Individual Income Tax2009 Update

Julie EmanueleBrad Hungate

Kevin Klein

Today’s PresentationToday’s Presentation

2009 Federal Update2009 Federal Update

Looking Forward: 2010 Federal ChangesLooking Forward: 2010 Federal Changes

2009 Virginia Update2009 Virginia Update

Looking Forward: 2010 Virginia ChangesLooking Forward: 2010 Virginia Changes

Elective Salary DeferralsElective Salary Deferrals

401(k) maximum elective deferral for 401(k) maximum elective deferral for 2009:2009:

– Under age 50: $16,500Under age 50: $16,500

– ““Catch up” contribution of $5,500 allowed if Catch up” contribution of $5,500 allowed if age 50 or olderage 50 or older

IRA ContributionsIRA Contributions

Maximum to a Traditional or Roth is $5,000Maximum to a Traditional or Roth is $5,000

Catch up contribution of $1,000 for Catch up contribution of $1,000 for taxpayers at least age 50 by the end of taxpayers at least age 50 by the end of 20092009

Have until due date of return (not including Have until due date of return (not including extension)extension)

Phase-out range of $89k-$109k for joint Phase-out range of $89k-$109k for joint filersfilers

Health Savings AccountsHealth Savings Accounts

Pay out-of-pocket medical expenses with Pay out-of-pocket medical expenses with pre-tax incomepre-tax income

Fund an HSA account with direct transfer Fund an HSA account with direct transfer from IRAfrom IRA

Maximum Contribution of $3,000 for single Maximum Contribution of $3,000 for single coverage ($5,950 for family coverage)coverage ($5,950 for family coverage)

If 55 or older, additional $1,000 catch-up If 55 or older, additional $1,000 catch-up contribution is availablecontribution is available

Higher Education ExpensesHigher Education Expenses

Extended through the Tax Extenders and Extended through the Tax Extenders and AMT Relief Act of 2008 through 2009AMT Relief Act of 2008 through 2009

Deduct up to $4,000 instead of Hope or Deduct up to $4,000 instead of Hope or Lifetime Learning tax creditsLifetime Learning tax credits

Subject to phase outSubject to phase out

Deduction taken on Form 8917Deduction taken on Form 8917

Education CreditsEducation CreditsAmerican Opportunity Tax CreditAmerican Opportunity Tax Credit

– Formerly known as Hope Scholarship creditFormerly known as Hope Scholarship credit– Maximum $2,500 credit perMaximum $2,500 credit per student student– First 4 years of undergraduate educationFirst 4 years of undergraduate education– Half time studentHalf time student– Phaseout begins at $80K for single filers ($160K for joint) Phaseout begins at $80K for single filers ($160K for joint)

and ends at $90K ($180K for joint)and ends at $90K ($180K for joint)

Lifetime Learning CreditLifetime Learning Credit– Maximum $2,000 credit per Maximum $2,000 credit per return– Available for unlimited number of years– Less than half time enrollment-non degree seeking

students– Phaseout begins at $50K for single filers ($100K for joint)

and ends at $60K ($120K for joint)

*Credit is taken on Form 8863

Qualified Educator ExpensesQualified Educator ExpensesAvailable for any Teacher, Instructor, Counselor, Available for any Teacher, Instructor, Counselor, Principal, or Aides teaching K-12 gradesPrincipal, or Aides teaching K-12 grades

Must work at least 900 hours during taxable yearMust work at least 900 hours during taxable year

Can deduct “above-the-line” up to $250 of Can deduct “above-the-line” up to $250 of expenses incurred for books and (non-athletic) expenses incurred for books and (non-athletic) suppliessupplies

Excess expenses of $250 can be deducted on Excess expenses of $250 can be deducted on Schedule A subject to 2% of AGISchedule A subject to 2% of AGI

Expires at end of 2009Expires at end of 2009

Sales & Use Tax DeductionSales & Use Tax Deduction

Available through 2009Available through 2009

Deduct either state income tax or sales Deduct either state income tax or sales and use taxand use tax

Use Receipts Method or Sales Tax TableUse Receipts Method or Sales Tax Table

Qualified Motor Vehicle TaxesQualified Motor Vehicle Taxes

For purchases on or after Feb. 17, 2009 For purchases on or after Feb. 17, 2009 and before Jan. 1, 2010and before Jan. 1, 2010

State or local sales or excise taxes can be State or local sales or excise taxes can be added to itemized or standard deductionadded to itemized or standard deduction

Only taxes on the portion of the vehicle not Only taxes on the portion of the vehicle not exceeding $49,500 may be deductedexceeding $49,500 may be deducted

Charitable Contribution Substantiation Charitable Contribution Substantiation

Some form of substantiation for charitable Some form of substantiation for charitable contributions must be retainedcontributions must be retained

Examples: Receipt, Letter Examples: Receipt, Letter from Charity, etc. from Charity, etc.

