December 2009

Help from Congress!?
By Tim Gephart, CPA

      We know they need help paying for everything they are spending, we just don’t want you to be the one to pay for it. Here are a few tax saving ideas to help you keep what you can.

•   Deferring income and accelerating deductions is always a good year-end tax saving strategy for a cash basis taxpayer if
     your tax rates will remain constant through next year. For individual taxpayers or cash basis businesses, plan sales and
     income to receive the cash in 2010. If you itemize deductions, it may help to prepay charitable contributions, real estate
     taxes, and state and local income taxes. Keep in mind that if you are going to pay alternative minimum tax (AMT), then
     prepaying taxes will not benefit you.

•  Try to bunch your medical and miscellaneous itemized deductions. Because these expenses are reduced by a percentage
    of income, there may be a benefit when bunching them in one year. Also consider the possibility of married filing separately
    to get increased benefits from these types of expenses.

•  Consider 529 plans and other educational expense funding arrangements.

•  Adjust your federal income tax withholding from now until the end of the year if your tax payments from both withholdings and
    estimates are not going to be at least 90% of your 2009 tax liability or 100% of 2008 liability (110% if AGI is over $150,000
    for joint returns). By doing this, you may avoid penalties for underpayment.

•  Hybrid Vehicle Credit or Alternative Fuel Motor Vehicle Credit (AFMV) may be taken if you purchase a qualifying vehicle.
    Hybrid credits can be as high as $3,400 and AFMV credits as high as $4,000 to $32,000. Check with our office for a list of
    qualifying vehicles and associated credits.

•  The Energy Efficient Improvement credit will be available for qualified improvements to your principle residence in 2009 and
    2010 if you make such improvements. These credits are limited to an aggregate lifetime amount of $1,500 and are also
    limited by the type of improvement.

•  Through the year 2010, long-term capital gain and qualifying dividends are only taxed at 15% for taxpayers in the 25% or
    higher tax bracket and only 0% for those in lower brackets. The capital asset must be held for more than a year to qualify for
    the lower capital gain rate. Be aware that reporting large amounts of capital gains and qualified dividends could subject you
    to the AMT rules.

•  Capital losses can be used to offset capital gains plus an additional amount of $3,000 is allowed as a deduction against
    other income. Any losses in excess of the $3,000 will be carried over to the following years until used. Watch out for the
    “wash sale” rule on losses. Your loss is deferred if you purchase an identical security within 30 days before or after the sale
    date. Since there are no “wash sale” rules for capital gains, you could sell your assets and buy back the same assets in
    order to create gain to utilize loss positions in excess of $3,000.

•  Consider health saving plans or cafeteria and flex spending benefit plans sponsored by your employer that allow you to pay
    premiums and medical expenses out of pre-tax income.

•  IRA contributions for 2009 must be made by April 15, 2010. Contributions can be up to the lesser of $5,000 ($6,000 if 50 or
    older) or 100% of compensation from wages, salaries, self-employment income and alimony. If you or your spouse is an
    active participant in an employer retirement plan and your Modified AGI (MAGI) exceeds certain limits, your deductions will
    be limited. Maximize any available deferral of income in a company sponsored retirement plan.

•  For taxpayers over age 70½, consider making charitable contributions with direct transfers from an IRA. This is a good way
    to deduct charitable contributions if you cannot itemize deductions. There is no itemized deduction for the contribution;
    however the income is not taxable. Additional benefits may be gained by reducing adjusted gross income (AGI) which can
    increase many other deductions. Since the direct transfer reduces AGI, you will receive a benefit on your State of Ohio
    return for the charitable contribution.

•  Consider making non-deductible IRA contributions that can be converted to Roth IRA’s in 2010. There are no wage or age
    limitations on these contributions. Income from the conversion of traditional or non-deductible traditional IRA’s in 2010 can
    be split between 2011 and 2012.

•  In 2009, gifts to any person can be made up to $13,000 per year, per individual, to as many people as you like. If you are
    married, you and your spouse each can give $13,000 per year to each person. You may pay tuition and medical expenses
    directly to the school or health care provider and it will not count against the $13,000 limit. You receive no tax deduction for
    gifts, but they reduce your estate for estate tax purposes and may help you qualify for Medicaid coverage if done timely.

•  Section 179 allows deductions up to $250,000 of the cost of qualifying depreciable property put in service in 2009 by
    business owners. The deduction cannot exceed your business net income and the deduction is phased out if property
    purchases exceed $800,000. Consider making equipment or tangible business property purchases before year end to take
    full advantage of the deduction. 50% depreciation is also available on new purchases for 2009 as long as the amounts
    were not expensed under Section 179. The increased limit for Section 179 and 50% bonus depreciation will expire unless
    an extension is passed by Congress.

•  SUV’s that have gross, or loaded, vehicle weight rating between 6,000 and 14,000 pounds are limited to $25,000 of
    Section 179 expense. The amount in excess of the $25,000 is depreciated over 5 years. Pickup trucks with loaded weight
    over 6,000 pounds and a cargo bed at least 6 feet are not subject to the SUV rule and can be expensed under Section 179
    up to $250,000.

•  Evaluate whether any credits such as Disabled Access, Low-Income Housing, Work Opportunity, or Research could apply
    to your business and take advantage of the Domestic Activities Production deduction.

•  If you are not itemizing, you will still be able to get a tax benefit for the real estate taxes and motor vehicle taxes you paid in
    2009.

•  Take advantage of the new homebuyer credit. For purchases of homes that are under contract before May 1, 2010 and
    close before July 1, 2010, there is a maximum $8,000 credit for first time homebuyers and a maximum $6,500 credit for
    individuals who have maintained the same principal residence for any 5-consecutive year period during the 8-year period
    ending on the date of the purchase. There are limitations to the credit including adjusted gross income limitations but these
    have increased to $125,000 for single and $225,000 for married taxpayers.

    These are just a few things to consider. Take time to review your 2009 tax situation now and consider planning strategies that will work for you and save you money. We are here to help, so please contact us to discuss your specific tax and financial concerns.