Upcoming Federal Income Tax Highlights

ENERGY EFFICIENCY IMPROVEMENTS

The American Recovery and Reinvestment Act of 2009 included a uniform credit of 30% of the cost of qualifying energy efficiency improvements up to $1,500. Some of the qualified improvements include adding insulation, energy-efficient exterior windows, and energy-efficient heating and air-conditioning systems. The improvements must be placed in service during 2009 or 2010. This replaces the old law combination that was available in 2007 that imposed a $500 lifetime limit on energy efficient improvements.

TAX CREDIT FOR FORD AND MERCURY HYBRIDS

The tax credit for hybrid passenger automobiles and light trucks manufactured by Ford Motor Company is being phased out for purchases made on or after April 1, 2009 and on or before March 31, 2010. Ford reached the Federal government's threshold of 60,000 vehicles sold in the last quarter of 2008. The following details the phase-out of the credit:

Full credit amounts depend on the year, make and model of the Ford or Mercury hybrid vehicle purchased. For more information on the full credit amounts, please see http://www.irs.gov/newsroom/article/0,,id=206579,00.html.

CREDIT AND DEBIT CARD FEES FOR ELECTRONIC TAX PAYMENT

The IRS has now determined that the convenience fees charged for electronic payment of Federal tax, including estimated tax payments, are deductible as miscellaneous itemized deductions which are subject to the 2% of adjusted gross income floor. The fees are deductible in the tax year that they occur. Fees paid during 2009 will now be allowable deductions on the 2009 return. This change is retroactive to 2008. As a side note, there are still various ways of making the payments with no fee, including electronic withdrawal from a bank account or the EFTPS (Electronic Federal Tax Payment System).

NEW SALES TAX DEDUCTION FOR NEW VEHICLE PURCHASES

If you buy a NEW car between February 17, 2009 and December 31, 2009, you may be entitled to a deduction for the state and local sales taxes paid. Here are some of the rules regarding the deduction:

1. State and local sales taxes paid on up to $49,500 of the purchase price of qualifying vehicles are deductible.
2. Qualified vehicles are generally new (not used) cars, light trucks, motor homes, and motorcycles.
3. Deduction allowed regardless of whether you itemize deductions or not.
4. Deduction is only claimed on 2009 income tax return.
5. The deduction is phased out for tax payers whose modified adjusted gross income is between $125,000 and $135,000 for individual filers and between $250,000 and $270,000 for joint filers.

The sales tax deduction is based on a per vehicle basis. For example, if you purchase one vehicle for $35,000, you could qualify for the deduction for the total sales tax paid. If you purchase two vehicles, each costing less than $49,500, you could qualify to deduct the sales tax paid on each vehicle.

If you do not itemize your deductions, you will add the amount of the qualified sales tax paid to your standard deduction.

If you itemize your deductions and deduct state and local income taxes, you get to deduct the sales tax paid in addition to your other itemized deductions; however, if you itemize your deductions and opt instead to deduct state and local sales tax paid, you will not receive any additional break since you would already be claiming the sales tax paid.

FILERS WITH UNDISCLOSED FOREIGN BANK ACCOUNTS

September 21, 2009:  The Internal Revenue Service extended the voluntary disclosure deadline to October 15, 2009.  They stated that there will be no further extensions. 

Those individuals who have been reporting their taxable income (interest, dividends, capital gains, etc.) from these sources but didn't realize that they needed to file TD Form 90-22.1 each year may get a reprieve from penalty. The account holders will still need to file the form for each year that the balances in their foreign accounts totaled $10,000.00 or more. The deadline for sending the delinquent forms is September 23, 2009.

ESTATE TAXES

Make sure your will clearly states which bequests will bear the burden of the estate tax. A properly drafted will states specifically how the tax is to be apportioned. Without specificity, you are leaving your will open to interpretation by the Internal Revenue Service.

In a recent case, a decedent's will was vague on how the tax should be apportioned, so the IRS interpreted the will to charge the marital bequest with a portion of the Federal estate tax. The Tax Court disagreed with their interpretation, saying that a state apportionment law applied so that no tax was due from the surviving spouse's share (Est. of McCoy, TC Memo. 2009-61).

This leads to an item of interest...President Obama's budget plan proposes keeping the estate tax at 2009's levels. The rate would remain at 45% and exemption amount would remain at $3.5 million. Under the current law, the rate falls to zero for 2010, but it would go back up to 55% with the exemption amount dropping to $1 million. This can change at any time, so stay tuned for updates.

If you would like more information about Pennsylvania Elder Law, Business Law or Tax Law, please contact an experienced Pennsylvania Attorney who is also a Certified Public Accountant (CPA) via email or phone us at (724) 216.6551 at our Greensburg, Pennsylvania office.

The Iezzi Law Office serves clients in southwestern Pennsylvania, including Greensburg, Pittsburgh, Delmont, Monroeville, Latrobe, Irwin, Uniontown, Connellsville, Indiana, Somerset, including Westmoreland County, Allegheny County, Fayette County, Indiana County, and Somerset County.

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IRS CIRCULAR 230 DISCLOSURE:

To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.