House approves extending certain tax breaks for 1 year

Temporary tax breaks for businesses and individuals would be extended under a bill the House passed by a vote of 241 to 181 Wednesday. A permanent tax increase on the income of private-equity and hedge-fund managers, along with provisions aimed at curtailing offshore tax avoidance, would be used to offset the $31 billion cost for the tax breaks for research and development, overseas lending by U.S. banks and for refurbishments to restaurants and retail stores. Lawmakers warned, however, that some of the breaks could be eliminated as early as next year.http://online.wsj.com/article/SB126039125069884187.html?mod=dist_smartbrief

:: Expiring Tax Provisions ::

-- Sales Tax on Vehicle Purchases. This above-the-line deduction phases out at $125,000 singles and $250,000 married and expires on 12/31.

-- AMT Relief. Although relief may still be provided, estimated payments for 2010 cannot assume a further extension.

-- COBRA Assistance. The federal government 65% subsidy of COBRA premiums for employees who were involuntarily terminated between 9/1/08 and 12/31/09 will end, but payments continue for 9 months after termination and may continue into 2010.

-- Temporary Estimated Tax Relief for Small Businesses. For a tax year that begins in 2009, if an individual has adjusted gross income below $500,000 and more than 50% of that income comes from a small business, the individual will not incur a penalty for underestimating taxes if the payments made are equal to at least 90% of the tax liability for the year. For this provision a small business is defined as a business with fewer than 500 employees. As 2009 includes one more estimated payment in January, be aware that the 90% rule can help keep away from penalties for underestimating tax liability.

-- Small Business Expensing Rules will be lower in 2010. In the 2008 stimulus legislation, Congress increased the expensing provisions for small businesses to $250,000 for assets purchased in 2008, and increased the phase-out to businesses purchasing more than $800,000 in assets. The American Recovery and Reinvestment Act of 2009 extended the $250,000 limit for expensing until the end of 2009. After December 31st, the limit will go back to $125,000 with a phase-out for business that purchases more than $400,000 in assets. There's still time to purchase business assets and take the more generous 2009 Section 179 deduction.

Monday, December 7, 2009

PERSONAL FINANCE

Beware credit card changes as you charge into holiday shopping
http://www.mercurynews.com/business/ci_13939887

Harney: Wait to claim that homebuyer tax credit
http://www.mercurynews.com/business/ci_13930334

Paying off student loans requires smart decisions
http://www.latimes.com/business/la-fi-perfin6-2009dec06,0,5631375.column

What to do now that the COBRA subsidy is ending
http://www.latimes.com/features/health/la-he-yourmoney7-2009dec07,0,7964544.story

Try Christmas Saving, Not Christmas Shopping
http://online.wsj.com/article/SB10001424052748704342404574576122421646470.html


TAX

IRS to outline changes in the home buyer tax credit program
http://www.latimes.com/classified/realestate/news/la-fi-harney6-2009dec06,0,6231841.story

Get Ready for 2010--the Year of the Roth IRA
http://online.wsj.com/article/SB126004888014078557.html

IRS Publishes Guide to Latest Tax Breaks
http://www.webcpa.com/news/IRS-Publishes-Guide-Latest-Tax-Breaks-52619-1.html

Steps the Public Can Take Before Disaster Strikes

Read about the six key steps people can take to prepare for the financial impact of a disaster.
Main point: Proper preparedness and basic recovery steps can reduce financial loss and decrease a lot of confusion and emotion.

A Disaster Preparedness Guide has been written and produced by the National Endowment for Financial Education (NEFE) and the American Institute of Certified Public Accountants (AICPA) and is being distributed by participating local chapters of the American Red Cross across the United States. The guide is offered as a public service of the CPA profession, AICPA, AICPA Foundation, American Red Cross and NEFE.

CPAs helped design it to be easy to follow for the consumer to make informed and educated decisions before a disaster strikes. Before and after a disaster strikes, Individuals will often have to make financial decisions during an emotionally stressful period when people are the most vulnerable. This guide helps them prepare to reduce financial loss more effectively.

The guide, Disasters and Financial Planning: A Guide for Preparedness, is provided free to the public through local Red Cross chapters and is also available on the American Red Cross Web site.

