New tax laws went into effect Jan. 1, and your clients are wondering how the laws will affect their tax obligations for 2009.
Situation: New tax laws went into effect Jan. 1, and your clients are wondering how the laws will affect their tax obligations for 2009.
Solution: Some of the changes to the Internal Revenue Code that affect individuals, starting in 2009, are as follows:
1. For taxpayers age 70½ and older, payouts from individual retirement accounts and other retirement plans can be skipped without penalty. The same rules apply to heirs of inherited IRAs.
2. There are new rules on turning a second home into a main residence and then attempting to sell that home and take advantage of a $250,000 tax exemption ($500,000 for married couples).
The new rules will make some of the gain ineligible for this exclusion. The amount that would be taxable is based on the ratio of time after 2008 that the home was used as a second home or rental property to the total time the seller owned the home.
The balance of gain remains eligible for the exclusion.
3. Casualty losses are now subject to a $500 floor, up from $100 in 2008.
4. Income caps are raised for tax-free EE bonds used for education purposes. In order to qualify, parents who are married must file a joint return. The exclusion starts phasing out at $104,900 of adjusted gross income and is gone when AGI reaches $134,900 (the range for single filers is $69,950 to $84,950).
5. The estate tax exemption has gone up from $2 million to $3.5 million, but the tax rate remains at 45%.
6. The annual gift tax exclusion has been raised from $12,000 to $13,000.
7. U.S. taxpayers working abroad have a higher exclusion tax this year. It is now $91,400.
8. The standard mileage rate for business driving for 2009 is now 55 cents per mile, and 14 cents a mile for miles driven for charitable purposes.
9. There are some major changes for energy-related issues, including a more generous tax credit of 30% for the full cost of installing home solar power systems. There are new tax credits for small wind turbines for residential or business use and biomass stoves. The solar and wind residential tax credit can be claimed against the alternative minimum tax as well. The new bicycle tax credit allows employers to reimburse employees up to $20 a month for expenses related to bicycle commuting.
As always, every client’s situation is unique and all changes in tax code should be considered when it comes time to file a return. Keeping your client informed of tax law changes will help ensure he or she makes you aware of changes in his financial situation.
