Year End Tax Reminders

Time is running out on many tax savings and lucrative business credits. Extensions have been slow in materializing as Congress focuses its attention on Healthcare legislation while business is taking a back seat, at least for now. There are still opportunities for tax saving strategies that can be implemented before the final bell on December 31 st and we encourage you to look over the list and call your ELLS advisor if you think you may want to act on any of them.

New Sales Tax deduction for motor vehicles! Whether you itemize or take the standard deduction, you can increase your deduction by the amount of sales tax you paid on the purchase of any number of new motor vehicles (including motorcycles and motor homes) that were purchased after February 16 th and before December 31 st 2009. Sales tax on only the first $49,500 of purchase price qualifies. The phase out begins at $250,000 (married) or $125,000 (single) taxpayers.

Energy-saving tax credits: The credit percentages for building envelope components (windows, doors) is now 30% and the maximum credit is $1,500. Also applies to furnaces, furnace fans, central a/c and water heaters. Credit is available in 2010 and there is no phase out.

Employers who offer Flexible Spending Accounts: As part of their Cafeteria Plan have until Dec 31 st to change the rules to enable employees to have another 2 ½ months in 2010 to spend their 2009 allotments. The first $13,000 of gifts ($26,000 for married couples) made by a donor to each donee in calendar year 2009 is excluded from the amount of the donor’s taxable gifts. You must act no later than Dec 31 st to take complete advantage of annual gift tax exclusions. Unused annual exclusions can’t be carried over and are forever lost. The check must be presented in the calendar year for which completed gift treatment is sought. The donee should be sure to deposit and cash the check before year-end, so that there’s no doubt as to when the gift was made.

Machinery and Equipment: Most new machinery and equipment (as well as software) bought and placed in service in 2009 qualifies for a 5 0% bonus first year depreciation deduction. This benefit has not yet been extended beyond 2009. I ndividual taxpayers who are at least 70 ½ years old may contribute to charities directly from their IRAs without having the amount of their contribution included in their gross income. High-income taxpayers who are over AGI limits for a Cloverdell Education Savings Account (CESA) can contribute to a qualified 529 tuition plan instead. There are no AGI limits on contributions to 529 plans. Distributions from 529 plans are tax free only if used to pay for higher education.

Businesses of all sizes can now carry back operating losses for up to five years: To claim a full deduction on the 2009 return for a contribution of “qualified appreciated stock” to a private foundation, the private foundation must be set up and the contribution made before December 31, 2009 . A self-employed person who wants to contribute to a Keogh plan for 2009 must establish that plan before the end of 2009. If that is done, deductible contributions for 2009 can be made as late as the taxpayers extended tax return due date for 2009. Business taxpayers can claim a deduction under Code Section 199 to offset income from domestic manufacturing and other domestic production activities . Since the rate of deduction will increase to 9% in 2010from 6% in 2009, taxpayers in this case should consider deferring some of their domestic production activity income from 2009 to 2010. Again, check with your ELLS advisor for further details on any of the above tax-saving strategies.

If you have any questions about these or any other tax credits or deductions please contact us at anytime.