Below are six steps people can take before disaster strikes to reduce financial loss:

• Making A Disaster Plan. To prepare yourself to best handle a disaster, you need a family disaster plan—one that the entire family understands. 
1. Discuss the types of disasters that are most likely to happen where you live and what to do in each case. 
2. Teach children how to dial 9-1-1. 
3. Find out about disaster plans at work and at your children’s school or child-care center. Make sure they have your emergency contact numbers. 
4. Pick two places to meet if you and your family are separated in a disaster—one that's right outside your home and another outside your neighborhood. 
5. Choose an out-of-town contact. Teach your children how to call that person. 
6. Discuss what you will do if authorities' advice you evacuate. Plans escape routes. Emergency shelters are opened in different places, depending on the type and size of the disaster. Listen to local radio for information on where shelters have been opened. 
• Protecting Your Property. Think about ways you can avoid or reduce property damage if a disaster were to strike. A few ideas:  
1. In areas where earthquakes can cause damage, use child-resistant latches to secure cabinet doors to keep them shut. Bolt bookcases and tall furniture to wall studs. Secure overhead light fixtures to beams or rafters. Use straps to secure your water heater. Have a professional anchor the main frame of the home to its foundations.  
2. If you live in an area prone to wildfires, clear brush surrounding your home, make sure you have fire-resistant siding, and consider replacing wood-shingled roofs with less flammable materials.  
3. In an area that experiences high winds, hurricanes, or tornadoes, consider measures such as having a professional anchor your home to the foundation, strapping the roof to the main frame, installing hurricane shutters, and building a tornado safe room or shelter in your home. These will help protect your family against high winds from hurricanes and tornadoes. 
4. To protect against flooding, move electrical panel boxes and the furnace from the basement or crawl space to an upper floor or attic. You might also elevate the home or relocate it. 
5. Know how to shut off all your utilities (gas lines, water, electricity).
•  Protecting Your Income. When preparing for the possibility of a disaster, you need to consider how it may affect your job.  
1. Does the organization have a disaster plan? If so, what is it? 
2. If I’m unable to get to work after a disaster, will I continue to be paid? If so, for how long? 
3. If the business must shut down temporarily, will I continue to be paid? If so, for how long? 
4. Would I be able to use or substitute sick leave pay, vacation pay, or any employer-paid emergency assistance? 
5. Would I be eligible to collect unemployment compensation? If so, when? 
6. If I’m injured in a disaster, what medical and disability benefits does the company provide and for how long? 
7. If I’m injured on the job during a disaster, would I be covered by workers' compensation? 
• Protecting Your Health & Life. If you or a family member is injured in a disaster, coverage such as medical insurance, disability policies, and long-term care could quickly become your most important assets. 
1. Find out what the plan will cover and what your out-of-pocket costs might be if you are seriously injured in a disaster so you can anticipate (and save for) these costs.  
2. Learn what procedures the insurance company requires you to follow in the event of an emergency. 
3. Do your best to make sure you never go without health insurance for more than 62 days (two full months). Otherwise, you may have to wait up to a year for coverage for a preexisting medical condition. 
4. If you change jobs, look for a company that offers a group health insurance plan. A health insurance benefit can be worth thousands of dollars. 
• Protecting Your Records. Two ways to protect your records and other irreplaceable items from disaster is to store them in a safe deposit box and at a bank or in a home safe. 
1. Put important papers in a box that you can grab in the event of an emergency. Some items to put in the box: traveler’s checks, a few rolls of quarters, negatives of important personal photographs, a list of emergency contacts, copies of prescriptions and medical records, copies of insurance policies, backup disks of critical computerized information, copies of other important family and financial records, and your safe deposit box key. 
2. Store original documents, property deeds and birth certificates, in a bank safe deposit box. 
• Protecting Your Loved Ones. Imagine that you could take only one suitcase or pack a single carload in the event of a disaster. What would you take, how would you leave your home, where would you rejoin your family, and who would you call if you became separated?  
1. The most crucial document is a will. It names your heirs—the people you want to receive your money and other possessions when you die—and appoints a guardian when you die—and appoints a guardian if you have young children. 
2. Durable power of attorney. This document names the person (or other entity) you want to pay your bills and manage your money if you become ill or incapacitated and are unable to make these types of decisions.