Deductions only available if taxpayer Deductions only available if taxpayer itemizes deductionsitemizes deductions

Distributions directly from IRA, expires in Distributions directly from IRA, expires in 2009 (discussed in more detail later)2009 (discussed in more detail later)

Residential Energy CreditsResidential Energy Credits

Nonbusiness Energy Property CreditNonbusiness Energy Property Credit– Credit equal to 30% of the cost of qualified Credit equal to 30% of the cost of qualified

energy efficiency improvements to principal energy efficiency improvements to principal residenceresidence

– Credit is limited to $1,500Credit is limited to $1,500– For property placed in service after 2008 and For property placed in service after 2008 and

before 2011before 2011

Kiddie TaxKiddie Tax

Now effects children ages 19-23 who are Now effects children ages 19-23 who are full time studentsfull time students

Earned income is less than half of supportEarned income is less than half of support

Investment income greater than $1,900Investment income greater than $1,900

2009 Capital Gains2009 Capital Gains

Capital gains that would have been taxed Capital gains that would have been taxed at 5% will not be taxed at allat 5% will not be taxed at all

Capital gains that would have been taxed Capital gains that would have been taxed at 15% will remain at 15%at 15% will remain at 15%

Will expire in 2010 when the 0% rates will Will expire in 2010 when the 0% rates will go to 10% and 15% rates will go to 20%go to 10% and 15% rates will go to 20%

Excluded Combat PayExcluded Combat Pay

Can elect to have excluded combat pay Can elect to have excluded combat pay count as earned income in the calculation count as earned income in the calculation for the earned income tax creditfor the earned income tax credit

Counts towards “compensation” for IRA Counts towards “compensation” for IRA contribution limitations & Making Work Pay contribution limitations & Making Work Pay Credit (discussed later)Credit (discussed later)

Roth IRA ConversionsRoth IRA Conversions

Limit on modified adjusted gross income of Limit on modified adjusted gross income of $100,000 lifted for all taxpayers beginning in $100,000 lifted for all taxpayers beginning in 20102010

Convert all or any portion of a Traditional, Convert all or any portion of a Traditional, SEP, or SIMPLE IRA into a Roth IRA during SEP, or SIMPLE IRA into a Roth IRA during 20102010

Retain option to recharacterize conversion Retain option to recharacterize conversion until due date of return (including extensions) until due date of return (including extensions)

Roth IRA ConversionsRoth IRA ConversionsElect to defer taxes on conversion until 2011 Elect to defer taxes on conversion until 2011 & 2012 (only available for conversions in & 2012 (only available for conversions in 2010) 2010)

Possible Benefits from ConvertingPossible Benefits from Converting– Enjoy Tax-Free Distributions in RetirementEnjoy Tax-Free Distributions in Retirement– Benefit from Tax-Free Earnings GrowthBenefit from Tax-Free Earnings Growth– Manage Personal Income Tax ImplicationsManage Personal Income Tax Implications– Take Advantage of Perfect 20/20 Hindsight with Take Advantage of Perfect 20/20 Hindsight with

Roth IRA Recharacterizations Roth IRA Recharacterizations

Making Work Pay CreditMaking Work Pay Credit

Enacted by the 2009 Recovery Act Enacted by the 2009 Recovery Act

Available for eligible taxpayers in 2009 & Available for eligible taxpayers in 2009 & 20102010

Refundable credit equal to lesser of: Refundable credit equal to lesser of: – 6.2% of taxpayer’s earned income6.2% of taxpayer’s earned income– $400 per individual ($800 married couples)$400 per individual ($800 married couples)

Begins phase out at $75,000 ($150,000 for Begins phase out at $75,000 ($150,000 for MFJ) in modified adjusted gross incomeMFJ) in modified adjusted gross income

First-Time Homebuyer CreditFirst-Time Homebuyer Credit

Extended until April 30Extended until April 30thth, 2010 (or until , 2010 (or until June 30June 30thth, 2010 if binding contract agreed , 2010 if binding contract agreed to before May 1to before May 1stst, 2010) , 2010)

