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Useful Links: FindAGoodCPA.com - Not a healthcare professional? Find a CPA or EA who understands the tax issues specific to you. Nanny Taxes - Find out what's involved with complying with the Nanny Tax Rules IRS Web Site - for
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MONTHLY TAX NEWSLETTERMarch 2009TAX BREAKS INCLUDED AS PART OF THE AMERICAN RECOVERY AND REINVESTMENT ACT OF 2009 On Tuesday, February 17th, President Obama signed the American Recovery and Reinvestment Act of 2009 into law. The estimated price tag for this stimulus package is a whopping $787 billion, which includes a variety of tax breaks totaling just under $300 billion. Let's take a look at some of the tax changes affecting you:
"Making Work Pay" Tax Credit
President Obama has been talking about this tax credit for as long as he's been campaigning for the Oval Office. The purpose of this credit is to provide relief for the regressive social security tax that most US workers are required to pay.
Why is the social security tax regressive? Most non-government workers pay social security tax at a rate of 6.2% on the first $108,600 earned in 2009. Once a person's income exceeds that threshold, they are no longer subject to that tax. Earn $500,000, and your social security rate drops from 6.2% of your earnings to just 1.3%. At $1,000,000 of salary, your rate drops even further to a paltry 0.66%.
The Making Work Pay Tax Credit is available for 2009 and 2010 only and is worth up to $400 for single individuals and up to $800 for married couples. Like most new tax breaks lately, this credit phases-out once your income exceeds a certain threshold. This tax break starts to phase-out at $150,000 of income ($75,000 if single) and is fully phased-out at $190,000 ($95,000 if single).
New Car Deduction
In hopes of getting people to purchase new vehicles, the Act contains a provision allowing individuals to deduct the sales taxes paid on the purchase of a new vehicle. Only sales taxes paid on the first $49,500 of the vehicle's purchase price count.
Please note that this deduction is only available for vehicles purchased between February 17th and the end of this year. You can claim this new tax break even if you don't itemize your deductions. Plus, while your state income tax and real estate tax deduction is generally subject to the Alternative Minimum Tax, it appears that this tax break won't be impacted by the AMT. There is a phase-out, however, of $125,000 for single individuals and $250,000 for married couples.
How big a deal is this new deduction? Let's say that you purchase a new vehicle for $40,000, and you live in a state with a 5 percent sales tax. Assuming you're in the 28% tax bracket, you'll put $560 in your pocket by purchasing a $40,000 vehicle. I think I'll stick with my 98 Jeep, thank you.
Extra Credit For New Homeowners
Last year, Congress passed the Housing and Economic Recovery Act of 2008 which introduced a new $7,500 tax credit for first-time homebuyers. (How has that new tax break worked out for us so far?) As we wrote in our September 2008 Newsletter, the credit applies to homes purchased between 4/9/08 and 6/30/09. That tax break included a unique feature requiring recipients of the tax credit to repay the full amount of the tax savings back to the IRS ratably over the following 15 years.
This Tax Act increased the maximum amount of the tax credit to $8,000, extended the deadline to purchase a home to November 30, 2009, and waived the repayment requirement for homes purchased in 2009 that are owned and used as a principal residence for at least three years. The Act did not increase the phase-out which continues to begin at $75,000 for single individuals and $150,000 for married couples.
AMT Relief
Congress won't make us wait for AMT relief this year like they have for the previous two years. As we wrote in our January 2008 Newsletter, Congress needed all the way to December 19, 2007 to pass AMT relief for 2007. Had nothing been done, an estimated 23 million taxpayers would have been hit with this tax.
For 2008, Congress did a little better. Even so, they waited until October 3, 2008 to pass the one-year fix.
As part of this Act, the AMT fix has already been extended through 2009. This will help make everyone's tax planning a lot easier than it has been for the past few years.
Increased Energy Efficient Tax Credits
Good news for anyone looking to make energy efficient improvements to their principal residence. The new law includes a provision extending the tax credit for people installing insulation, windows, exterior doors, or energy efficient furnaces, water heaters, and central air conditioning through 2010. This law also triples not only the rate of the credit to 30% of the costs incurred but also the maximum annual credit from $500 per home to $1,500.
