, still at home with Mom and Dad. </li></ul></ul><ul><ul><li>If Mom and Dad are in AMT, a 25 year old living in the same home could claim an 18 year old sibling and receive up to $5k refundable EIC </li></ul></ul><ul><ul><li>Sounds “fishy” but review the rules, it is allowable! </li></ul></ul>
  21. 21. <ul><li>Qualified Child </li></ul><ul><ul><li>Relationship: child, brother, sister, lineal descendant </li></ul></ul><ul><ul><li>Age: <19, <24 and full time student </li></ul></ul><ul><ul><li>Same household for >50% of the year </li></ul></ul><ul><ul><li>The CHILD (not person claiming) does not provide >50% of their own support </li></ul></ul><ul><li>Qualified Relative </li></ul><ul><ul><li>No one can claim as qualified child </li></ul></ul><ul><ul><li>Relationship (expanded) entire year </li></ul></ul><ul><ul><li>Gross income (must be < personal exemption) </li></ul></ul><ul><ul><li>Taxpayer provides >50% of their support </li></ul></ul>
  22. 22. Keep in mind that Dependency rules were changed to accommodate different types of living situations. Dependency, EIC, Head of Household rules are worth a second look.
  23. 23. COBRA Continuation Coverage <ul><li>For employers with 20 or more employees on 50% or more of the typical business day </li></ul><ul><li>The Act subsidizes 65% of the cost through a credit on Form 941 (business owner responsible to pay up-front). </li></ul>
  24. 24. COBRA <ul><li>Begins on or after 2/17/09 </li></ul><ul><li>No longer than nine months </li></ul><ul><li>Not “open-ended” (i.e. person becomes eligible under another plan) </li></ul><ul><li>The terminated employee pays 35% of the health insurance premium </li></ul><ul><li>“ assistance eligible” (terminated person) 9/1/08 through 12/31/09 </li></ul><ul><li>For involuntary termination only, no gross misconduct </li></ul>
  25. 25. COBRA <ul><li>Both employers and former employees face penalties if they do not comply: </li></ul><ul><ul><li>Employer: Code section 6720C penalty for failure to notify employee (up to $110 per day from date of failure to notify) </li></ul></ul><ul><ul><li>Employee: Duty to notify group health plan or 110% of the premium reduction (71.5% of the premium) </li></ul></ul><ul><ul><li>Employee can make a permanent election to waive right to premium assistance </li></ul></ul>
  26. 26. COBRA <ul><li>High-income individuals must pay-back premium assistance if MAGI is $125k single, $250k MFJ </li></ul><ul><li>The premium assistance is not otherwise considered income </li></ul>
  27. 27. Energy Credits <ul><li>Residential energy-efficient property credit </li></ul><ul><ul><li>Nonrefundable </li></ul></ul><ul><ul><li>Depreciable basis is reduced </li></ul></ul><ul><ul><li>Labor costs count </li></ul></ul><ul><ul><li>30% of qualifying expense (max of $2,000) </li></ul></ul><ul><ul><li>No cap for solar electric property (this one does carry forward) </li></ul></ul><ul><ul><li>May be claimed against AMT </li></ul></ul>
  28. 28. Wrap up <ul><li>$230,000 per newest proposals in May 2009, is starting to sound like the new $250,00 to distinguish “wealthy.” </li></ul><ul><li>Madoff losses appear to be theft loss </li></ul><ul><li>Obama administration indicated no tax increases until 2011, but that could change to mean during 2009 </li></ul>
  29. 29. Wrap up <ul><li>Think about whether or not to take section 179, consider if the client is financing the purchases </li></ul><ul><li>Consider 1 st time homebuyer credits, could Mom and Dad purchase a condo where the child goes to college and put it in the child’s name? </li></ul><ul><li>Who is claiming the dependency deductions, any room to take advantage of EIC? </li></ul>