FEDERAL TAX NEWS

 

New Jersey Severe Storm and Flooding Victims Have Until May 11th to File Their Tax Returns

 

President Obama has declared the counties of Atlantic, Bergen, Cape May, Essex, Gloucester, Mercer, Middlesex, Monmouth, Morris, Passaic, Somerset, and Union a disaster area and, as a result, the IRS has postponed certain deadlines from April 15th to May 11th for residents of these counties.

 

Residents in these counties have until May 11th to file individual, corporate, partnership, estate and trust income tax returns.  The date to make contributions to an IRA and make tax payments, including estimated tax payments, that have a due date between March 12, 2010 and before May 11, 2010 has also been postponed until May 11, 2010.

 

The IRS and State of New Jersey will identify taxpayers in the covered disaster zone based on the zip code on the tax return and will automatically apply the filing and payment relief.

American Recovery and Reinvestment Act of 2009

On February 17, 2009, President Obama signed into law the American Recovery and Reinvestment Act of 2009.    This Act is intended to provide direct spending and tax incentives to jump start the economy.  There are tax benefits for individuals and businesses provided in the act. 

For businesses, highlights of the act include:

§         Extended the Section 179 Limit of $250,000 for 2009.  Phase out starts at $800,000.

§         Extended the 50% first year bonus depreciation to property placed in service during 2009.

§         For small businesses, the act extends the maximum NOL carryback from 2 years to 5 years for NOLs in tax years beginning or ending in 2008.

For individuals, highlights of the act include:

§         First-time Homebuyer Credit: For first-time homebuyers who purchase a home between January 1, 2009 and November 30, 2009, the act provides a credit of 10% of the purchase price of a principal residence, with a maximum credit of $8000.  The repayment requirement under the previous act was waived except where the home is sold within three years of purchase. The credit phases out for taxpayers with adjusted gross income in excess of $75,000 for single taxpayers and $150,000 for married taxpayers filing jointly.

§         New car sales tax deduction: For purchases of a new vehicle between February 17, 2009 and December 31, 2009, purchasers can take an above the line deduction for sales tax paid on the first $49,500 of the vehicle’s purchase price. This deduction will be phased out for taxpayers with adjusted gross income of $125,000 for single taxpayers and $250,000 for married taxpayers filing jointly.

§         Suspension of Tax on Unemployment Compensation: The new law temporarily excludes up to $2400 of unemployment compensation from the taxpayer’s gross income for 2009.

§         American Opportunity Tax Credit: The new law expands the maximum existing Hope Credit for 2009 and 2010 from $1800 to $2500 per year (100% of the first $2000 of tuition and 25% of the next $2000) and extends the current time from the first two years in college to the first four years in college.

§         Making Work Pay Credit: This Act created a refundable credit of up to $800 for married taxpayers filing a joint return or $400 for single taxpayers.  This is phased out for taxpayers with adjusted gross income above $75,000 for single taxpayers and $150,000 for married taxpayers filing jointly.  Taxpayers will receive this credit through a reduction in withholding.

If you would like more information on the new Tax Act or to find out how it will affect you, please call your tax professional at Mills & DeFilippis CPAs.

Standard Mileage Rate for 2009

Beginning 1/1/2009, the standard mileage rate for the use of a vehicle will be 55 cents per mile for business miles driven, 24 cents per mile for medical or moving purposes, and 14 cents per mile for miles driven in service of charitable organizations.

 First-Time Homebuyer Tax Credit- For purchases between 4/9/08 and 12/31/08

On July 30, 2008, President Bush signed into law the Housing and Economic Recovery Act of 2008.  Under this act, first-time homebuyers are entitled to a temporary refundable tax credit equal to 10 percent of the purchase price of a home, up to $7500 ($3750 for married individuals filing separately).  The credit begins to phase out for taxpayers with adjusted gross incomes over $75,000 ($150,000 for married taxpayers filing jointly).  The taxpayer will claim the credit on their 2008 or 2009 tax return.

The credit is effective for homes purchased between April 9, 2008 and December 31, 2008.  Unlike other credits, this credit must be repaid in equal installments over 15 years.  Repayments start two years after the year the residence is purchased.

If the residence is sold before repaying the credit, the unpaid balance becomes due in the year it is sold or no longer used as a principal residence.

Property Tax Deduction for Non-Itemizers

Also under the Housing and Economic Recovery Act of 2008, non-itemizers have been given a limited deduction for state and local property taxes by increasing the amount of their standard deduction by the lesser of the amount of property taxes paid during 2008 or $500 ($1000 for a married couple filing jointly).  This deduction is only available for 2008.

 Reduced Home Sale Exclusion

Under the Housing and Economic Recovery Act of 2008, gain from the sale of a principal residence will no longer be excluded from gross income for the periods that home was not used as the principal residence.  This applies for home sales after December 31, 2008 and is based only on nonqualified use periods that begin on or after January 1, 2009.  The amount of gain allocated to periods of nonqualified use is determined on a pro-rata basis.

Economic Stimulus Payments and Recovery Rebate Credit

Under the Economic Stimulus Act of 2008, more than 130 million American households received economic stimulus payments beginning in May 2008.

The recovery rebate credit is a one-time benefit for people who didn’t get the full economic stimulus payment in 2008 and whose circumstances have changed, now making them eligible for some or all of the unpaid portion.

The recovery rebate credit can be claimed on your 2008 Form 1040 and will be included in your tax refund for 2008.

IRS Rebate Scam Alerts

The IRS has cautioned taxpayers to be on the lookout for scams involving proposed advance payment checks or rebates.  The IRS uses information from the taxpayer’s tax return to process the stimulus payment and does not contact the taxpayer by phone or e-mail for information.  Also, the IRS does not send unsolicited e-mail about tax account matters to taxpayers.

If you receive a suspicious e-mail or telephone call that claims to have come from the IRS, please notify the IRS of the scam at phishing@irs.gov.

Kiddie Tax Changes

The kiddie tax imposes tax on a child’s investment income, such as interest, dividends, and capital gains at the parent’s higher tax rate.  For 2008, the kiddie tax has been expanded under the 2007 Small Business Tax Act.  Effective in 2008, the kiddie tax applies to all children under age 19 and students under age 24.  This will not apply to a child who is permanently and totally disabled.  The amount exempt from the kiddie tax has been increased to $1800 for 2008.

 Social Security Wage Base for 2009

The Social Security wage base has increased from $102,000 for 2008 to $106,800 for 2009.  In 2009, the maximum employee deduction for social security taxes is $6621.60 and for 2008 was $6324.

Capital Gains Rates

The maximum capital gain tax rate was reduced under the Jobs and Growth Tax Relief Reconciliation Act of 2003 from 20% to 15% for sales of long-term capital assets.  For lower income taxpayers, the 10% rate was reduced to 5%.  A 0% rate has replaced the 5% rate for tax years beginning after December 31, 2007.

Tax Rate on Dividends

The maximum tax rate on dividends paid by corporations to individuals was reduced under the Jobs and Growth Tax Relief Reconciliation Act of 2003 to 15% and to 5% for lower income taxpayers.  For tax years beginning after 2007, the 5% maximum tax rate on qualified dividends was reduced to 0%.

Section 179 Expensing

The maximum Section 179 deduction for property placed in service in 2008 has increased to $250,000.  The full amount is available for companies putting up to $800,000 of assets in use during 2008. The expensing amount is reduced dollar-for-dollar when the cost of eligible property put into service during the year exceeds $800,000 for 2008.  

Increased Retirement Plan Contribution Limits

The Economic Growth & Tax Relief Reconciliation Act of 2001 increased the amount of contributions that can be made to retirement plans, along with providing a “catch-up provision” in addition to the regular contribution for participants 50 years or older.

The contribution limits for retirement plans for 2009 are the following:

·         IRAs & Roth IRAs- $5,000 (plus $1000 catch-up provision, if eligible)

·         SIMPLE Plans- $11,500 (plus $2,500 catch-up provision, if eligible)

·         Qualified Retirement Plans (including 401(k), 403(b) and 457 plans)- $16,500 (plus $5,500 catch-up provision, if eligible)

·         SEP Plans-  the lesser of 25% of total compensation or $49,000.

The contribution limits for retirement plans for 2008 are the following:

·         IRAs & Roth IRAs- $5,000 (plus $1000 catch-up provision, if eligible)

·         SIMPLE Plans- $10,500 (plus $2,500 catch-up provision, if eligible)

·         Qualified Retirement Plans (including 401(k), 403(b) and 457 plans)- $15,500 (plus $5,000 catch-up provision, if eligible)

·         SEP Plans-  the lesser of 25% of total compensation or $46,000.

If lower income taxpayers make a contribution to a retirement plan, they may be eligible for a credit of between 10 and 50% of their contribution.

 “Where’s My Refund?”

You can access information about your refund within 72 hours after the IRS acknowledges receipt of your e-filed return or 3-4 weeks after mailing your paper return.

You can check the status of your refund at the IRS’website https://sa2.www4.irs.gov/irfof/lang/en/irfofgetstatus.jsp

To get the refund status, you will need to provide your social security number, filing status & refund amount as it appears on your federal tax return.

Classification of Workers- Employees vs. Independent Contractors

Most workers fall into two categories- independent contractors or common-law employees.  The main factor a business must use in determining how to classify its workers is the degree of control the business has over its worker.  The more control the business has over a worker the more likely it is that the worker is an employee rather than an independent contractor.  The determination is based on all facts and circumstances of the relationship the business has with the worker.  Businesses can use Publication 15-A from the IRS to help make that determination.  That publication can be found at http://www.irs.gov/publications/p15a/ar02.html#d0e617.

If a business incorrectly classifies an employee as an independent contractor, they can be held liable for employment taxes for that worker, plus a penalty.  There may be some relief for employers who want to correct a previous misclassification of a worker. Guidance on this can be found in IRS Headliner 152 at http://www.irs.gov/businesses/small/article/0,,id=155756,00.html.

 

STATE OF NJ TAX NEWS

***New- New Jersey Gross Income Tax rate changes for taxpayers with gross income over $400,000

Effective January 1, 2009 through December 31, 2009, the gross income tax rates for taxpayers with gross income over $400,000 have been increased.  Income between $400,000 and $499,999 will be taxed at 8%.  Income between $500,000 and $999,999 will be taxed at 10.25%.  Income over $1,000,000 will be taxed at 10.75%.

Revised withholding tables were issued to employers to take into account that the new tax rates apply for the entire 2009 tax year.

Taxpayers are not subject to penalty and interest for underpayments of estimated tax or withholdings on income attributable to the rate changes before October 1, 2009.

***New-Changes to the New Jersey Property Tax Deduction

For taxable years beginning in 2009, taxpayers with gross income over $250,000 and are not seniors, blind, or disabled are not eligible for the property tax deduction.

For taxpayers with gross income between $150,000 and $250,000 and are not seniors, blind, or disabled, the maximum property tax deduction is capped at $5,000.

***New- New Jersey Lottery Winnings

For taxable years beginning on or after January 1, 2009, New Jersey Lottery winnings over $10,000 are taxable for New Jersey Gross Income tax purposes.  All lottery payments received after this date are subject to this tax regardless of what year the prize was won.

NJ Property Tax Reimbursement – Deadline Extended to August 17, 2009

The Property Tax Reimbursement Program reimburses eligible senior citizens and disabled persons for property tax increases.

Eligible applicants must file the 2008 Property Tax Reimbursement Application on or before August 17, 2009.

