United States: Last-Minute 2009 Filing Season Tax Tips

Originally published in The Legal Intelligencer

During discussions with lawyers who have engaged our tax, accounting or litigation consulting services in connection with their client matters, more often than not a personal tax question or two is splashed within. Lately, the splashes have turned into a tidal wave. Being that time of year and as a result of discussions with our lawyer clients, we thought it would be helpful to provide a listing of last-minute tax tips for young and emerging lawyers as well as seasoned lawyers and judges.

With nine tax acts in the last two years and more than 1,500 tax changes, unique tax savings exist for many individuals and businesses. Combined with the tried-and-true tax strategies, 2009 tax preparation will be challenging and rewarding at best, or at worst, challenging and costly. The following "quick-strike" federal recommendations may benefit both last-minute filers and taxpayers filing extensions. Included are both new and often-overlooked deductions and credits for individuals and businesses and other related tax tips, a number of which come with no income thresholds.

Select Individual Strategies

  • Job-hunting expenses: Expenses incurred in seeking new employment in the same trade or business are deductible. Common deductible expenses include resume costs such as postage, job counseling and referral fees, employment agency fees, telephone charges related to seeking new employment and local and out-of-town travel expenses incurred for interviews, to the extent not reimbursed by the prospective employer.
  • Moving expenses: If you moved more than 50 miles for your new job, you can deduct the cost of getting yourself and your household goods to the new area, including 24 cents per mile (plus parking fees and tolls) for driving your own car. Certain other timing requirements must be met.
  • COBRA - continuing health care coverage: If you have self-employment income following termination of employment, the cost of your medical insurance premiums may be deductible dollar-for-dollar against income such as employment income, interest and dividends. New for 2009, the 65 percent subsidy for continuation coverage is not taxable.
  • Unemployment compensation: New for 2009, unemployment compensation is tax free up to $2,400 per person.
  • Home office expenses: Employees and self-employed individuals may be eligible to claim home office deductions. Taxpayers may deduct home office expenses if part of the home is used exclusively and regularly for business. The business use must also be for the convenience of the employer. Deductible expenses include the allocable portion of many traditional personal and non-deductible expenses, such as insurance, utilities, repairs, maintenance and depreciation. Those eligible should consult with their tax advisors as this is an area subject to close scrutiny by IRS.
  • IRA contributions: Consider contributing up to $5,000 ($6,000 if age 50 or older) to a traditional or Roth IRA, or a combination thereof. IRA deductions may be available for those covered by other plans subject to certain dollar limits and phased out for single taxpayers with adjusted gross income between $55,000 and $65,000 and for joint filers with AGI between $89,000 and $109,000. Contributions up to $6,000 to a Roth IRA will be allowed for taxpayers with AGI less than $166,000 for couples and $105,000 for single taxpayers.
  • Roth IRA recharacterizations: Traditional IRAs converted to Roth IRAs are taxable on the portion that represents a return of nondeductible contributions. This may yield the unintended consequence of propelling a taxpayer into a higher tax bracket, presenting a difficult burden for taxpayers who have suffered a job loss or significant investment losses. While bonuses, severance payments and other income items typically cannot be reversed, taxable Roth IRA conversions can be reversed through a mechanism known as "recharacterization." Without the taxable income from the conversion, a taxpayer can avoid being taxed at a higher rate. The timing rules can be complex, so consult with your tax adviser prior to undertaking an IRA recharacterization. The deadline for recharacterizing a contribution or conversion is the extended due date of your tax return for the year of contribution or conversion, meaning you can recharacterize for 2009 by April 15, or if your return is extended, you have until Oct.15 to recharacterize.
  • First-time homebuyers: Reintroduced for 2009, "first-time" homebuyers who purchased a primary residence after 2008 and before May 1, 2010 (July 1, 2010, if contract signed prior to May 1, 2010), may qualify for a tax credit up to $8,000. The credit is phased out for single and joint filers with AGI between $75,000 to $95,000, and $150,000 to $170,000, respectively. The 2009 American Reinvestment and Recovery Act eliminated the previously required repayment provision (unless the home is sold within three years of purchase or otherwise ceases to be a primary residence).
