Disclaimer of Liability
The information in this e-newsletter is for general guidance only, and does not constitute the provision of legal advice, tax advice,
accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used
as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or
taking any action, you should consult a professional advisor who has been provided with all pertinent facts relevant to your particular
situation.
The author of the tax articles in this e-newsletter did not intend nor write the advice to be used to avoid any penalty imposed by a
taxing authority, nor may any user/recipient of this document use this document's written tax advice for that purpose. This document's
tax advice was written specifically to support the promotion or marketing of the transaction/matter addressed by the written tax advice.
Therefore, any user/recipient of this document should seek an independent tax professional's advice regarding the user/recipient's
particular circumstances.
The information is provided "as is" with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and
without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for
a particular purpose.
The information in this e-newsletter is for general guidance only, and does not constitute the provision of legal advice, tax advice,
accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used
as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or
taking any action, you should consult a professional advisor who has been provided with all pertinent facts relevant to your particular
situation.
The author of the tax articles in this e-newsletter did not intend nor write the advice to be used to avoid any penalty imposed by a
taxing authority, nor may any user/recipient of this document use this document's written tax advice for that purpose. This document's
tax advice was written specifically to support the promotion or marketing of the transaction/matter addressed by the written tax advice.
Therefore, any user/recipient of this document should seek an independent tax professional's advice regarding the user/recipient's
particular circumstances.
The information is provided "as is" with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and
without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for
a particular purpose.
| Serving the Central Pennsylvania area since 1981 |
| Robert A. Romako, CPA |
| TAX ISSUES TO WATCH IN 2009 |
President-elect Obama faces some difficult challenges to get our economy moving forward. During
his campaign and in the following months, many ideas have been proposed that have tax
implications. This article summarizes some of those proposals. Note that these are all
only proposals at this point, and none are incorporated into the tax law. As the year
progresses, I’ll update you on the status of these and other items.
Tax on high-income individuals. A campaign platform was to increase the tax on the wealthy –
the top 5% of individuals earning more than $250,000 for joint filers, or more than $200,000 for
single filers. This would have the effect of increasing the top tax bracket rates from 33% to 36%,
and from 35% to 39.6%. In light of the declining economy, Obama has indicated he may delay
pushing for the increases until after 2010, since upper-income taxpayers may be in the best
position to fund major business expansion and take risks.
Capital gains tax increases. Closely following the imposition of higher personal tax rates on the
wealthy was the proposal to increase the capital gains tax on this group from 15% to 20% or even
28%. Again, because of the economy, this provision has been put on hold.
Economic stimulus payments. The 2007 stimulus payments were seen as a way to increase
consumer spending, and were proposed again for 2009. However, Congress seems more
enamored with the idea of funding new infrastructure projects as a way to create jobs and
increase personal income. It seems that the chance of a second round of stimulus payments is
remote.
Workers tax credit. Obama has proposed a tax credit for working individuals of $500 for one
person or $1,000 for a working couple. The credit would apply for those with incomes of under
$200,000 to those working, and would come in the form of a payroll tax withholding reduction. This
credit idea is similar to the Economic Stimulus Payment idea, except that it would only be given to
those working. Chances of its passage in some form in 2009 appear good.
Business depreciation expensing. In 2009, the maximum amount of new equipment
expenditures eligible for immediate expensing falls to $133,000, whereas it was temporarily
boosted to $250,000 in 2008 in an attempt to encourage new equipment purchases. It seems
highly possible that the maximum may be raised in 2009, especially with the expected emphasis on
infrastructure construction. In addition, the special 50% bonus deprecation in effect for 2008 may
be extended for one or more years.
Social security taxes. In order to provide additional solvency to the Social Security system,
Obama has floated the idea of a “payroll surtax”, possibly as high as 4%, on wages and self-
employment income above $250,000. This provision would likely only come after an increase in
personal income tax rates, perhaps with a delay of a year or more to avoid impacting that group
with too much at one time.
Elimination of taxes for seniors. A popular campaign promise was to eliminate the personal
income tax for senior citizens making less than $50,000 per year. With the likely delay in imposing
higher taxes on the wealthy, this tax break seems unlikely to occur, mainly because it will further
increase the deficit and provide little economic stimulus.