 Healthcare proxy names a person who will make decisions about your health care if you get sick and cannot make those decisions by yourself.

2009 Year-End Tax Planning Tips

The window of opportunity for many tax-saving moves closes on December 31. Set aside time to evaluate your tax situation now, while there's still time to affect your bottom line for the 2009 tax year.

 The basics: timing is everything

Year-end tax planning is as much about the 2010 tax year as it is about the 2009 tax year. There's a real opportunity for tax savings when you can predict that you'll be paying taxes at a lower rate in one year than in the other. If that's the case, some simple year-end moves can pay off in a big way.

If you think your tax bracket next year will be the same or lower than your tax bracket this year, look for opportunities to defer income to 2010. For example, you may be able to defer a year-end bonus, or delay the collection of business debts, rents, and payments for services. Similarly, you may be able to accelerate deductions into 2009 by paying some deductible expenses such as medical expenses, interest, and state and local taxes before year-end.

Delay income / Accelerate deductions

• Delay collection of business debts, rents, and payments for services (if you use the cash method of accounting)
• Defer compensation/year-end bonus if possible  
• Defer sale of capital gain property or take installment payments instead of lump-sum payment  
• Postpone retirement plan distributions that aren't required  
• Make next year's charitable contribution this year instead  
• Pay medical expenses that are due in January before the end of the year  
• Prepay deductible interest and property tax  
• Make first quarter installment payment of state estimated tax in December  
• Accelerate alimony payments

AMT: what you don't know could hurt you

If you're subject to the alternative minimum tax (AMT), traditional year-end maneuvers, like deferring income and accelerating deductions, can actually hurt you. The AMT--essentially a separate federal income tax system with its own rates and rules--effectively disallows a number of itemized deductions, making it a significant consideration when it comes to year-end moves. For example, if you're subject to the AMT in 2009, prepaying 2010 state and local taxes won't help your 2009 tax situation, but could hurt your 2010 bottom line.

Legislation earlier this year included the latest in a long series of temporary "fixes" for AMT, but this patch (which includes increased AMT exemption amounts) expires at the end of the year. While it's likely that additional legislation will be passed to address 2010, right now AMT exemption amounts for 2010 are scheduled to return to pre-2001 levels.

AMT exemption amounts          2009       2010

Married filing jointly              $70,950   $45,000

 Single or head of household   $46,700   $33,750

 Married filing separately        $35,475   $22,500

IRA and retirement plan contributions

Traditional IRAs (assuming that you qualify to make deductible contributions) and employer-sponsored retirement plans such as 401(k) plans allow you to contribute funds pretax, reducing your 2009 income. Contributions you make to a Roth IRA (assuming that you meet the income requirements) or a Roth 401(k) aren't deductible, so there's no tax benefit for 2009, but qualified Roth distributions are completely free from federal income tax--making these retirement savings vehicles very appealing.

For 2009, the maximum amount that you can contribute to a 401(k) plan is $16,500, and you can contribute up to $5,000 to an IRA. If you're age 50 or older, you can contribute up to $22,000 to a 401(k) and up to $6,000 to an IRA. The window to make 2009 contributions to your 401(k) closes at the end of the year, while you can generally make 2009 contributions to your IRA until April 15, 2010.

RMDs suspended for 2009

When you reach age 70½, you're generally required to start taking required minimum distributions (RMDs) from any traditional IRAs or employer-sponsored retirement plans you own. RMD requirements, however, were suspended for 2009. This presents an opportunity for those normally required to take RMDs to postpone the receipt of taxable income. If you already took an RMD for 2009, you may be able to roll over the RMD to the same (or to a different) IRA or eligible retirement plan--you generally have until the later of 60 days from the time you took the distribution or November 30, 2009.

Roth IRA 2010 conversions

It's worth looking ahead to 2010, when special rules will apply to Roth conversions. Current limitations based on income and filing status that prevent many individuals from converting a traditional IRA to a Roth IRA will be eliminated in 2010. Additionally, if you convert in 2010, half the income that results from the conversion can be reported on your 2011 federal income tax return and half on your 2012 return (you can choose to report the full conversion tax on your 2010 return, if you want).