  • Long-time homebuyers: New for 2009, a $6,500 credit is available for homebuyers who have owned a home for a period of five consecutive years in the eight years prior to purchase. The credit applies to purchases made after Nov. 6, 2009. Buyers must enter into a binding contract to buy a home on or before April 30 and close on the home by June 30. Credit phases out for single taxpayers with AGI between $125,000 and $145,000 and for joint taxpayers with AGI between $225,000 and $245,000.
  • American Opportunity Education Credit: The maximum Hope education credit is increased to $2,500. Education credit income limits have also increased, with phase-out occurring for single taxpayers with AGI between $80,000 and $90,000 and joint taxpayers with AGI between $160,000 and $180,000.
  • Tuition and fees deduction: You may deduct the qualified tuition and related expenses paid during the tax year for you or your spouse and dependents, subject to certain dollar limits. Crunch the numbers to determine the favorable benefit, the education expense deduction or education credit.
  • Making Work Pay credit: New is a refundable credit in the amount of 6.2 percent of earned income, subject to wage limits. Credit is phased out for single taxpayers with AGI of $75,000 to $95,000 and for joint taxpayers with AGI of $150,000 to $190,000.
  • Motor vehicle sales tax deduction: Whether or not you itemize your deductions, a write-off may be available for state and local taxes paid on purchases of new vehicles, including new cars, light trucks, motor homes and motorcycles, after Feb. 16, 2009. Phased out for single taxpayers with AGI between $125,000 and $135,000 and for joint taxpayers with AGI between $250,000 and $260,000.
  • Adoption tax benefits: The maximum adoption credit increased to $12,150.
  • Child tax credit: You may claim the often-missed child tax credit of up to $1,000 per child. To qualify, you must have a qualifying child under 17 years old, and your modified AGI must be lower than $75,000 for single taxpayers and $110,000 for couples.
  • Section 529 plan expenses: Computer equipment, Internet access and related services now qualify as qualified education expenses and can be withdrawn tax-free from your 529 plan.
  • Standard mileage rates: New rates apply for use of a car: $0.55 cents per mile for business use of car, $0.24 cents per mile for medical reasons and for the cost of operating your car for determining moving expenses, and $0.14 for the use of a car for charitable purposes.
  • Energy credits enhanced: Homeowners who make energy efficient improvements may be able to claim a new credit of 30 percent of the cost of all qualifying improvements up to $1,500.
  • Electric motor vehicle (aka golf cart) credit: Credit expanded to maximum of $7,500. Vehicles must be new and have four or more wheels, among other qualifications. Golf carts qualify for this credit if they qualify as "neighborhood electric vehicles," meaning the cart must include safety features such as headlights, seatbelts, parking brake and driver's side mirrors.
  • Foreign financial accounts: With minor exceptions, must be reported on Form TD F 90-22.1 and filed by June 30 by any person with a financial interest in or signature authority over the foreign account. Those not in compliance may be subject to civil and/or criminal penalties.
  • Haiti relief effort contributions: Charitable contributions to aid Haitian earthquake victims made after Jan. 11 and before March 1 may be claimed as an itemized charitable deduction on 2009 tax returns, rather than waiting until next year to claim the deductions on 2010 tax returns. High-income taxpayers, however, may wish to consider reporting the deductions in 2010, as income tax rates may rise and the deductions may provide greater value.
  • Long-term capital gains: Your children may pay no tax on long-term capital gains if they are in a 15 percent bracket with taxable income for single filers between $8,350 and $33,950, or married taxpayers filing jointly with income between $16,700 and $67,900. Properly applying this provision of the law can save up to approximately $10,000 in tax.
  • Gain from certain small-business stock: Exclude gain up to 75 percent for stock acquired after Feb. 17, 2009, and before 2011.
  • Tax refund options: New and flexible options exist for receiving your 2009 federal income tax refund, including splitting your refund with direct deposits into multiple checking or savings accounts, receiving your refund as a paper check in the mail, although this option takes longer, or buying up to $5,000 in U.S. Series I Savings Bonds with your refund.

File even if you cannot pay by April 15. If you are unable to pay your tax liability in full by April 15, you should still timely file or timely extend your tax return. Failing to timely file will significantly increase penalties.

