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Get off to an early start on your tax planning this year
While there was no shortage of tax law changes in 2009, even more are expected in 2010 and 2011.
While there was no shortage of tax law changes in 2009, even more are expected in 2010 and 2011. Because of these changes, a sit-down with your tax advisor this year is crucial. You need to make sure your tax house is in order—and ensure that you take advantage of beneficial tax laws before their provisions expire.
Here's what was scheduled to expire after 2009:
> The deduction for state and local sales tax
> The additional real estate tax standard deduction
> Tax-free IRA charity distributions of up to $100,000 for people at least 70½ years old
> The increased $250,000 IRS section 179 deduction and the $800,000 phase-out threshold
> The 50 percent bonus depreciation deduction
> The additional $8,000 increase in first-year depreciation for autos and trucks weighing less than 6,000 pounds
> The 15-year write-off for qualified leasehold improvements.
As it sits right now, Congress is in the middle of debating which of these will be extended—but for only one year. So check with your tax advisor soon if any of these apply to you.
Also, the first-time homebuyer's credit set to expire Nov. 30, 2009, has been extended—and expanded—under the Worker, Homeownership, and Business Assistance Act of 2009. The credit is equal to either $8,000 or 10 percent of the home's purchase price, whichever is less. The original version of the credit phased out for taxpayers with income between $75,000 and $95,000 ($150,000 and $170,000 for joint filers) in the year of purchase.
If you bought your first home after Nov. 6, 2009, or you're planning to in the next few months, you can still benefit—plus the income restrictions are more lenient. The new law says you can qualify for the credit if your income is $125,000 or less if you're single and $225,000 if you file jointly. The program phases out at $145,000 for singles and $245,000 for couples. You have until May 1 to sign the purchase contract, as long as you close by July 1.
What's more, the credit was extended to existing "longtime resident" homeowners. This means that if you've maintained the same principal residence for five years and you buy a home between Nov. 6, 2009, and May 1, 2010, you'll be treated as a first-time homebuyer. The maximum allowable credit is $6,500, as long as the price of your new home is less than $800,000.
While this new act brings lots of good news, it also contains some potential pitfalls. For example, beware of filing your partnership or S corporation return late. If you file past the due date with no extension or file past the extension deadline, the penalty has more than doubled: from $89 times the number of partners or shareholders for a maximum of 12 months after the deadline to $195 per partner or shareholder.
So pick up the phone and schedule a tax-planning meeting. You'll reap the maximum reward of potential tax savings and avoid costly penalties. It's not too late to make changes you'll really notice.
Veterinary Economics Editorial Advisory Board member Gary Glassman, CPA, is a partner with Burzenski & Co. in East Haven, Conn., and specializes in veterinary accounting and tax planning.