Notes from the CPA
Bette Jo Benner
CPA
McLean, Rotherham & Co., CPA's
VIP Speaker at the Open Mic Networking Event
New legislation, expiring provisions and older provisions coming into effect make 2009 an interesting year for taxpayers. We have tax-free capital gains, an $8,000 credit for people who may be buying their first home for the 12th time, property tax and new automobile sales tax deductions for those who don’t itemize, and other unique problems and opportunities.
First time home buyer credit: Federal law now provides up to an $8,000 credit on your return if you are a “first time home buyer” (you haven’t owned a home in three years). This applies to homes purchased after December 31, 2008 and before December 1, 2009.
Dividends and capital gains may be tax free! For tax years 2009 and 2010, qualified dividends and capital gains may be taxed at either 0% or 15%. We need to look at two issues here: First, planning income to take advantage of 0% capital gains; second, with a new administration in the White House, the 15% rate could go away sooner than planned. If so, we may want to accelerate those gains.
The AMT monster: More and more taxpayers are getting caught by the alternative minimum tax (AMT). Proper planning can avoid or minimize its effects especially in light of new laws providing for a refundable credit and other new benefits. Let’s plan how to deal with the AMT monster.
More real estate changes coming: Starting this year, any time your property is not used as your principal residence it will reduce the amount of your home sale exclusion. If you are planning to convert rental property to a principal residence to use the exclusion later, we need to talk about it.
Selling real estate? California requires withholding on a sale of real estate. The amount could be over $8,000 on property sold for just $250,000. There are exceptions from this withholding and ways to reduce it but you must file certain forms BEFORE escrow closes. Call us if you’re selling any real estate.
Losing real estate? If you’re losing — or under threat of losing — your home or other real estate in a foreclosure, let’s get together. As hard as it may be to understand, you can end up with a big tax bill after losing a home or rental property. Fortunately, there are tax strategies that may help to avoid that. The same applies if the lender reduces the amount of your loan.
Net operating losses (NOL): California has enacted a law suspending NOLs in 2009 but there is an exemption for “small businesses.” Let’s discuss this, and if you have an NOL, let’s make sure you qualify as a small business.
No Required Minimum Distribution for 2009: This year only, you can take it out or leave it in your IRA. There is no penalty for leaving your money in your IRA, but talk to us – there are some exceptions.
Charitable contribution of IRA is back: Again in 2009, an individual aged 70½ or older may make a direct contribution of IRA funds to a charity. You may contribute money directly to a charity and pay no tax on the distribution. If you don’t itemize deductions, this is a perfect way to save tax and benefit your favorite charity.
Stock losses: If you have large capital gains, you may want to reduce them with losses. If you want to take losses but still like your stock, consider using the wash sale rules to sell the stock and repurchase it after 30 days. This can be tricky so we need to talk about the alternatives.
Roth conversions: Had a bad year? Consider converting traditional IRA funds to Roth IRA for this year. Also, in 2010 you will be able to convert to a Roth, no matter what your income level. There are things to be done now to prepare for the change.
Social Security double whammy: At certain income levels, every dollar of additional income causes a $1.50 increase in taxable income. So we should plan when to recognize or avoid income whenever possible.
Kiddie tax: Students are now subject to kiddie tax as long as they are under age 24. Let’s look at some opportunities to postpone income for kiddies and increase their spendable college cash. To make things even more complicated, under California law, your dependents are treated as “kiddies” only until they’re 14.
Withholding: Both the IRS and the state of California have changed the tables used to deduct income from your paycheck or retirement check. Caution: these changes could mean you will owe a big tax bill. If you fall into any of these categories you should come in for a withholding check-up. Call for an appointment if you:
- Have children or other dependents.
- Have more than one job.
- Are married and you both work.
- Have a pension and have taxes taken out of your pension.
- Owed taxes on your last years return and didn’t change your withholding.
- Got married, divorced, or became widowed this year.
Bunching deductions: We should always look at the time-honored strategy of bunching deductions to maximize their benefit. In doing so, we will look at itemizing versus standard deduction and the dreaded alternative minimum tax. It can be tricky, so let’s put together a good strategy to beat the tax man.
These are just a few of the common tax-planning strategies we should talk about. There may also be other things that relate to your specific situation. Please call us at 951-699-1040 and come in soon. When you make an appointment, please let us know if there are specific items you want to discuss, so that we can be better prepared for you. We want to help you reduce your taxes.
