November 20, 2009

 

Dear Client:

 

The next six weeks will bring not only a wonderful time of holiday for us but it will see the end of 2009.  While we celebrate the end of an extraordinary year we know that there are some tax planning strategies that should be implemented NOW in order that the taxes can be minimized when reporting your taxes in 2010.

 

For 2009, the Standard Deduction for taxpayers who do not itemize their deductions is:

            Joint or Qualifying Widow(er)                       $11,400

            Single                                                                  5,700

            Married Filing Separate                                    5,700

            Head of Household                                            8,350

 

Taxpayers age 65 and older as well as taxpayers who are blind are entitled to an additional standard deduction of $1,100 for each.  Single taxpayers age 65 and older or blind are entitled to $1,400 additional standard deduction.

 

For 2009, the Standard Deduction is further supplemented by real estate taxes paid up to $1,000 for married filing separate taxpayers and up to $500 for single taxpayers.  Additionally you can deduct the sales tax paid on a new vehicle.  These deductions as an increase in the Standard Deduction are available for 2009 only.

 

Itemized deductions have remained unchanged with one exception.  Itemized deductions include:

 

Medical deductions – including medical mileage, but subject to an exclusion of 7.5% of your income.

Taxes – Real Estate Tax (if your mortgage company pays them, give them a reminder to pay before the end of the year) and Sales Tax (unless you keep actual receipts the IRS table based upon your income will be used.)

Mortgage and Investment Interest – since interest is paid in arrears you may want to make your January, 2010 house in sufficient time for it to be posted in 2009 to claim on your 2009 tax return.

Miscellaneous Expenses – includes your tax preparation fee, safe deposit box, employment related expenses and employment search expense.  These expenses are subject to the exclusion of 2% of your income.

 

 

And NEW, if you lost money in a Ponzi scheme, such as the Madoff and Stanford schemes, this is now treated as a theft loss, not subject to the $100 floor and is an itemized deduction on your tax return.  This does not include losses in the stock market but when you have invested with someone who subsequently did not invest your money in a legitimate investment endeavor.

 

The personal exemption amount for 2009 is $3,650.

 

Tax brackets range from the 10% to 35% bracket based upon the total taxable income of the taxpayer.

 

Mileage rates for 2009:

Business  .55 per mile                  Charity   .14 per mile                 Medical   .24 per mile

 

 

Credits are a huge benefit to many taxpayers.  Among the tax credits available to taxpayers in 2009 are:

 

Educational Credits – up to $2,500 per student in first two years of post-secondary education for the HOPE Credit and $2,000 per student for the Lifetime Learning Credit.

Credit for Energy-Efficient Improvements to Existing Home – these credits were not available for 2008 but have been reinstated for 2009.  They include insulation materials or systems that reduce heat loss/gain; exterior windows including skylights (limit of $500); exterior doors; and certain metal roofs with special coatings designed to reduce heat gain.  There is an over-all credit limitation of $1,500 for these improvements.  These improvements result in a credit of 30% of the cost.  A $300 credit is available for the cost of energy-efficient building property such as an electric heat pump water heater or electric heat pump; central air conditioners, natural gas, propane or oil water heaters and geothermal heat pumps.  A $150 credit is available for natural gas, propane or oil furnace or hot water boiler and $ 50 credit is available for an advanced main air circulating fan.

First Time Home Buyers Credit – if you purchase a home, not having owned a home in the last 3 years, you may qualify for up to an $8,000 credit.  For 2009, a copy of the HUD-1 statement at closing is required to apply for this credit.  This credit has been extended to homes closed on or before June 30, 2010 if a binding contract is in place on or before April 30, 2010.  There are limitations on who qualifies for this credit.

 

Additionally the homebuyer credit may be claimed by existing homeowners who are “long-time residents.”  For purchased after November 6, 2009, you can claim the homebuyer credit if you (and, if married, your spouse) maintained the same principal residence for any 5 consecutive year period during the 8 years ending on the date that you buy the subsequent principal residence.  There is no requirement for your current home to be sold in order to qualify for a homebuyer credit on the replacement principal residence.  The maximum credit under this provision is $6,500.  Again, there are limitations on who qualifies for this credit and a copy of the HUD-1 statement must accompany the return.

 

Many taxpayers have experienced business and or casualty losses in 2009.  Due to the Worker, Homeownership, and Business Assistance Act of 2009, any net operating loss created in 2009 can be carried back 5 years instead of the 2 year limitation.  However, losses carried back to the 5^th year are limited to 50% of the income originally reported on the return.  If an election is made to forego this carryback period the taxpayer can elect the 2 year carryback or carry the loss forward for 20 years.

 

This is a departure from the 5 year carryback of 2008 which was only afforded Small Business Taxpayers.

 

Do not forget to maximize your 401(k) contributions or make plans to contribute to your SIMPLE, SEP, or Individual Retirement Accounts.

 

We continue to be aware of legislation which may impact this tax filing and will do our best to keep you informed.

 

For 2010, the opportunity to roll over your traditional IRA to a ROTH IRA exists.  Prior to 2010, if your modified adjusted gross income was more than $100,000 the tax rules prevented you from converting your traditional IRA to a ROTH IRA.  Effective January 1, 2010, there is no earnings limit.

 

Enclosed you will find the Privacy Policy of Whitlock Tax Service LLC.  We are committed to maintaining your private information confidential.

 

Should, however, you have the need for our assistance in providing your tax information to your mortgage company, insurance agent, banker, etc., please note, we have included our Authorization to Disclose statement.  We will have to have this completed and signed by you in order to comply with your wishes.

 

Also enclosed is an Authorization to Use statement.  This statement indicates that you give your permission for us to send Reminder Notices for Estimated Tax Payments, provide financial services and to make you aware of other services offered by Whitlock Tax Service. 

 

The Authorization to Use statement should be returned to us with your tax information.   It must be secured before we can proceed with providing services in supplement to your tax preparation.

 

As always, we are extremely fortunate to have you as a client.  As we maintain our practice in service to our clients we are appreciative of referrals you may send our way.

 

We wish you and your family the best of holiday seasons and a happy, healthy and prosperous NEW YEAR.

 

If you have a question about any of these issues or you have a particular tax situation which should be addressed before the end of the year, please do not hesitate to call us.  We look forward to hearing from you.

 

Sincerely,

 

 

 

Tom and Beanna Whitlock

 

Whitlock Tax Service LLC

 

www.whitlocktax.com