Tag: Federal Income Tax

On July 14, the House Democratic leadership released the text of the ”America’s Affordable Health Choices Act of 2009,” which is slated to be taken up by the House Ways & Means Committee on July 16. Title IV of the Act would make numerous tax changes to pay for the projected $1 trillion price tag of comprehensive national health care reform.

Title IV of the bill includes the following changes to the Code:

• High income individuals married filing a joint return or surviving spouses would face a surtax equal to: 1% of modified adjusted gross income (AGI) over $350,000 but not over $500,000; 1.5% of modified AGI over $500,000 but not over $1 million; and 5.4% of modified AGI over $1 million. The dollar amounts for separate filers would be half of the joint filer amounts; for other filers the amounts would be 80% of the joint filer amounts. The surtax for modified AGI over $350,000 but not over $1 million would rise for post-2012 tax years unless federal health reform savings hit a predetermined target level.
• A tax on individuals who don’t have acceptable health benefit plan coverage (as defined by the bill). In general, the tax would equal 2.5% of modified AGI in excess of the taxpayer’s exemption amount, but not more than the “national average premium” for that year. A number of exceptions would apply (e.g., for dependents, objectors on religious grounds).
• Health insurers would be required to file information returns for the individuals they cover.
• Employers that fail to satisfy the bill’s health coverage participation requirements would face a tax of $100 per day per each non-covered employee.
• Employers electing not to provide health benefits for employees would pay an excise tax equal to 8% of wages (the excise tax would be less for small employers).
• Small businesses would get an employee health coverage tax credit.
• The application of the worldwide allocation of interest would be delayed (until the first tax year beginning after 2019) and as a anti-tax-avoidance measure, there would be new limitations on treaty benefits for certain deductible payments.
• The economic substance doctrine would be codified. An accuracy related penalty would apply for underpayments due to transactions lacking economic substance, and a stiff penalty would apply for nondisclosure of “noneconomic substance transactions.”

The American Recovery and Reinvestment Act of 2009 included a new income tax deduction for state or local sales or excise taxes paid on qualifying 2009 motor vehicle purchases.  This deduction is limited to taxes on the first $49,500 of the cost of the vehicle.  Conversations with the IRS National Media Relations office verified that the deduction is limited to the first $49,500 of cost but is available for two or more vehicles.

Vehicles included are passenger autos, light trucks and motorcycles and motor homes.  However, these vehicles must be new and their original use must begin with the taxpayer.

The deduction is available to itemizers and in addition to the standard deduction for those that do not itemize.  This is the second itemized deduction that is allowed to non-itemizers for 2009.  The other is a real property tax deduction that is treated as an increase in the standard deduction of $500 ($1000 for married filing joint status).

The Internal Revenue Service has announced that taxpayers who buy a new passenger vehicle this year may be entitled to deduct state and local sales and excise taxes paid on the purchase on their 2009 tax returns next year. “For those thinking about buying a new car this year, this deduction may give them a little more drive to make their purchase this year,” said IRS Commissioner Doug Shulman. “This deduction enables taxpayers to buy now and get cash back later on their tax returns.” The deduction is limited to the state and local sales and excise taxes paid on up to $49,500 of the purchase price of a qualified new car, light truck, motor home or motorcycle. The amount of the deduction is phased out for taxpayers whose modified adjusted gross income is between $125,000 and $135,000 for individual filers and between $250,000 and $260,000 for joint filers. IRS also alerted taxpayers that the vehicle must be purchased after Feb. 16, 2009, and before Jan. 1, 2010, to qualify for the deduction. The special deduction is available regardless of whether a taxpayer itemizes deductions on their return. The IRS reminded taxpayers the deduction may not be taken on 2008 tax returns. 

The Internal Revenue Service will allow victims of Bernard L. Madoff’s investment fraud to claim a tax deduction related to the bulk of their losses, the I.R.S. commissioner told the Senate Finance Committee on Tuesday.  Read More:

Your tax return preparer will need the amount of the stimulus payment that you received in 2008.  You will need the following information:  your social security  number, your filing status, and the number of exemptions shown on your tax return.  Here’s the link:  IRS Stimulus Payment.

Dear CPA:  Does this legislation affect 2008 returns?

Dear Taxpayer:  Generally, no.  The new legislation does not have any major impact for the vast majority of individuals preparing their 2008 tax returns due April 15. Instead, these changes will largely impact 2009 tax returns filed next year, in 2010. Taxpayers should continue to prepare their 2008 tax returns as they normally would.  And remember, the sooner you provide complete and  adequate information to your CPA,  the sooner your return will be prepared!

Dear CPA:

I am working on my retirement planning and definitely need to increase the amount that I am saving. How can I look up the tax bracket that I am in so that I can figure out the net I should deposit into a Roth on a monthly basis?

Dear Taxpayer:

The tax bracket that you are in does not directly affect the computation of your Roth IRA deduction.  The absolute amount of your adjusted AGI is the important figure.  The phase out limits are listed here.  The amount that may be contributed for 2008 by April 15, 2009, is generally $5000 per person.  I recommend contributing for 2009 as early in the year as possible to gain an extra year of tax free growth.