Part 1 of 2: Individual Tax Relief
The signing of the nearly $800 billion stimulus package labeled the American Recovery and Reinvestment Act of 2009 by President Obama on February 17, 2009, officially gave him ownership over our rapidly declining economy. This legislation combined with the TARP legislation, passed in November, has provided almost $2 trillion in stimulus. Additionally, another $275 billion is expected to be included in a future stimulus aimed at shoring up the housing market. The numbers are so mind boggling that most of us are having a tough time even figuring out how many zeros make a trillion, not to mention just what this all means for our futures.
Time will tell whether the stimulus package as envisaged by the Democrats will serve as the “elixir” and create the promised 4 million jobs and lift this economy out of a deep recession.
The new law provides relief to both businesses and individuals. This month’s article will summarize key areas of individual tax relief. Next month we will focus on the business provisions of the tax stimulus.
- Making Work Pay Credit—Provides individual tax credit in the amount of 6.2% of earned income, not to exceed $400 for single returns and $800 for joint returns in 2009 and 2010. The credit is phased out at $75,000 for singles and $150,000 for couples filing jointly.
- Economic Recovery Payment-Provides for one-time payment of $250 to retirees, disabled individuals and certain social security beneficiaries and veterans receiving disability compensation.
- Unemployment Tax—Excludes the first $2,400 of unemployment benefits received in 2009 from taxable income.
- Earned Income Tax Credit-Provides for temporary increase in EIC for 2009 and 2010 for taxpayers with three or more qualifying children.
- Child Tax Credit—Reduces the threshold to qualify for the credit from $8,500 in income to $3,000.
- Higher Education Tax Credit—Creates a $2,500 credit that is available for first four years of college and expands the definition of qualified expenses to include books and course materials. This new credit temporarily replaces the Hope Credit.
- First Time Home Buyer Credit—Increases the amount of credit from $7,500 to $8,000 for first time home buyers after December 31, 2008. Furthermore, the requirement to repay the credit back is eliminated as long as the taxpayer stays in the house for more than 36 months.
- AMT Relief-Patches the AMT for 2009 by increasing the exemption amounts to $70,950 for joint filers and $46,700 for singles.
- New Car Deduction—Allows taxpayers to deduct state and local sales taxes on purchase of new automobiles, light trucks, SUV’s, motorcycles and motor homes. The deduction is allowed even to taxpayers who do not itemize their deductions.
The economic stimulus also includes a package of tax incentives to promote investments in renewable energy projects. Important among these incentives are credits for making energy efficient improvements to your homes and businesses including a credit for purchase of plug-in electric vehicles.
Discussing how the law impacts your individual situation is beyond the scope of this article. We strongly suggest urgently meeting with your CPA and discussing ways in which you can take advantage of the time sensitive deductions and credits for 2009. Engaging in tax planning at the end of the year may not give you enough time to make the necessary adjustments or investments to take full advantage of the expiring provisions.
Amol Nirgudkar, CPA is the managing partner of Reliance Consulting LLC can be reached at (813) 931-7258 or via email at email@example.com