July 8, 2009

Dear Friend,

This newsletter will get you up-to-date regarding some new credits:

• an improved First-Time Homebuyer Credit,
• the new American Opportunity education credit,
• two energy credits, and
• the stimulus-related Making Work Pay credit.

In addition, learn how you can:

• receive a cash trade-in credit when you trade up to a more fuel efficient vehicle ("Cash for Clunkers"),
• avoid paying tax on the first $2,400 of unemployment benefits,
• skip an IRA or pension required minimum distribution for 2009, and
• deduct new car sales tax in addition to your regular itemized or standard deduction.

Pay close attention to effective dates:

• Good through Nov 1, 2009: Cash for Clunkers
• Good through Nov 30, 2009: First-Time Homebuyer Credit
• Good through Dec 31, 2009: Partially tax-free unemployment benefits
• Good through Dec 31, 2009: Special motor vehicle sales tax deduction
• Good through Dec 31, 2009: IRA/pension distribution waived
• Good through Dec 31, 2010: Making Work Pay Credit
• Good through Dec 31, 2010: American Opportunity Credit
• Good through Dec 31, 2010: Energy Credit for Home Improvements
• Good through Dec 31, 2016: Energy Credit for Solar Property

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

You may notice that I have a new website URL:

www.familychildcaretaxes.com

Most of my client education and marketing efforts are now aimed at family child care providers. The new website address should make that perfectly clear and help providers find answers to their tax and record-keeping questions.

Rest assured: You can still get to my site via www.familychildcaretaxes.com and I will still get your email no matter which email address you use.

You can also reach me anytime via my website contact page.

Sincerely,

Making Work Pay Credit
Should you adjust your withholding?

For 2009 and 2010, you can claim a refundable Making Work Pay Credit if you are employed. The amount of the credit equals the lesser of 6.2 percent of your earned income or $400 ($800 if married filing jointly). However, the credit is phased-out when your modified adjusted gross income is between $75,000 and $95,000 ($150,000 and $190,000 if married filing jointly).

Cash for Clunkers signed into law on June 24, 2009
Applies to vehicles purchased/leased this year between July 1 and November 1

The Consumer Assistance to Recycle and Save Act of 2009 authorizes the issuance of an electronic voucher to offset the purchase price or lease price for a qualifying new fuel efficient vehicle upon the surrender of an eligible trade-in vehicle to a dealer participating in the program.

Deduction for Sales Tax on New Motor Vehicles
Did you buy a vehicle this year?

There is a new deduction for state or local sales tax imposed on new motor vehicles purchased after February 17, 2009, and before 2010.

First-Time Homebuyer Credit
Thinking of buying your first home in 2009?

The First-Time Homebuyer Credit is still available for homes purchased through November 30, 2009. This year's credit is a true credit. (The 2008 credit was really a loan paid back over 15 years.) It's also "refundable," which means the credit is treated like a tax payment. Therefore, even if you have no tax liability, you will get a refund equal to the amount of the credit (up to $8,000).

Required Minimum Distributions Waived for 2009
Don't need your RMD?

Required minimum distributions (RMDs) from qualified plans [i.e., 401(k), 403(b), 457(b), etc.] and IRAs have been waived for 2009 only. Thus, you do not have to take an RMD for 2009 if you are the account owner or a beneficiary. If you already withdrew your RMD for 2009, you may be able to roll it over to an eligible retirement plan within 60 days.

1> If you are unmarried and purchase a home with another individual as tenants in common, you can claim the entire First-Time Homebuyer Credit on your tax return even if you are a first-time homebuyer and the other individual is not. However, you cannot claim the first-time homebuyer credit before you close on the purchase. In addition, you will not qualify for the credit if you purchase the home from a related party, inherit the property, or receive it as a gift.

2> If you are in a lower income tax bracket in 2009 or 2010, now may be the time to sell appreciated capital assets. Long-term capital gains that fall within the 10- or 15-percent income tax brackets are taxed at 0 percent. In 2009, income must be under $33,951 (single), $67,901 (married filing jointly), or $45,501 (head of household) to fall within the 10- or 15-percent tax brackets.

3> A noncustodial parent who wants to claim a dependency exemption for a child can no longer attach certain pages from the divorce decree or separation agreement if it’s executed after 2008. The noncustodial parent must attach Form 8332 or a similar signed statement that is executed for the sole purpose of releasing the dependency exemption.

4> If you had credit card debt canceled, but didn’t file for bankruptcy, you can still exclude it from gross income to the extent you are insolvent. You are insolvent to the extent your liabilities exceed the fair market value of your assets immediately before the discharge.

5> Instead of deducting the actual expenses for the business use of your vehicle, you can opt for the standard mileage rate. In 2009, you can deduct 55 cents for each business mile you drive.

American Opportunity Tax Credit
Have you paid any college tuition in 2009?

The Hope Credit, which was a tax credit available for tuition expenses paid during the first two years of college, has been expanded and renamed the American Opportunity Tax Credit for 2009 and 2010.

Unemployment Benefits May Be Tax-Free in 2009
Should you request withholding?

All or part of your unemployment benefits received in 2009 will be tax-free under the American Recovery and Reinvestment Act.

Hire Your Children for the Summer
Save your business some payroll taxes

There are benefits to hiring your children to work for you. If your children are under the age of 18, you are not required to withhold social security and Medicare taxes from their wages. You are also not required to pay federal unemployment taxes on their wages until they reach the age of 21.

Energy Credit for Solar Property
Want to generate electricity using solar panels or a windmill?

In addition to the energy credit for home improvements (see below), you may also claim a residential energy efficient property credit for property that uses solar energy to generate electricity or heat water for your residence. You can also claim this credit for property that uses a wind turbine to generate electricity in your residence, or equipment that uses the ground or ground water to heat your residence.

This credit is available for existing homes and new construction through 2016 with no upper limit, except as noted later in this article.

Energy Credit for Home Improvements
Want to make energy-efficient home improvements?

The nonbusiness energy property credit for energy-efficient improvements to your principal residence was not available in 2008. However, it’s back again for two more years in 2009 and 2010.

The credit equals 30 percent of the amount paid for:
• Qualified energy efficiency improvements (i.e., insulation, windows & doors, metal/asphalt roofs, etc.); and
• Residential energy property expenditures (i.e., central air conditioners, natural gas furnaces, tankless water heaters, biomass fuel stoves, etc.).

This credit is available for existing homes only and is limited to $1,500.