Stimulus Bill
Amid much ado, Congress has passed the “stimulus” bill, attracting proud praise from liberal commentators—and prodigious pans from conservative commentators. These polarized views were reflected by Congress, with almost all Democrats voting yea, and almost all Republicans voting nay.
As for income tax issues, while there is nothing especially sweeping in these measures—no radical overhaul of the Internal Revenue Code, no changes in tax rates—but there are tax saving provisions of note. Unfortunately, many PPCo clients will be unable to share the wealth, as most of these provisions contain phase outs that negate any benefit for taxpayers whose income is too high.
Individual tax:
The “Making Work Pay” credit is up to $400, or $800 per couple, for the years 2009 and 2010. Eligible taxpayers have adjusted gross income (AGI) of under $75K, or $150K per couple. This will not be a rebate check, but rather a reduction in FICA withholding from employees’ wages. The employer’s 6.2% share remains the same.
There will be a one-time $250 payment in 2009, mainly to retirees.
The alternative minimum tax (AMT) exemption “patch” is extended to 2009. This is an increase in the AMT exemption to about $46K, or about $71K per couple.
First time homebuyer tax credit increased to $8K for taxpayers with AGI under $75K, or $150K per couple. Even in today’s real estate market, that’s still not much bang for the buck in Silicon Valley.
New car deduction. Apparently there was heavy lobbying from U.S. automakers, as some taxpayers will be able to take an “above the line” sales tax deduction on their new car purchase. (“Above the line” means that it is deducted from AGI, and not an itemized deduction.) Even non-“green” vehicles, such as big SUV’s up to 8,000 pounds—and motor homes—qualify. Naturally, there are limits: the sales tax is deductible only on the portion of the purchase price under about $50K—thus about a $4K deduction in Santa Clara County. Also, the deduction is phased out for taxpayers with AGI over $125K, or $250K for a couple.
The education credit formerly known as “HOPE” is increased to $2,500 per year. Phase out at $80K AGI, or $160K per couple. They now call the credit the “American Opportunity Tax Credit,” perhaps because “hope” was used as a theme by a prominent presidential campaign.
Unemployment benefits up to $2,400 are not taxable for 2009. The remainder is entirely subject to federal income tax, but not California income tax.
Section 529 plans. These provide tax-free distributions for education expenses. For 2009 and 2010, beneficiaries can use distributions to pay for computers and internet.
Business tax:
“Bonus” depreciation. First year depreciation deduction of 50% is extended through the end of 2009.
Vehicle depreciation. First year depreciation deduction for business autos is raised to about $11K for 2009.
Section 179. Small business can expense up to $250K of equipment purchases during 2009. The old limit was $125K.
Net operating loss carryback. For “small” businesses, i.e., gross receipts less than $15 million, a five-year net operating loss carryback is available for losses incurred in 2008. For 2009, the carryback reverts to two years.
Old AMT or R&D credits. If a business would have been eligible to take the 50% business depreciation, they can instead elect to claim a refund of old accumulated AMT credits or R&D credits. This was already 2008 law, but the stimulus bill extends it to 2009. The credits must have originated before 2006.
David Cooper, PP & Co CPA, Manager
Tags: stimulus bill
