Stimulus Bill Shakes Up Tax Planning

NEW YORK, Feb. 20 /PRNewswire/ -- "The recently enacted American Recovery and
Reinvestment Act of 2009 contains a long list of tax breaks that come with
short-term expiration dates," says Bob D. Scharin, Senior Tax Analyst for the
Tax & Accounting business of Thomson Reuters. This means taxpayers need to
plan now and act soon in order to gain advantage from the legislation. While
the provisions are many, explanations are sparse--so guidance from the IRS on
how to implement many of the law changes is desperately needed. Here are
highlights of the new tax-saving opportunities now available for individuals:

-- The "making work pay credit" provides a $400 ($800 for joint
return filers) tax credit for employees and self-employed individuals.
This credit is refundable--meaning you can get the money even if you
owe
no income tax for the year. The credit is intended to reach your
pocket
quickly through additions to your pay check. Eligibility for it phases
out, however, starting when your income exceeds $75,000 ($150,000 for
joint return filers). How will employers know whether the phaseout
applies to their employees--especially employees who are married or
who
have two jobs? The law does not specify an answer, but if you receive
too much of a credit from your employer, expect to pay it back when
you
file your 2009 income tax return.

-- Get a sales tax deduction for car purchases. The sales tax on up to
$49,500 of the purchase price is deductible regardless of whether you
(1) claim the standard deduction or (2) itemize your deductions and
choose to deduct state and local income taxes instead of sales tax.
The
deduction begins to phase out, however, when income exceeds $125,000
($250,000 on a joint return).

-- The first-time homebuyer credit is enlarged and improved. The credit
for
first-time homebuyers in part of 2008 is capped at $7,500 and has to
be
repaid over 15 years. For the first 11 months of 2009, the maximum
credit is increased to $8,000 and repayment is not required unless you
sell the home or stop using it as your main residence within three
years. Here too, a phaseout provision applies if your income exceeds
$75,000 ($150,000 for joint returns). The credit for 2009 purchases
can
be claimed on your 2008 return. Should the form for the 2008 credit be
used to do so? Homebuyers need guidance from the IRS quickly regarding
the mechanics of claiming it.

-- The energy credit gets another life. Previously, you could claim an
aggregate "lifetime" credit amount of up to $500 for making
certain energy-efficient improvements to your home. For 2009 and 2010,
the credit computation is more generous, and the aggregate ceiling for
the two years is $1,500.

-- The mass transit benefit exclusion is bulked up. Previously, you could
exclude from income up to $120 per month of mass transit benefits
provided by your employer (or funded with pre-tax employee
contributions). Thanks to the new law, the figure rises to $230
starting
generally in March 2009 and through 2010.

-- The Hope Scholarship credit is expanded in size and availability in a
variety of ways. Prior to the new law, the Hope Scholarship credit was
generally capped at $1,800 and available for only the first two years
of
post-secondary education. The new American Opportunity tax credit
amends
the Hope Scholarship credit for 2009 and 2010, raising the credit
maximum to $2,500 and its availability to the first four years of
post-secondary education. Furthermore, among other beneficial changes,
the income level at which the credit begins phasing out rises
too--from
$50,000 ($100,000 for joint return filers) to $80,000 ($160,000 for
joint return filers).

-- Alternative minimum tax (AMT) relief has come early in the year. AMT
"patches," raising the AMT exemption amounts have become a
year-end ritual. This created anxiety and complicated tax planning,
however, for many individuals until that year's fix was in. For
2009, we already know that the patch is sewn up. The AMT exemption
rises
to $46,700 for unmarried individuals ($70,950 for joint return filers)
from $46,200 ($69,950 on joint returns) in 2008. If a patch were not
enacted, however, the 2008 amounts would not have applied in 2009;
rather, the way the Internal Revenue Code is written, the AMT
exemption
amount would have dropped to $33,750 ($45,000 on joint returns).

"The expiration dates on these provisions require taxpayers to watch the
calendar." Scharin observes. For instance, purchasing a home after the
first-time homebuyer credit expires can be an $8,000 mistake.

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SOURCE Tax & Accounting business of Thomson Reuters

Nancy Kohler, 1-800-993-7600, nkohler@landepr.com, or Melissa Lande,
+1-215-654-7950, mlande@landepr.com, both of Lande Communications, for Tax &
Accounting business of Thomson Reuters