First-Time Homebuyers - Tax credit up to First-Time Homebuyers - Tax credit up to lesser of $8,000 or 10% of purchase pricelesser of $8,000 or 10% of purchase price

Long-Time Residents – Tax credit up to Long-Time Residents – Tax credit up to lesser of $6,500 or 10% of purchase pricelesser of $6,500 or 10% of purchase price

First-Time Homebuyer CreditFirst-Time Homebuyer Credit

Credit phased out when MAGI falls Credit phased out when MAGI falls between the following income levels between the following income levels (completely phased out at highest level)(completely phased out at highest level)– Single - $75,000 - $95,000Single - $75,000 - $95,000– Married filing Joint - $150,000 - $170,000Married filing Joint - $150,000 - $170,000

No credit for purchases exceeding No credit for purchases exceeding $800,000 – no phase out available here$800,000 – no phase out available here

Refundable, but also can be Recaptured Refundable, but also can be Recaptured

Standard DeductionStandard Deduction2009 Applicable Standard Deduction: 2009 Applicable Standard Deduction: – Single - $5,700Single - $5,700– HOH - $8,350HOH - $8,350– Joint (or surviving spouse) - $11,400Joint (or surviving spouse) - $11,400

Real Estate Taxes:Real Estate Taxes:– Single – up to $500Single – up to $500– Joint – up to $1,000Joint – up to $1,000

Vehicle Sales Taxes – can also include Vehicle Sales Taxes – can also include sales tax paid on qualified motor vehiclesales tax paid on qualified motor vehicle

Unemployment CompensationUnemployment Compensation

Federal Law – Can exclude up to $2,400 Federal Law – Can exclude up to $2,400 of unemployment compensation benefits of unemployment compensation benefits received during 2009 from taxable incomereceived during 2009 from taxable income

Virginia Law – Can exclude all unemploy-Virginia Law – Can exclude all unemploy-ment compensation benefits received ment compensation benefits received during 2009 year from taxable incomeduring 2009 year from taxable income

COBRA SubsidyCOBRA Subsidy

Provides a 65% subsidy for COBRA Provides a 65% subsidy for COBRA continuation premiums for up to 9 monthscontinuation premiums for up to 9 months

Applies to workers who have been Applies to workers who have been involuntarily terminated between Sept. 1, involuntarily terminated between Sept. 1, 2008 and Dec. 31, 20092008 and Dec. 31, 2009

Taxable income for year cannot exceed Taxable income for year cannot exceed $125,000 (single) or $250,000 (joint)$125,000 (single) or $250,000 (joint)

Subsidy is non-taxableSubsidy is non-taxable

Job Hunting ExpensesJob Hunting ExpensesExpenses incurred searching for new Expenses incurred searching for new employment in same trade or business are employment in same trade or business are deductible as miscellaneous itemized deductible as miscellaneous itemized deductions subject to 2% limitationdeductions subject to 2% limitation

Examples:Examples:– Employment Agency FeesEmployment Agency Fees– Resume Preparation ServicesResume Preparation Services– Travel & Transportation Fees (Unreimbursed)Travel & Transportation Fees (Unreimbursed)– Employment CounselingEmployment Counseling

Looking forward: 2010Looking forward: 2010

Elective deferrals contribution limits will Elective deferrals contribution limits will remain the same as 2009remain the same as 2009

IRA contributions will remain the same as IRA contributions will remain the same as 20092009

Expiring adjustments, credits, and Expiring adjustments, credits, and deductionsdeductions

Proposed Proposed Congressional LegislationCongressional Legislation

Health Care?Health Care?

Estate Tax?Estate Tax?

Another Stimulus Measure?Another Stimulus Measure?

Jobs Bill?Jobs Bill?

