The American Recovery And Reinvestment Act Of 2009
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The American Recovery And Reinvestment Act Of 2009

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summary of ARRA 2009 as of June 09

summary of ARRA 2009 as of June 09

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The American Recovery And Reinvestment Act Of 2009 The American Recovery And Reinvestment Act Of 2009 Presentation Transcript

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