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March 6, 2009

What's New for the 2009 Tax Season

~ written by Jane Pfeifer, Clark Schaefer Hackett & Co.

By now, you should have received your W-2s and 1099s, and maybe even some or all of your K-1 forms from partnerships and S-corporations. Armed with all of your tax documents, you can begin the daunting task of preparing your 2008 Form 1040. During 2008, four separate tax acts were passed. Below are some of the highlights from those Acts which impact individuals:

The Economic Stimulus Act expanded the deduction for automatic expensing under Internal Revenue Code Section 179 of qualified assets used in a trade or business to $250,000. Qualifying assets include but are not limited to computers, software, machinery, office equipment and furniture. Qualifying assets must be used more than 50% for business, and placed in service during 2008. Ohio requires an add-back of five-sixths of the section 179 deduction that exceeds $25,000.

In addition to the expanded Section 179 deduction, Congress reinstated bonus depreciation which allows an additional fifty percent deduction of the cost of qualifying assets placed in service in 2008. These assets must be new to qualify. Ohio requires an add-back of five-sixths of the bonus depreciation taken during the year.

Under the Housing Assistance Tax Act, first time homebuyers can take a credit against their 2008 tax of ten-percent of the cost of the home up to $7,500. Although called a credit, this incentive is really an interest free loan which needs to be paid back over fifteen years or sooner if the home is no longer a principal residence.

This Act also allows a deduction for real estate tax for homeowners that do not itemize. The deduction is $500 for singles and $1,000 for married taxpayers.

In addition to providing some incentives, The Housing Assistance Act also tightened up on a popular tax planning tool. In the past, if an individual had a second home or a rental property, he could move into it for two years and avoid paying tax on the gain as long as those two years fell within the five year period preceding the sale of the property. Any depreciation taken previously would need to be recaptured, but there would be no gain on the appreciation. Starting in 2009, gain will be allocated between periods, and tax will need to be paid on the gain allocated to the period where the home was used for other than a principal residence.

The Emergency Economic Stabilization Act reinstated some deductions which were scheduled to end such as the qualified tuition deduction for higher education, the deduction of IRA minimum distribution amounts directly to a charity and the ability to deduct sales tax in lieu of income tax.

Although it isn’t new, deductions for charitable contributions can be an important reduction in taxable income, but make sure you have the proper support. The IRS requires a receipt from the charitable organization for all single donations that exceed $250. A cancelled check will not be enough. Additionally, you need to have that receipt before filing your return. Obtaining the information at the time of an audit or notice will not suffice.

If your income dropped in 2008, you may be eligible for the stimulus money that was available to individuals last year. Make sure you indicate to your tax preparer or the software if you prepare your own return, the amount if any that was received last year. You may also be eligible for a credit of prior Alternative Minimum Tax paid. You will need to prepare Form 8801 and you must have a copy of your 2007 return available to prepare this Form.