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2009 CCH Whole Ball of Tax
CCH Reviews 2009 Tax Changes, 2010 Tax Agenda
(RIVERWOODS, ILL., January 2010) – Changes to the tax laws came early in 2009 as part of massive “stimulus” legislation and were revisited in November with legislation expanding homebuyer and business tax breaks, according to CCH, a Wolters Kluwer business and a leading provider of tax, accounting and audit information, software and services (CCHGroup.com). At year-end, however, many tax issues remained unresolved, and there is a full agenda of tax provisions facing Congress this year.
“Many individual tax provisions, often of limited duration, became part of the stimulus legislation, but major structural changes to tax brackets, the estate tax and the alternative minimum tax still await consideration 2010,” said CCH Principal Federal Tax Analyst Mark Luscombe, JD, LLM, CPA.
Here are the major provisions of the new laws that can affect the 2009 returns of individuals and small businesses:
- Wage earners get a Making Work Pay refundable tax credit for the 2009 and 2010 tax years equal to 6.2 percent of taxable wages, to a maximum of $400 for single filers or $800 for joint filers. The credit begins to phase out at adjusted gross incomes (AGI) of $75,000 for single filers and $150,000 for joint filers; it decreases to zero when AGI hits $95,000 for single filers, $190,000 for joint filers.
- Recipients of Social Security, Railroad Retirement and Veteran’s Administration benefits get a minimum payment of $250.
- A temporary AMT patch for 2009 returns sets the AMT exemption at $46,700 for single filers, $70,950 for joint filers.
- The American Opportunity Tax Credit for higher education expenses for the 2009 and 2010 tax years provides a maximum credit amount of $2,500, figured as 100 percent of eligible expenses to $2,000 plus 25 percent of expenses above $2,000. The credit can be used for expenses incurred in up to four years of study, including “course materials.” It phases out with modified AGI between $80,000 and $90,000 for single filers, or $160,000 and $180,000 for joint returns; 40 percent of the credit is refundable.
- Withdrawals from 529 savings accounts are allowed to pay for computers, computer-related technology and Internet access for beneficiaries.
- Maximum first-time homebuyer 10-percent credit amount has been increased to $8,000 and the requirement that the credit be repaid has been removed. For purchases after November 6, 2009, price of homes capped at $800,000; income phaseouts raised to $225,000 - $245,000 for joint filers, $125,000 - $145,000 for others; maximum $6,500 credit available for qualifying “existing” homeowners purchasing new principal residence.
- Buyers of a new car, motorcycle, light truck or mobile home on or after February 17, 2009 and before January 1, 2010 get a deduction for sales tax attributable to the first $49,500 of the purchase price. The deduction phases out with modified AGI $125,000 - $135,000 for single filers, $250,000 - $260,000 for joint filers.
- Phaseout range of the Earned Income Tax Credit, or EITC, is raised to benefit married couples with children. Taxpayers with three or more children also see an increase.
- Refundable portion of the $1,000-per-head Child Credit is liberalized to expand the number of people who can take full advantage of the refundable credit.
- Recipients of employer-provided mass transit or van pools benefits get increased tax exclusion, to $250 per month starting March 2009.
- Unemployed workers are allowed to exclude the first $2,400 of unemployment benefits for 2009.
- Credits against payroll tax reimburse employers for subsidizing 65 percent of the premium for COBRA continuing coverage for up to nine months.
- Dollar limitations on credits for certain small wind property, solar water heating and geothermal heat pumps have been removed.
- Credits for improvements to energy-efficient existing homes have been extended through 2010 and uniformly set at 30 percent; item-by-item dollar caps have been eliminated and replaced an overall $1,500 cap.
- The credit for electricity produced from renewable sources, such as biomass, solar and wind has been extended through 2012 for wind power and 2013 for other types.
- Small businesses permitted net operating loss (NOL) carryback of 2008 or 2009 NOLs for up to five years; provision later expanded to cover businesses of all sizes, small business that elected carryback for 2008 NOLs also permitted to carryback 2009 NOLs.
The Road Ahead
For 2010, Congress already has a full slate of tax issues to contend with.
A number of provisions expired at the end of 2009: the deduction for state and local sales tax, the extra standard deduction for real estate taxes, the above-the-line deduction for teachers’ classroom expenses and the ability to exclude an IRA distribution from income if it is donated to charity.
“All of these are popular measures, and they’ve been extended in the past. The question is, how can they be paid for and will they be rolled into some larger tax reform measure,” Luscombe said.
More uncertain is the fate of provisions in last year’s “stimulus” legislation that expired at year-end, such as the exclusion for unemployment compensation and the COBRA subsidy.
“So far, they haven’t made it through both houses of Congress as part of any bill, although the COBRA subsidy was included in a jobs bill that’s still under consideration,” Luscombe observed. “It may be felt that some of the stimulus provisions were emergency measures and that the emergency is lessening.”
The President has also proposed making permanent two elements of last year’s stimulus package that are set to expire at the end of this year – the Making Work Pay Credit and the American Opportunity Tax Credit.
Estate Tax, Tax Rates Uncertain
Also left hanging was a “permanent” fix for the estate tax. The House passed an estate tax bill that would basically keep the 2009 rates and $3.5 million exclusion in place for future years and retain the step up in basis that heirs enjoy on inherited property.
The Senate failed to act, so the new year saw a radical change, if only temporarily: No tax on estates of any size, but heirs generally inherit the basis of the decedent.
“The Senate will probably enact something close to the House bill, but perhaps with some indexing for inflation and some companion tax-raisers that would pay for it,” Luscombe said.
Then, there is the question of what will replace the current tax rates for ordinary income and capital gains when the tax cuts that began in 2001 expire at the end of this year.
“President Obama has proposed pretty much keeping the present system intact for joint filers with AGI under $250,000 and individuals under $125,000, while bringing back higher rates for those over those amounts, and indexing the AMT for inflation,” Luscombe said.
Health Care Reform Will Bring Tax Changes
At press time, the House and Senate were trying to reconcile their differing versions of health care reform legislation. For a summary of the tax provisions being considered, click here or visit CCHGroup.com/Legislation/Briefings.
Check back with CCH for detailed coverage of the taxes associated with health care reform at CCHGroup.com/Legislation/Briefings.
About CCH, a Wolters Kluwer business
CCH, a Wolters Kluwer business (CCHGroup.com) is a leading provider of tax, accounting and audit information, software and services. It has served tax, accounting and business professionals since 1913. CCH is based in Riverwoods, Ill. Wolters Kluwer is a leading global information services and publishing company. Wolters Kluwer is headquartered in Alphen aan den Rijn, the Netherlands (www.wolterskluwer.com).
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