This might influence the decisions you make now; for example, if you're currently working but aren't eligible to contribute to a Roth IRA, you might consider making a contribution to a traditional IRA for 2009 in anticipation of making a 2010 Roth conversion. Or, if you plan on making a 2010 Roth conversion and opting to pay the conversion tax on your 2010 return, you might consider trying to defer deductions until next year to offset that conversion tax.

Bonus depreciation and expensing

If you're self-employed or a small-business owner, you'll want to take note of the special depreciation rules that are scheduled to expire at the end of the year. Depreciation rules for 2009 allow an additional 50% first-year depreciation deduction for qualifying property purchased for use in your business on or before December 31.

In lieu of depreciation, Section 179 deduction rules allow for the deduction, or "expensing," of up to $250,000 of the cost of qualifying property placed in service during 2009. Currently, that limit is scheduled to drop to $125,000 (adjusted for inflation) in 2010.

Also worth noting

A tax credit of up to $8,000 is available in 2009 for qualified first-time homebuyers. A tax credit of up to $6,500 is available for qualified existing homeowners who purchase a new principal residence after November 6, 2009.

The first $2,400 of unemployment compensation received in 2009 is excluded from income for federal income tax purposes.

If you itemize deductions, 2009 is the last year you'll have the option to deduct state and local sales tax instead of state and local income tax.

Individuals who do not itemize deductions are able to claim an additional standard deduction of up to $500 ($1,000 for married couples filing jointly) for real estate property taxes paid for 2009, the last year this deduction will be available.

The temporary deduction for sales and excise tax relating to the purchase of a qualified new automobile, light truck, or motorcycle applies to vehicles purchased through December 31, 2009.

The above-the-line (maximum $4,000) deduction for qualified tuition and related expenses expires at the end of 2009, as does the above-the-line deduction for up to $250 in out-of-pocket classroom expenses paid by educational professionals.

Individuals age 70½ or older have only until December 31, 2009, to make charitable contributions of up to $100,000 directly from an IRA to a qualified charity, without including the distribution in income.

 Talk to a professional

When it comes to year-end planning, there's always a lot to think about. A financial professional can help you evaluate your situation and determine which year-end moves make the most sense for you.

House Bill Extends Current Estate Tax

The House voted Thursday to permanently extend the estate tax, which is set to expire for one year at the end of 2009. The current tax includes a top rate of 45% on estates larger than $3.5 million. The bill is expected to be changed in the Senate. Read an AICPA news release on its tax-reform principles as well as the AICPA's Tax Reform Alternatives for the 21st Century study, which, among other things, addresses the estate tax.http://online.wsj.com/article/SB125986877297775207.html?mod=dist_smartbrief

New Rules for First-Time Homebuyer Tax Credit

Background

In July 2008, the Housing and Economic Recovery Act established a temporary refundable first-time homebuyer tax credit equal to 10% of the purchase price of a principal residence, up to $7,500 ($3,750 if married filing separately). The credit applied to first-time homebuyers who purchased a home on or after April 9, 2008, and before July 1, 2009. Generally, you qualified as a first-time homebuyer if you, and your spouse if you were married, did not own any other principal residence during the 3-year period ending on the date of purchase. The credit was phased out for individuals with higher incomes, and had to be paid back over 15 years in equal installments (repayment would be accelerated if the home were to be sold during the 15-year period or if the home ceased to be the principal residence of you or your spouse during that time).

In February 2009, the American Recovery and Reinvestment Act of 2009 extended the credit to homes purchased by qualified first-time homebuyers through November 30, 2009. The new legislation also expanded the credit. The credit remained 10% of the purchase price of the home, but the dollar limit increased to $8,000 (half that amount for married individuals filing separate returns) for home purchases made after December 31, 2008, and before December 1, 2009. In addition, for a home purchased in 2009, there was no requirement to pay back the credit over time, provided the home remained the principal residence of the homebuyer for 36 months.

