Over the next 3 months the current trickle of new tax laws should turn into a torrent. While the current health care bill is receiving every ones attention, a tax bill has been proceeding through Congress. Among tax changes in place for 2009 and 2010 are the following:

 

 

In the September 16th version of a bill "Americas Health Future Act of 2009" there is wording which would cause great hardship on American citizens living outside the US.  The wording would leave Americans overseas exposed to paying an excise tax up to $1,900 regardless of whether they carry health insurance via overseas health providers.  The purpose of the proposed excise tax is to encourage all Americans who benefit from the US health program to participate in its financing.  Americans residing overseas can not benefit from the US health system so for them the excise tax is just that -- a tax with no counter-part service.  Currently the maximum excise tax per family for non-participation is $1,900.

 

An organization, American Citizens Abroad, who brought this excise tax to our attention, is requesting that all expatriates write or fax their Senators in support of a change in legislative language to the bill "Americas Health Future Act of 2009."

First Time Homebuyer Credit

 

The $8,000 tax credit for first time homeowners is due to expire on November 30, 2009. The credit is applicable to homes used as a taxpayer’s principal residence. It is expected that this credit will be extended for a few months for purchasers who have signed a contract by November 30 but have not yet closed. It is doubtful that Congress will expand the credit to taxpayers who are not first time buyers or increase the credit to a higher amount.

 

 

Taxpayers can take a sales tax deduction for state and local sales taxes on the purchase of new cars, motorcycles, motor homes and light trucks on new vehicles purchased from Feb. 17 to December 31, 2009. This deduction is available even if the taxpayer does not itemize deductions on Schedule A. Te deduction is limited to the sales tax on $49,500 and the deduction phases out for single taxpayers with adjusted gross income in excess of $125,000 and married filing jointly with adjusted gross income in excess of $250,000.

 

 

For 2009 and 2010 the Hope Tax Credit that was previously $1,800 has been increased to $2,400. Also, course materials have been added to the list of qualifying expenses which should allow more taxpayers to claim the higher credit.  The full credit is only available to single individuals with adjusted gross income less than $80,000 and married filing joint with adjusted gross income less than $160,000.

 

 

More families should be eligible for the child tax credit in 2009 as a result of a decrease in the amount of minimum income needed to qualify for the credit. In 2008 you needed to have a minimum income of $12,550 to qualify for the credit. In 2009 you will only need a minimum income of $3,000 to qualify for the credit.

 

 

Unemployment benefits have been historically treated as taxable income. In 2009 the first $2,400 of employment benefits receives are tax free.

 

 

The new law increases the credit to 30% of the cost of all qualifying improvements to a maximum credit of $1,500. Taxpayers can rely on the manufacturer’s certification as to whether the product qualifies for the credit. The taxpayer must maintain such certification in their records. Given that we have seen advertisements that buying energy efficient light bulbs qualify for the credit, we can envision taxpayers spending significant time sorting through small purchases in an effort to claim this credit. And who keeps the box that the light bulbs come in as a tax receipt?

 

 

For 2009 the IRS suspended the law requiring individuals from having to take mandatory distributions from IRA’s. As it has become apparent that many individuals were unaware of the suspension the IRS is giving individuals a second chance to return payouts from their IRA. If distributions from an IRA taken before October 1 are paid back before November 30, 2009 the distribution need not be included in taxable income in 2009.

 

Congress has indicated that it will not waive the mandatory payouts for 2010.

 

 

It is doubtful that Congress will not take up legislation dealing with the estate tax in 2009. It is expected that the current $3,500,000 exemption and 45% tax rate wills simply be extended for one more year.

 

 

It seems likely that the IRS will begin regulating unlicensed tax return preparers by 2010. Unlicensed preparers will likely have to pass a test before they can register with the IRS, pay an annual fee, renew their registration periodically, and be required to take continuing professional education.