Select Business Strategies

  • Write off business equipment: Expense the cost of qualified machinery and equipment up to $250,000.
  • Bonus depreciation: You may be able to deduct 50 percent bonus depreciation for qualified property placed in service in 2009. Businesses can elect to forgo the 50 percent bonus depreciation and instead use R&D and minimum tax credit carryovers subject to certain limitations.
  • Business start-up and organizational expenses: Businesses may elect to deduct up to $5,000 of business start-up costs and $5,000 of organizational costs and amortize the remainder over 15 years. The $5,000 cap is reduced by the excess of the total start-up or organizational expenditures over $50,000 in the tax year in which the trade or business begins. The election must be made with the initial tax return.
  • Net Operating Loss (NOL) carrybacks: Qualified small businesses with average gross receipts of $15 million or less may carry back NOLs three, four or five years. The election must be made by the due date of the return, including extensions.
  • Energy-efficient commercial building property: A tax deduction of up to $1.80 per square foot is available for owners who build or improve energy-efficient buildings. Improvement property may be installed as part of a building's interior lighting systems, heating/cooling/ventilation and hot water systems, or the building envelope. The deduction can be substantial.
  • Software deductions: A special provision permits businesses to deduct the cost of software in the year of purchase, provided it is used in the same year as purchased.
  • Work opportunity tax credit: Businesses may claim credits between $2,400 and $9,000 for the hiring of any unemployed veteran or disconnected youth (unemployed youth between 16 and 24 years of age) who commenced work in 2009.
  • Deferred income from debt cancellation: Qualifying businesses can elect to delay income recognition until 2014 arising from the reacquisition of certain types of business debt repurchased. Income is then recognized over five years.
  • Built-in gains: Corporate level tax eliminated on built-in gains of an S corporation that converted from C corporation status at least seven years prior to the current tax year.
  • Smaller estimated tax payments: Qualified individuals with small businesses may be eligible to make smaller estimated tax payments.
  • COBRA premium assistance: Businesses can claim a tax credit against payroll taxes for providing COBRA premium assistance to eligible individuals.
  • Credit for employer differential wage payments: Eligible employers may claim a credit for differential wage payments made to qualified employees.
  • Depreciation of race horses: A races horse, depending on its age, was either a three-year or seven-year recovery property. Starting in 2009, all race horses, regardless of age, are three-year recovery property.

Beware of increased penalties for late filing of partnership and S corporation returns.

These are but a few of the strategies you may wish to consider as you either prepare to complete your 2009 tax returns or finalize your extension calculations. It is advisable to discuss the strategies included herein and other tax preparation matters with a qualified tax professional.

Michael A. Gillen is the director of the tax accounting group of Duane Morris, a group of certified public accountants providing tax, accounting and consulting services as an ancillary business of the firm, where he devotes his practice to federal, state and local income taxation and a variety of litigation consulting services including fraud and embezzlement detection, forensic and investigative accounting and civil and criminal tax representation. He is a two-term past president of the Greater Philadelphia chapter of the Pennsylvania Institute of CPAs.

Steven M. Packer is a manager in the tax accounting group of the firm, where he devotes his practice to federal, state and local income taxation, generally accepted accounting principle analysis, financial reporting, fraud and embezzlement detection and investigative accounting. He is a past president of the Greater Philadelphia chapter of the Pennsylvania Institute of Certified Public Accountants and a member of the chapter's executive committee.

This article is for general information and does not include full legal analysis of the matters presented. It should not be construed or relied upon as legal advice or legal opinion on any specific facts or circumstances. The description of the results of any specific case or transaction contained herein does not mean or suggest that similar results can or could be obtained in any other matter. Each legal matter should be considered to be unique and subject to varying results. The invitation to contact the authors or attorneys in our firm is not a solicitation to provide professional services and should not be construed as a statement as to any availability to perform legal services in any jurisdiction in which such attorney is not permitted to practice.

Duane Morris LLP, a full-service law firm with more than 700 attorneys in 24 offices in the United States and internationally, offers innovative solutions to the legal and business challenges presented by today's evolving global markets.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions