FEDERAL TAX NEWS
President Obama has declared
the counties of Atlantic,
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
§
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
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
***New-
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
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-
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
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.
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
Decoupling from IRS for Section 179 Expensing
For property placed in service on or after
January 1, 2004, the State of
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 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
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.