2009 NEWSLETTER   New Tax Law Changes: MAKING WORK PAY CREDIT:  New law provides for an individual tax credit of 6.2% of earned income not to exceed $400 for single taxpayers and $800 for joint filers.  There is a phase-out for AGIs in excess of $75,000 ($150,000 for joint filers).  This credit was available as a reduction in withholding on wages during the year or as a credit on your tax return. ECONOMIC RECOVERY PAYMENT:  New law provides for a one-time payment of $250 to retirees, disabled individuals, social security beneficiaries and SSI recipients.  This credit is a reduction to any allowable making work pay credit. COBRA SUBSIDY RULES:  COBRA continuation coverage gives employees who lose their health benefits as a result of losing their jobs the right to elect to purchase group health coverage for themselves and their families for a limited period of time (usually 18 months).  Under new law, beginning with the first period of coverage after February 17, 2009, individuals who are involuntarily terminated in the period beginning September 1, 2008, and ending December 31, 2009, family members who become eligible as a result of their involuntary termination, receive a government financed subsidy of 65% of the COBRA continuation premium they would otherwise have to pay.  The subsidy is tax-free although at tax time higher income individuals may have to recapture part or all of the subsidy. AGRICULTURAL CHEMICALS SECURITY CREDIT:  The 2008 farm bill added a new credit for qualifying agricultural businesses.  They can obtain a 30% credit for qualified agricultural chemicals security expenditures.  The credit is good for expenditures from May 22, 2008, thru January 1, 2013.  The specified agricultural chemicals that qualify for the tax credit include fertilizers and pesticides most commonly used in agriculture. UNEMPLOYMENT COMPENSATION EXCLUSION:  This exclusion temporarily suspends federal income tax on the first $2,400 of unemployment benefits received in 2009. EXPANDED CHILD TAX CREDIT:  The new law increases the eligibility for the refundable tax credit in 2009 and 2010 by lowering the earned income threshold to $3,000 (from $8,500 in 2008). HIGHER EDUCATION TAX CREDIT:  The new law creates a $2,500 higher education tax credit that is available for the first four years of college.  The credit is based on 100% of the first $2,000 and 25% of the second $2000 for tuition and related expenses (including books) paid during the tax year.  The credit has a phase-out for AGI in excess of $80,000 ($160,000 for joint filers).  40% of the credit is refundable.  The new credit temporarily replaces the Hope credit. FIRST-TIME HOME BUYERS CREDIT:  Last year, Congress provided taxpayers with a refundable tax credit that was equivalent to an interest-free loan equal to 10% of the purchase of a home (up to $7,500) by first-time home buyers.  The provision applied to home purchases on or after April 9, 2008, and before July 1, 2009.  Taxpayers receiving this tax credit were required to repay any amount received under this provision back to the government over 15 years in equal installments (or earlier if the home was sold).  The credit phases out for taxpayers with AGI in excess of $75,000 ($150,000 in the case of a joint return).  The new law enhances the credit by eliminating the repayment obligation for taxpayers that purchase homes on or after January 1, 2009.  It also extends the credit through the end of November 2009, and bumps up the maximum value of the credit from $7,500 to $8,000. NEW VEHICLE/MOTOR HOME PURCHASES:  New law allows taxpayers to deduct state and local sales taxes paid on the purchase of a new automobile (includes light trucks, SUVs, motorcycles and motor homes).  The tax break phases out starting with taxpayers earning $125,000 per year ($250,000 for joint returns).  The deduction is allowed to both those who itemize their deductions as well as to nonitemizers. EXPANDED NOL CARRYBACK PROVISIONS:  Under the old rules, net operating losses (NOLs) could be carried back two years and forward 20 years.  For businesses with gross receipts of $15 million or less the new law extends the maximum NOL carryback period from two to five years. REQUIRED MINIMUM DISTRIBUTIONS:  Congress passed a waiver of the required minimum distribution rules for the calendar year 2009.  No distributions are required for 2009. DEPRECIABLE LIFE CHANGE:  For purchases of new equipment after December 31, 2008, used in the farming industry, there is a new depreciable life of 5 years instead of the old 7 year life. Reminders: KIDDIE TAX:  The kiddie tax rules apply for any children aged 18 or younger or college students through the age of 23.  They say that unearned income (income other than wages) in excess of $1,800 must be taxed at the parent's higher rate.  Any child with unearned income in excess of $950 must file a return. DEPRECIATION INCENTIVES:  The 50% bonus depreciation has been continued for one more year only.  To qualify, the asset must be new instead of used and applies to all 20 year or less property including farm buildings. The 2009 Section 179 deduction will again be $250,000 with a phase-out dollar-for-dollar with total purchases over $800,000.  Section 179 is scheduled to drop back to 2007 rules in 2010. CAPITAL GAINS AND DIVIDENDS:  The lower capital gain and dividend rates are due to be phased out in 2010.  Until then taxpayers get a 0% tax rate if their AGI is in the 15% tax bracket.  Take advantage of them while you can. JOBS CREDIT ON NEW EMPLOYEES:  You may be eligible for a tax credit up to $2,400 per employee for your new employees.  We recommend that any time you have an employee fill out a W-2 and an I-9 that you have them fill out the jobs credit forms.  It could save you big bucks. Form 8850 has to be filed within 28 days of hiring. Employer must file Form ETA 9061 for the new employee. Employee has to be between the ages of 18 and 40. Employee can't have worked for you before. Employee can't be related to employer. Employee must work at least 120 hours the first year. ENERGY CREDIT ON EXISTING HOMES:  The tax credit for energy-efficient improvements to existing homes is available and expanded for the 2009 tax year. FARM OPTIONAL SE:  The 2008 farm bill expanded the elective SE income allowed under the farm optional method in order to provide electing taxpayers four credits of social security benefit coverage for the tax year. PROFORMA FORMS:  For ease in the preparation of your tax information, we have placed tax data worksheets (proformas) on our web site at www.bacopc.com.  Click on the "Client Organizers" link on the right side to get to the forms. Of course, these are just the basics.  Most of these provision have special rules, conditions and exceptions.  Please call us to see how you can make the most of the new tax law changes in your circumstances.