Alternative minimum tax. The desire by many in Congress to permanently repeal the Alternative
Minimum Tax (AMT) has unfortunately come face to face with economic reality. Since the repeal
would reduce revenue collections, the chance of eliminating the AMT is virtually nil. What we may
hope for, however, is a permanent AMT exemption, which for now has to be voted in on an annual
basis.
Early IRA withdrawals. Obama has proposed allowing early withdrawals from IRA, 401(k), and
other retirement accounts without penalty to help with cash needs during the economic crisis. One
draft would allow individuals to withdraw 15% of their balance, up to $10,000. Presumably, there
would be some definition of hardship to allow for the withdrawal. Chances for this provision being
adopted are hard to determine. It is interesting to note, however, that President Bush approved
suspending the required minimum distributions from IRA accounts for 2009 for those over age 70-
1/2, so relief to allow early distributions may be more palatable.
Energy incentives. Obama has indicated he wants heavy investment in green technology and
alternative energy sources. This will likely translate into additional tax incentives to purchase
energy-saving equipment beyond those already in place.
College tuition. Obama has expressed interest in a $4,000 college tuition tax credit, to replace
both the HOPE and Lifetime learning tax credits.
Estate tax. The estate tax exclusion is $3.5 million in 2009, with a maximum tax rate of 45%. In
2010, the estate tax disappears entirely, but then comes back in 2011 with a $1 million exclusion
and a maximum rate of 55%. It appears very likely that legislation will be passed to impose the
estate tax in 2010 with a $3.5 million exclusion, and then to carry forward this exclusion amount to
later years. Whether the top tax rate will remain at 45%, however, is not as certain.
Employment tax credits. Obama has proposed a new business employment tax credit of $3,000
per new full-time employee hired in 2009 and 2010. Although unemployment is expected to be
high in 2009, it is not known whether our tax system can afford this credit.
Employee health insurance. With the declining economy, less attention has been focused on
Obama’s desire for universal health coverage. His campaign platform coupled tax credits for
employers that do offer employee health care with a payroll tax surtax for those that don’t. This
issue will likely be put on hold for a year or two, but it will be discussed before the end of Obama’s
term.
Other provisions. Many other issues have been floated, including new windfall profits taxes on
oil companies, the tightening of exclusions on foreign income, limitations on the deduction for
executive pay, and additional taxes on companies that move jobs offshore. Since these impact few
of my readers, they have not been discussed as separate items.
Again, all of these ideas are just that at this point – none have been enacted into law. But,
Obama has pledged to move quickly on some of his initiatives. Perhaps the best advice at this
point is to stay nimble – to be able to move quickly to take advantage of new favorable incentives,
and to be ready to make changes to avoid new taxes. Please watch your monthly newsletter
for updates on these issues, as well as special e-mails as legislation is passed.
his campaign and in the following months, many ideas have been proposed that have tax
implications. This article summarizes some of those proposals. Note that these are all
only proposals at this point, and none are incorporated into the tax law. As the year
progresses, I’ll update you on the status of these and other items.
Tax on high-income individuals. A campaign platform was to increase the tax on the wealthy –
the top 5% of individuals earning more than $250,000 for joint filers, or more than $200,000 for
single filers. This would have the effect of increasing the top tax bracket rates from 33% to 36%,
and from 35% to 39.6%. In light of the declining economy, Obama has indicated he may delay
pushing for the increases until after 2010, since upper-income taxpayers may be in the best
position to fund major business expansion and take risks.
Capital gains tax increases. Closely following the imposition of higher personal tax rates on the
wealthy was the proposal to increase the capital gains tax on this group from 15% to 20% or even
28%. Again, because of the economy, this provision has been put on hold.
Economic stimulus payments. The 2007 stimulus payments were seen as a way to increase
consumer spending, and were proposed again for 2009. However, Congress seems more
enamored with the idea of funding new infrastructure projects as a way to create jobs and
increase personal income. It seems that the chance of a second round of stimulus payments is
remote.
