Presented by:

Lauran Penn, CPA

Greg Yoder, CPA

2009 Individual Tax Update

Highest Marginal Tax Rates, 2001 - 2012

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 20120

10

20

30

40

50

60

Ordinary IncomeCapital GainsQualified DividendsEstate Tax

Credit for first time homebuyers -- §36.

Up to $8,000 (10% of purchase price)

Refundable.

Credit for first time homebuyers -- §36. (Continues)

Requirements. Purchase of principal residence before

12/1/2009.

Taxpayer has not owned a principal residence in the U.S. for the three years ending with the date of purchase (neither taxpayer if married).

Residence can’t be purchased from a related party.

Credit for first time homebuyers -- §36.(Continues)

Phase out Begins at $75K.

Begins at $150K for MFJ.

Phased out ratably over $20K, regardless of filing status.

Importance of managing AGI, where possible.

First Time Homebuyer example

Herb and Wanda Homeowner Income

Herb has $100K salary, plus 5% in his company 401K Plan, Wanda has $80K net income from a Sch C business, Joint $2,500 interest and dividends.

Deductions $5,000 in charitable contributions, State income taxes.

The homebuyers purchase their first home in September 2009, for $300K.

2009 Mortgage Interest expense of $2,500.

Herb and Wanda Homeowner

Wages 100,000 less 401(k) (6,000) Schedule B 2,500 Schedule C 80,000

Gross Income 176,500

Half of SE tax (5,652)

AGI 170,848

SIT (12,553) Mortgage Interest (2,500) Contributions (5,000) Deduction phaseout 40

Exemptions (7,300)

Taxable income 143,535

Income Tax 28,388 SE Tax 11,304 MWP Credit (383) 1st Time Homebuyer Credit -

Net Federal Tax 39,309

Herb and Wanda Homeowner

Wages 100,000 100,000 less 401(k) (6,000) (12,000) Schedule B 2,500 2,500 Schedule C 80,000 80,000

Gross Income 176,500 170,500

Half of SE tax (5,652) (5,652) SEP Contribution (14,870)

AGI 170,848 149,978

SIT (12,553) (10,765) Mortgage Interest (2,500) (2,500) Contributions (5,000) (5,000) Deduction phaseout 40 -

Exemptions (7,300) (7,300)

Taxable income 143,535 124,413

Income Tax 28,388 23,428 SE Tax 11,304 11,304 MWP Credit (383) (800) 1st Time Homebuyer Credit - (8,000)

Net Federal Tax 39,309 25,932

Additional Retirement Contributions 20,870

Tax Savings 13,377

Credit for first time homebuyers -- §36. (Continues)

Recapture Recapture if sold or if property ceases to be

taxpayer’s principal residence during the three years beginning with the date of purchase.

Full recapture, up to the amount of gain from sale to an unrelated person.

Exceptions for death, divorce, and involuntary conversion.

Credit for first time homebuyers -- §36. (Continues)

Allocation between unmarried purchasers (Notice 2009-12). Any reasonable method.

Reasonable method: Any method that doesn’t allocate any portion of

the credit to a taxpayer not eligible to claim that portion.

Based on respective contributions toward the purchase price.

Based on ownership interest (TIC only). Generally allows full credit to a qualifying taxpayer.

Making Work Pay Credit

2009 and 2010.

Lesser of 6.2% of the taxpayer’s earned income or $400 ($800 MFJ).

Phased out by 2% of the taxpayer’s modified AGI over $75K ($150K MFJ)

Worked into withholding tables earlier in 2009.

Energy credits

Residential Energy Efficient Property Credit -- §25D Nonrefundable – subject to carryover. Through 12/31/2016. 30% of qualified

Solar electric property expenditures. Solar water heating property expenditures. Fuel cell property expenditures. Small wind energy property expenditures. Geothermal heat pump property expenditures.

Energy credits (Continues)

Limitations 2,000 for qualified

Solar electric power expenditures. Solar water heating property expenditures. Geothermal heat pump property expenditures.

$500 for each half kilowatt of capacity of qualified: Fuel cell property – must be certified by the

Solar Rating Certification Corporation or a comparable state-endorsed entity.

Small wind energy property – up to $4,000. Notice 2009-41

Energy credits (Continues)

Nonbusiness Energy Property Credit Similar to credit allowed in 2006 and 2007

but not in 2008. Back in 2009 and 2010. Increased to $1,500 total limit for both

years (was subject to $500 lifetime limit). 30% of qualified energy efficiency

improvements and residential energy property expenditures.

Separate category limitations (e.g., windows) no longer apply.

