Use the section links below to locate specific information about the new tax laws changes. You can also download a PDF file to print the changes for your records, click here.
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The Affect of New Tax Laws on Taxpayers |
Exclusion for Unemployment Compensation |
Uniform Definition of a Child |
Deductible for Higher Education Expenses |
The Affect of New Tax Laws on Taxpayers
In order to boost a wavering economy, Congress passed two significant pieces of legislation
during 2009. The American Recovery and Reinvestment Act and the Worker,
Homeownership, and Business Assistance Act were designed primarily to bring growth and
stability to our economy.
Out of the above legislation came the Making Work Pay Credit, the one time stimulus
payment to retirees. The bill enhances and expands the first-time homebuyer and child tax
credits, expands the development of alternative sources of energy and stimulates the
creation of new "green collar" jobs.
American Recovery and Reinvestment Act of 2009
Making Work Pay Credit: Eligible individuals are allowed a refundable income tax credit
for tax years beginning in 2009 and 2010. You are not an eligible recipient for the credit if
you can be claimed as a dependent by another taxpayer.
Keeping Good Tax Records
All data on your tax return has to be backed up by receipts or other sound documentation. Well organized records not only help you prepare your tax return, but they also help you answer questions if your return is selected for examination or prepare a response if you are billed for additional tax.
Fortunately, you don’t have to keep al tax records around forever. Normally, tax records should be kept for three years, but some documents such as records relating to a home purchase or sale, stock transactions, IRA and business or rental property, should be kept longer.
It is imperative that you understand that the method you use to account for your business revenues and expenditures is one that the IRS can understand as well.
Economic Recovery Payment
A one-time $250 economic recovery payment was available to:
- Adults eligible for social security benefits;
- Adults eligible for railroad retirements;
- Adults eligible for veterans compensations or pension benefits; and
- Individuals of any age eligible for supplement security income (SSI) benefits, other
than individuals who receive SSI while in a Medcaid institution.
New Vehicle Sales Tax Deduction
Qualified motor vehicle taxes are deductible either as part of the standard deduction or as
an itemized deduction. The deduction nevertheless is subject to the phase out rule.
Do You Need to File a Federal Income Tax Return?
Many people will file a 2009 return even though the income on the return was below the filing requirement.
Occasionally, individuals have one-time or infrequent financial transactions that may require them to file a Federal Income Tax Return. If any of the following apply to you, a tax return should be filed.
- Did you have Federal taxes withheld from your pension and wages for this year and wish to get a refund back?
- Are you entitled to the Earned Income Tax Credit or did you receive Advance Earned Income Credit for this tax year?
- Were you self-employed with earnings of more than $400?
- Did you sell your home?
- Will you owe any special tax on receiving an early distribution from a qualified retirement plan?
Exclusion for Unemployment Compensation
Recipients of unemployment compensation are allowed to exclude from income up to
$2,400 of unemployment benefits received in 2009.
American Opportunity Tax Credit (expanded Hope Credit)
The Hope credit is modified and renamed the American Opportunity tax credit for tax
years beginning in 2009 and 2010. The maximum credit that can be claimed for 2009 &
2010 is $2,500 and is allowed for the first four years of the student's post-secondary
education in a degree or certificate program. Tuition, fees and course materials are now
part of the cost involved with the Hope Credit.
Eligible Expenses Under Section 529 Plans
Computer technology and equipment, and internet access and related services, qualify as
higher education expenses under section 529 plans for 2009 & 2010, as long as such items
are used by the beneficiary and the beneficiaries family during any of the years that the
beneficiary is enrolled at an eligible educational institution.
Health Coverage Tax Credit
Refundable Credit Increase: The amount of the HCTC increases from 65% to 80% of the
taxpayer's premiums for qualified health insurance of the taxpayer
and qualifying family member(s).
Work Opportunitv Credit
Businesses are allowed to claimed a work opportunity tax credit equal to $40% of the first
$6,000 of wages paid to employees of one of nine target groups.
- Qualified veteran
- Qualified ex-felon
- Designated community resident
- Vocational rehabilitation referral
- Summer youth employee
- SNAP recipient
- SSI recipient.
In addition, two new targeted groups of prospective employees are as follows:
- Unemployed veterans
- Disconnected youth
An individual qualifies as an unemployed veteran if they were discharged or released from
active duty from the Armed Forces during the five-year period prior to hiring and received
unemployment compensation for more than four weeks during the year before being hired.