Virginia UpdateVirginia Update

Tax Relief for Military SpousesTax Relief for Military Spouses

Virginia Sales Tax HolidaysVirginia Sales Tax Holidays

Certain Virginia Deductions and Tax CreditsCertain Virginia Deductions and Tax Credits

Looking Forward: 2010 & BeyondLooking Forward: 2010 & Beyond

Tax Relief for Spouses Tax Relief for Spouses of Military Personnelof Military Personnel

Federal legislation signed on November 11, Federal legislation signed on November 11, 2009 - Military Spouses Relief Act2009 - Military Spouses Relief Act

Effective – Taxable Year 2009Effective – Taxable Year 2009

Spouses do not automatically become Virginia Spouses do not automatically become Virginia residentsresidents

Spouses may be eligible for refund of employer Spouses may be eligible for refund of employer withholdingwithholding

Virginia Sales Tax HolidaysVirginia Sales Tax Holidays

May 24-30, 2010 – Hurricane Preparedness May 24-30, 2010 – Hurricane Preparedness EquipmentEquipment

August 6-8, 2010 – School Supplies, August 6-8, 2010 – School Supplies, Clothing & Footwear Clothing & Footwear

October 8-11, 2010 – Energy Star Qualified October 8-11, 2010 – Energy Star Qualified ProductsProducts

Virginia Deduction for Income from Virginia Deduction for Income from Dealer Disposition of Real PropertyDealer Disposition of Real Property

For 2009, qualifying individuals and corporations For 2009, qualifying individuals and corporations can defer payment of a portion of VA income tax can defer payment of a portion of VA income tax incurred from the sale of real property provided:incurred from the sale of real property provided:– The sale occurs on or after 1/1/09The sale occurs on or after 1/1/09– Property sold is real estateProperty sold is real estate– Taxpayer reports entire gain as income on the federal Taxpayer reports entire gain as income on the federal

returnreturn

Virginia Livable Home CreditVirginia Livable Home Credit

Credit for supplies purchased and other items Credit for supplies purchased and other items needed to retrofit existing residences with needed to retrofit existing residences with accessibility and/or visitability featuresaccessibility and/or visitability features

Also applies to supplies needed to Also applies to supplies needed to incorporate features into new constructionincorporate features into new construction

Limited to $1,000/taxable year for 2009Limited to $1,000/taxable year for 2009

For 2010, maximum amount is $2,000For 2010, maximum amount is $2,000

Federal and State Salary Subtraction

Only individuals earning less than $15,000 in wages are entitled to subtraction

Effective For: Employees of state-supported universities, colleges, and community colleges and other state and federal agencies

Not Effective For: Employees of Local Government, U.S. Postal Service, Army, Navy, Air Force, Marines, and National Guard

Land Preservation Tax Credit

For 2009 and 2010, amount of credit that can be claimed has been reduced to $50,000 per taxpayer

Carryover period for unused credits is extended 2 years for affected taxpayers

College Savings PlansCollege Savings Plans

Effective 2009, allowable deduction for Effective 2009, allowable deduction for contributions will increase to $4,000 per plan or contributions will increase to $4,000 per plan or accountaccount

There are currently no restrictions on deduction There are currently no restrictions on deduction amounts for individuals who are 70 or olderamounts for individuals who are 70 or older

Household EmployersHousehold Employers

Household employers may now elect to Household employers may now elect to file and pay household Virginia file and pay household Virginia employment taxes annuallyemployment taxes annually

Virginia Tax Department Virginia Tax Department ServicesServices

e-Subscriptionse-Subscriptions– Customized e-mails on a variety of state tax topicsCustomized e-mails on a variety of state tax topics

Live ChatLive Chat– Available weekdays from 7a.m. to 9 p.m. and 8 a.m. to 1 p.m. on Available weekdays from 7a.m. to 9 p.m. and 8 a.m. to 1 p.m. on

SaturdaysSaturdays

Looking ForwardLooking Forward

Increase in the filing threshold in VirginiaIncrease in the filing threshold in Virginia

Filing Status 2010 & 2011 2012 & Beyond

Single or MFS $11,650 $11,950

MFJ $23,300 $23,900

SummarySummary

2009 Federal Updates2009 Federal Updates

Looking Forward: 2010 Federal ChangesLooking Forward: 2010 Federal Changes

2009 Virginia Updates2009 Virginia Updates

Looking Forward: 2010 Virginia ChangesLooking Forward: 2010 Virginia Changes

QuestionsQuestionsJulie EmanueleJulie Emanuele– Phone: 804-433-1084Phone: 804-433-1084– Email: Email: jemanuele@theroselinegroup.com

Brad HungateBrad Hungate– Phone: 804-545-7458Phone: 804-545-7458– Email: Email: bhungate@theroselinegroup.com

Kevin KleinKevin Klein– Phone: 804-545-7459Phone: 804-545-7459– Email: Email: kklein@theroselinegroup.com

www.theroselinegroup.comwww.theroselinegroup.com