New legislation

On November 6, 2009, President Obama signed into law the Worker, Homeownership, and Business Assistance Act of 2009. The Act extends the first-time homebuyer tax credit to principal residences purchased before May 1, 2010. (If you purchase a principal residence before July 1, 2010, you can still qualify for the credit provided that you enter into a written binding contract prior to May 1, 2010.)

The new legislation also makes a number of changes, effective for purchases made after November 6, 2009:

Higher income limits now apply. The credit is reduced if your modified adjusted gross income (MAGI) exceeds $125,000 ($225,000 if married filing a joint return) and is completely eliminated if your MAGI reaches $145,000 ($245,000 if married filing a joint return).

You can't claim the first-time homebuyer tax credit if the purchase price of your principal residence exceeds $800,000.

You may qualify for the credit even if you're not a first-time homebuyer. The new legislation allows some existing homeowners to qualify for the credit when they purchase a new principal residence. If you (and your spouse, if you're married) have maintained the same principal residence for at least 5 consecutive years in the 8-year period ending at the time you purchase a new principal residence, you could qualify for a credit of up to $6,500 ($3,250 if you're married and file separately).

If you purchase a qualifying principal residence in 2009, you can elect to treat the purchase as if it were made on December 31, 2008--allowing you to claim the credit on your 2008 federal income tax return. If you purchase a qualifying principal residence in 2010, you can elect to treat it as if the purchase occurred on December 31, 2009.

Additional limitations and provisions

The new legislation also includes additional limitations on the credit, effective for purchases made after November 6, 2009. You can't claim the credit unless you (or your spouse, if you're married) are 18 years of age. You also can't claim the credit if you purchase your principal residence from someone who is related to you or your spouse, or if you can be claimed by someone else as a dependent. The legislation also imposes new documentation requirements.

Special rules are established for members of the uniformed services and others who receive government orders for qualified official extended duty service.

Donor Advised Funds and Private Foundation Services Offered By Olhoeft Financial, LLC

Donor advised funds (DAFs) and private foundations both offer a way to make significant charitable gifts over the long term. By comparison, DAFs offer simplicity and low costs, while private foundations allow additional control over gifts and investments.

Donor Advised Fund Services

• Get the most favorable tax treatment - Take an immediate tax deduction for each contribution And because the Gift Fund is a public charity. contributions may qualify for larger tax deductions than those available through other alternative charitable solutions. 
• Donate securities that provide the most tax benefit - Eliminate capital gains tax on gifts of long-term appreciated securities. Contribute complex securities, including certain restricted or control stock or support multiple charities from a single block of stock. 
• Support the charities you want - when you want - Your grants are independent from your Gift Fund contributions. That means you can contribute to the Gift Fund for tax purposes, but time your grant recommendations to meet your long-term charitable goals and support your favorite charities when they need it most. 
• Build a charitable legacy - To help you foster a tradition of giving, the Gift Fund offers three distinct successor options — Individual. Charitable Organization or the Endowed Giving Program. You can recommend one option or any combination of the three. 
• Privacy or recognition - It’s your choice. You decide, on a grant-by-grant basis, whether to be recognized or remain anonymous. 
• Leave the paperwork to us - There’s no need to keep track of your giving activity — we do it for you. 
• You receive: 
• Confirmations for each grant and contribution
• Quarterly summary

Private Foundation Services

• Help with burdensome administrative tasks 
• Simple, fast and effective administration and compliance support 
• Integrated recordkeeping and comprehensive reports 
• Process and record contributions, expenses and grants 
• Maintain general ledger and all records 
• Provide monthly financial statements, including asset and activity details 
• Streamlined IRS Form 990-PF filing and documentation 
• Early notice of certain private foundation issues 
• Money Management flexibility 
• Personal Service and online management  

Government Intervention and Stock Returns

Should equity investors be alarmed by the prospect of greater government intervention in the US economy? http://www.dfaus.com/library/videos/governme/

Tax breaks for small-business stock will disappear soon

Tax breaks for small-business stock will disappear soon

Top Headlines

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Fidelity cuts fees on college-saving plans

Home buyers will have to lay out more cash for an FHA mortgage

Giving: Tough Times, Tough Choices

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BofA plans to repay bailout in next few days