An individual qualifies as a disconnected youth if they are between the ages of 16 and 25
and have not been regulary employed or attended school in the past 6 months.
Energy Credit
Nonbusiness Energy Property Credit: The nonbusiness energy property credit available to
individual homeowners has been modified. The installation of insulation, exterior windows,
sky lights, doors, electric heat pumps, central air conditioners, natural gas, propane, or oil
water heaters, biomass fuel stoves or furnaces and boilers. Please keep in mind that the
above is mandated by law to meet certain specifications in order to qualify.
Section 3
Uniform Definition of a Child
Recent legislation has added the following conditions to meet the uniform definition
of a child test:
- The child cannot be older than the claimant
- Generally, the child cannot be married
- Relationship Test - Your qualifying child must be your:
Child (per the uniform definition of a child) or descendant (for example,
grandchild or great grandchild) - Sibling, half sibling, stepsibling, or descendant (for example, nephew or
niece) - Age Test - Your qualifying child must be under age 19, a full-time student
under age 24, or any age if permanently and totally disabled - Residency Test - Your qualifying child must have the same main home as you
for more than half the year. - Support Test - Your qualifying child must not provide more than half of
their own support. - Dependent exemption - A child is your qualifying child for the dependent
exemption if they meet all of the tests listed above. They must also meet two
additional tests:
o Citizenship Test - Your qualifying child must be a U.S. citizen, a U.S.
resident, a U.S. national, or a resident of Canada or Mexico.
o Joint Return Test - Your qualifying child must not file a joint return
unless there would be zero tax liability on both married filing separate
returns (the return for your child and the return for your child's
spouse), and the joint return is filed only to receive a refund only.
Refundable Child Tax Credit
Under current law, earned income in excess of $10,000 is the threshold as indexed for
inflation. The new law reduces the $10,000 threshold to $3,000, effectively increasing the
amount of the refundable ch\ild tax credit and thus increasing the number of taxpayers
qualifying.
Earned Income Tax Credit
The EIC credit percentage for families with three or more qualifying children increases to
45% for 2009 & 2010. Because of the increase in the threshold amount by $5,000 for
married couples, more taxpayers will qualify for the credit and refunds surely will increase
across the board.
Worker, Homeownership, and Business Assistance Act of 2009
This new law extends the first-time homebuyer credit, amends and extends the rules for
five-year net operating loss, carrybacks, and increases the penalties on S-corporations and
partnerships for failure to file returns.
The $8,000 credit is extended for purchases made before May 1, 2010. A first-time
homebuyer is a taxpayer (and, if married, the spouse of the taxpayer) who has not owned a
principal residence at any time during the previous three years. For qualifying taxpayers,
the credit also applies to purchases before July 1,2010, provided the taxpayer has entered
into a written binding contract to close on the purchase before May 1,2010.
For existing homeowners, a taxpayer is eligible for a credit up to $6,500 provided the
taxpayer (and if married, the taxpayer's spouse) has owned the same principal residence
for five consecutive years during the eight-year period ending on the date of purchase.
This is effective for purchases after November 6, 2009. Please be advise that there are
several limitations imposed on this purchase as well. No credit will be allowed if the price
of home exceeds $800,000, taxpayer has not attained age 18 as of the date of purchase, if
taxpayer is claimed as a dependent on another taxpayer's return for the year of purchase,
the taxpayer does not attach a properly executed copy of the settlement statement that is
used to complete the purchase to his or her 2009 return or taxpayer must satisfy the related
party rules.
Deductible for Higher Education Expenses
The above line deduction for higher education expenses is extended for two years through
this year.
IRS Correspondence
Any correspondence you may receive from the Internal Revenue Service, South Carolina Department of Revenue or any other taxing authority should be attended to immediately by you or a Tax Professional. Putting the issue off will not cause the substance of the matter to go away, it will only possible result in an increase in penalties and interest of dramatic proportion.
Broker Reporting
Under current law, every person doing business as a broker must file an information
return (Form 1099-B) in accordance with IRS regulations.
Tax Planning
We know it does not sound like fun, however tax planning should be done during the year and not after the year has expired. A little advance planning will almost always result in a reduction of the taxes you owe or an increase in the refund you should be getting.