2008 Property Tax Reimbursement checks have begun being mailed out to taxpayers who filed by the original June 1st deadline.  Applicants who filed between June 1st and August 17th will receive their checks as their applications are processed.

If you have any questions or want to check the status of your reimbursement checks, you may call the Property Tax Reimbursement Hotline at 1-800-882-6597.

 

NJ Homestead Rebate- Deadline September 1, 2009

Applications for the Homestead Rebate were mailed to seniors and disabled taxpayers back in May.  The Division of Taxation has begun mailing applications to non-senior/non-disabled taxpayers.  Because of this year’s budget limits, eligibility is limited to homeowners with gross income of $75,000 or less.  Many taxpayers will not receive applications this year because of this threshold.

If you do not receive an application by August 11, 2009, but believe that you qualify for the rebate, you should call the Homestead Rebate Hotline at 1-888-238-1233 for assistance. 

New Jersey Sales & Use Tax

Effective July 15, 2006, the state sales tax rate was increased from 6% to 7%.  Under new legislation, effective October 1, 2006, the law extended the sales tax to new services and limits some previous exclusions and exemptions.

NJ Division of Taxation Implements Referral Cost Recovery Fee

The Division of Taxation began imposing a Referral Cost Recovery Fee.  Where the Division uses an outside debt collection agency to collect any state tax, a fee of 10% of the amount due will be assessed to the taxpayer in addition to interest and penalties imposed.

NJ Sales and Use Tax Returns are Paperless

The NJ Division of Taxation has phased out the use of paper sales and use tax returns and requires all taxpayers to electronically file and make payments through the NJ Sales and Use Tax EZ File Systems.  Businesses will no longer receive ST-50/51 coupon booklets.

Taxpayers simply complete the EZ TeleFile Worksheet and either call 1-877-829-2866 or file online at the Division of Taxation’s Web Site www.state.nj.us/treasury/taxation/.  You will be prompted for the information from the worksheet.  There will be an opportunity to pay the sales and use tax liability by electronic check at the end of the phone call or during the online filing.

New Jersey Annual Reports are Paperless

Beginning with the 2005 fiscal period, the annual report will no longer be filed with the corporation’s tax return.  Form CAR-100 has been eliminated.  All annual reports must be filed and paid electronically.  The business formation date will become the due date for filing.  If the annual report is not timely filed, the business entity could be voided by the State of New Jersey.

Decoupling from IRS for Section 179 Expensing

For property placed in service on or after January 1, 2004, the State of New Jersey decoupled from the IRS on the amount permitted to be deducted as an expense for New Jersey taxes under IRC Section 179.  The maximum deduction allowed by the State of New Jersey is $25,000 under Section 179.

New Jersey Corporation Business Surtax & Minimum Tax Changes

Under the new legislation, 4% surtax in addition to the annual corporation tax will be charged to corporations.  For periods ended on or after July 1, 2006 but before July 1, 2009, each taxpayer will be charged 4% surtax on the tax liability of the corporation after credits.

Also under the new law, the minimum corporation business tax shall be based on New Jersey gross receipts.  The new minimum tax ranges from $500 for gross receipts of less than $100,000 to $2000 for gross receipts of a million dollars or more.

New withholding requirements for construction contractors

Effective January 1, 2007, persons, other than a governmental entity, homeowner or tenant, who maintain an office or transact business in New Jersey, must withhold NJ Gross Income Tax of 7% of payments made to unregistered, unincorporated construction contractors.  Withholding is not required if the person making the payments has obtained proof from the contractor of their registration with the Division of Revenue.

 

If you have any questions or would like to know how the new tax changes will affect you, please feel free to contact us at 973-927-7780. 

Disclaimer

The information contained in this web site is for general information purposes only, and is not intended to provide professional tax advice.  Please consult your tax advisor, or someone from our office before making any decisions, to determine how the tax law changes apply to your specific tax situation.  Mills and DeFilippis, CPAs, LLP disclaims any responsibility for any actions taken by users.