Unemployment Assistance
For people who unfortunately lose their jobs during these tough economic times, this Act provides some help. For starters, the first $2,400 of unemployment benefits received during 2009 won't be taxable. Plus, weekly benefits are slated to increase by $25.
Also, if you are involuntarily laid off between 9/1/08 and 9/1/10, the government will subsidize 65% of your monthly COBRA health insurance payment. According to these new rules, you simply pay 35% of your monthly premium to your employer, and your employer then receives a refund from the federal government of the remaining cost of your health insurance as part of their quarterly payroll tax filings.
What A Disaster
The economy is a mess, the country is more than $10 trillion in debt, and no one can be sure when things will turn around. Hopefully this $800 billion stimulus package will help jump start the economy. Whatever the short-term results of the stimulus package will be, however, it's important to understand how you can take full advantage of the various tax breaks included in the American Recovery and Reinvestment Act of 2009.
SkiNH.COM OFFERS FREE SKIING FOR KIDS AT NEW HAMPSHIRE MOUNTAINS Check out this unbelievable opportunity that my wife and I stumbled on last summer when we were looking into a family ski trip for the pre-tax season winter. Click on the Kids Ski Free link on www.SkiNH.com to learn how to get free lift tickets to most of the ski mountains in New Hampshire for your fourth and fifth grade children. The cost is just $20 per child for a booklet chock full of complimentary lift tickets. Please note that your fourth grader also needs to complete a short essay on some topic pertaining to the history of skiing in New Hampshire. My daughter wrote about snowmaking. The fifth graders have it much easier. Simply submit your $20 fee along with a copy of their recent report card to prove that they are currently in the fifth grade, and you're all set. I have two kids - a fifth grade son and a fourth grade daughter. We really got lucky finding this free skiing opportunity this year. So far this winter, my kids have skied eight times, and we haven't paid a dime for their lift tickets. Plus, many of the mountains offer discounted or two-for-one tickets for adults who accompany the child. Here are some of the incredible ski bargains we've enjoyed this winter thanks to SkiNH.com:
According to their site, "Ski NH is the statewide association representing 37 alpine and cross country resorts and more than 200 lodging properties in New Hampshire. The Earn Your Turns and Snowsports Passport program are made possible by the support of the NH Department of Travel and Tourism Development" plus a few other sponsors. LONG-TERM CARE INSURANCE FOR YOUR PARENTS I was meeting with one of my clients last month who told me something very interesting. Unfortunately, this client's mother has become terminally ill and had moved into my client's house as her condition worsened. The client, who is a very successful physician, said to me, "You know, my mother went against my financial advice and purchased long-term care insurance even though I told her not to bother." He then handed me a tax form from the insurance company showing that the insurer had paid more than $38k on her behalf for his mother's home health care needs during this past year. What is Long-Term Care Insurance? Long-term care insurance has only been around for twenty-five years or so. As people continue to live longer and longer, they have an increasingly higher chance of needing some level of care - whether in their own home, an assisted living environment, or a variety of other settings. The insurance industry developed long-term care insurance to protect people's savings against the potentially high cost of this type of care. Long-term care insurance is not disability insurance or nursing home insurance. Instead, this insurance begins to make payments once a person is unable to perform a certain number of Activities of Daily Living (ADLs) including dressing, bathing, eating, toileting, continence, getting out of a bed or chair, or walking. Understand Your Burden As a healthcare professional, you may find that the burden of caring for an ill parent might fall squarely on your shoulders. Many physicians and dentists are more financially successful than their parents ever were. Plus, chances are good that you might be in a better financial position than your non-healthcare siblings as well. Making sure that your parents purchase long-term care insurance, or purchasing long-term care insurance on their behalf, might provide you with the following benefits:
Unfortunately, long-term care insurance is not terribly inexpensive since there is a relatively good chance that this insurance will be used at some point in time as a person ages. Even so, if your parent ends up in a situation that would be covered by a long-term care policy, paying those premiums would definitely qualify as money well spent. My client would attest to that. TAX AND FINANCIAL PLANNING CALENDAR FOR MARCH, 2009
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