Workers tax credit. Obama has proposed a tax credit for working individuals of $500 for one
person or $1,000 for a working couple. The credit would apply for those with incomes of under
$200,000 to those working, and would come in the form of a payroll tax withholding reduction. This
credit idea is similar to the Economic Stimulus Payment idea, except that it would only be given to
those working. Chances of its passage in some form in 2009 appear good.
Business depreciation expensing. In 2009, the maximum amount of new equipment
expenditures eligible for immediate expensing falls to $133,000, whereas it was temporarily
boosted to $250,000 in 2008 in an attempt to encourage new equipment purchases. It seems
highly possible that the maximum may be raised in 2009, especially with the expected emphasis on
infrastructure construction. In addition, the special 50% bonus deprecation in effect for 2008 may
be extended for one or more years.
Social security taxes. In order to provide additional solvency to the Social Security system,
Obama has floated the idea of a “payroll surtax”, possibly as high as 4%, on wages and self-
employment income above $250,000. This provision would likely only come after an increase in
personal income tax rates, perhaps with a delay of a year or more to avoid impacting that group
with too much at one time.
Elimination of taxes for seniors. A popular campaign promise was to eliminate the personal
income tax for senior citizens making less than $50,000 per year. With the likely delay in imposing
higher taxes on the wealthy, this tax break seems unlikely to occur, mainly because it will further
increase the deficit and provide little economic stimulus.
Alternative minimum tax. The desire by many in Congress to permanently repeal the Alternative
Minimum Tax (AMT) has unfortunately come face to face with economic reality. Since the repeal
would reduce revenue collections, the chance of eliminating the AMT is virtually nil. What we may
hope for, however, is a permanent AMT exemption, which for now has to be voted in on an annual
basis.
Early IRA withdrawals. Obama has proposed allowing early withdrawals from IRA, 401(k), and
other retirement accounts without penalty to help with cash needs during the economic crisis. One
draft would allow individuals to withdraw 15% of their balance, up to $10,000. Presumably, there
would be some definition of hardship to allow for the withdrawal. Chances for this provision being
adopted are hard to determine. It is interesting to note, however, that President Bush approved
suspending the required minimum distributions from IRA accounts for 2009 for those over age 70-
1/2, so relief to allow early distributions may be more palatable.
Energy incentives. Obama has indicated he wants heavy investment in green technology and
alternative energy sources. This will likely translate into additional tax incentives to purchase
energy-saving equipment beyond those already in place.
College tuition. Obama has expressed interest in a $4,000 college tuition tax credit, to replace
both the HOPE and Lifetime learning tax credits.
Estate tax. The estate tax exclusion is $3.5 million in 2009, with a maximum tax rate of 45%. In
2010, the estate tax disappears entirely, but then comes back in 2011 with a $1 million exclusion
and a maximum rate of 55%. It appears very likely that legislation will be passed to impose the
estate tax in 2010 with a $3.5 million exclusion, and then to carry forward this exclusion amount to
later years. Whether the top tax rate will remain at 45%, however, is not as certain.
Employment tax credits. Obama has proposed a new business employment tax credit of $3,000
per new full-time employee hired in 2009 and 2010. Although unemployment is expected to be
high in 2009, it is not known whether our tax system can afford this credit.
Employee health insurance. With the declining economy, less attention has been focused on
Obama’s desire for universal health coverage. His campaign platform coupled tax credits for
employers that do offer employee health care with a payroll tax surtax for those that don’t. This
issue will likely be put on hold for a year or two, but it will be discussed before the end of Obama’s
term.
Other provisions. Many other issues have been floated, including new windfall profits taxes on
oil companies, the tightening of exclusions on foreign income, limitations on the deduction for
executive pay, and additional taxes on companies that move jobs offshore. Since these impact few
of my readers, they have not been discussed as separate items.
Again, all of these ideas are just that at this point – none have been enacted into law. But,
Obama has pledged to move quickly on some of his initiatives. Perhaps the best advice at this
point is to stay nimble – to be able to move quickly to take advantage of new favorable incentives,
and to be ready to make changes to avoid new taxes. Please watch your monthly newsletter
for updates on these issues, as well as special e-mails as legislation is passed.
JANUARY 2009
| Robert A. Romako, CPA Phone:717.774.3047 |