Energy credits (Continues)

Alternative Motor Vehicle Credit -- §30B Qualified Hybrid Motor Vehicle Credit

Passenger automobiles and light trucks – through 2010. Other vehicles (GVWR > 8,500 pounds) – through 2009.

Advanced Lean Burn Technology Motor Vehicle Credit Passenger automobiles and light trucks. Vehicles must be pre-certified. Available through 2010.

Qualified Fuel Cell Motor Vehicle Credit Vehicles must be pre-certified. Available through 2015.

Qualified Alternative Fuel Motor Vehicle Credit Vehicles must be pre-certified. Available through 2010.

Education Provisions

American Opportunity Tax Credit Formerly the Hope Credit. 2009 and 2010. Up to $2,500 per eligible student per year of

qualified tuition and related expenses. First four years of a student’s post-secondary

education in a degree or certificate program. 100% of the first $2,000 of qualified

expenses, 25% of the next $2,000.

Education Provisions (Continues)

Phase outs based on modified AGI Between $80,000 and $90,000. Between $160,000 and $180,000 for MFJ.

Forty percent of the credit is refundable.

None refundable if the taxpayer claiming the credit is a child subject to the kiddie tax.

Education Provisions (Continues)

Temporary expansion of expenses eligible for §529 plan distributions;

Computer technology or equipment or Internet access are now qualified expenses.

For 2009 and 2010B.

Depreciation

50% bonus depreciation extended through 2009.

$250K expanded §179 limitation extended through 2009.

Deduction for sales taxes on qualified motor vehicles

Deduction for sales taxes on qualified motor vehicles In addition to deduction for state and

local income taxes. Purchases through 12/31/2009. Available for first $49,500 of purchase

price per vehicle. AGI phaseouts between $125K and $135K

($250K and $260K for MFJ).

Deduction for sales taxes on qualified motor vehicles (Continues)

Deduction for sales taxes on qualified motor vehicles (continues) Can be in addition to standard deduction. Qualified vehicles

Passenger auto, light truck or motorcycle (GVWR < 8,500 pounds)

Motor home Does not apply to used vehicles.

Principal residence debt relief provisions -- §108(a)(1)(E)

Principal residence debt relief provisions -- §108(a)(1)(E) Extended through 2012. Exclusion from gross income. Basis reduction. Debt must be acquisition indebtedness (§163(h)

(3)(B)). Principal residence only. Up to $2million ($1million for MFS) of debt can

qualify.

FBAR requirements

Slight expansion in definition of foreign financial account.

Major activity on unreported foreign income front.

Deadlines have passed for avoiding criminal prosecutions, but expanded awareness of reporting requirements continues.

Extension through 6/30/2010 for foreign commingled funds and signatory authority.

Private Mortgage Insurance

Deductible through 2010. Phaseouts for AGI exceeding $100K

($50K for MFS). 2009 temporary regulations issued for

dealing with prepaid PMI premiums Mortgage servicers report entire amount of

prepaid premiums Taxpayers can deduct ratably over the lesser

of Term of the mortgage, or 84 months

Madoff victims ruling

Madoff victims ruling Revenue Ruling 2009-9, Revenue Procedure

2009-20 Applies to other Ponzi scheme investments. Theft loss

Not capital loss. Not subject to the usual casualty loss limitations. Fully deductible as non-limited miscellaneous

itemized deduction. Can generate NOL carryback. Safe harbor provisions for year and amount of loss.

Innocent spouse

(1) A joint return was filed for the tax year (2) There is an understatement of tax on the

return that is attributable to erroneous items of the other spouse

(3) The innocent spouse establishes that, in signing the return, he or she didn't know and had no reason to know of the understatement

(4) It would be inequitable to hold the innocent spouse liable for the deficiency

(5) The innocent spouse elects the relief in the form that IRS prescribes no later than two years after IRS has begun collection activities with respect to that spouse.

Innocent spouse cases

Lantz. Tax Court invalidates innocent spouse regulation.

IRS disagrees with Lantz, but will change its litigation tactics.

Porter. Tax Court changes to de novo standard to review denial of innocent spouse relief. (Formerly was abuse of discretion standard.)

IRS will not follow Porter.

Thompson v. U.S.

Court of Federal Claims holds that an interest in an LLC is not the same as a limited partnership interest for PAL purposes.

Very good facts for the taxpayer.

Roth Conversions

In 2010 – major planning issue when preparing 2009 returns AGI limits temporarily suspended.

Conversion in 2010.

Income picked up half in 2011, half in 2012.

THANK YOU FOR YOUR TIME!