What Are Some Of Highlights of the 2009 Tax Law Changes?

There are some very important tax law changes in 2009 that would impact many taxpayers in all income tax brackets. Some of the most significant changes are highlighted below.

1. Change in Personal Exemptions
For 2009, each personal exemption you can claim is worth $3,650, up by $150 from 2008.

2. Change in Standard Deductions
For 2009, the standard deduction for married couples filing a joint return rises to $11,400, up by $500 from 2008. For single filers, the amount increases to $5,700 in 2009, up by $250 over 2008. And heads of household can claim $8,350 in 2009, a jump of $350 from 2008. Also, the Non-itemizers who pay real estate taxes can claim even larger standard deductions. Joint filers can add in up to $1,000 of property taxes paid. Singles can add in up to $500 of real estate tax payments. Non-itemizers can also add any casualty losses that occurred in presidentially declared disaster areas.

3. Change in Tax Rate
Because of the high inflation in 2008, the 10%, 15%, 25%, 28%, 33% and 35% tax brackets all kick in at approximately 5% higher levels of income than in 2008.


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How to Avoid a Tax Audit for Sole Proprietorships

IRS has found that taxpayers with Schedule C filers have been both overstating expenses and understating income. Here are some the areas that have been typically sited as overstating expenses, and the IRS has specially targeted these for audits

1. Taxpayer has included personal telephone and cell phone calls on his or her Schedule C.

2. Taxpayer has included personal home and life insurance as part of business insurance expense on his or her Schedule C.

3. Taxpayer has expensed his or her spouses travel expense even though she was not actively involved in the Schedule C business.

4. Taxpayers deducted non-business related expense (personal non-deductible) on his or her Schedule C.

5. Taxpayer’s Schedule C activity looking more like a hobby than a profit activity, that was generating continuous losses for more than 3-5 years with no prospect of generating a profit in the foreseeable.

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Sole Prop with no income, only expenses in 2010

AskTaxGuru.com Junior Member, mlblake77, asked:

My husband received his contractors license in June 2010 and started a Sole Proprietorship with limit start up from us. In 2010, we spent approximately $6000 on expenses (i.e. general liability ins., advertising, tools & equipment, etc... ) but earned no income until 2011. Are we required file the net loss of $6000 in 2010 or are we able defer the expenses from 2010 to 2011 when first earned income / began officially operating?

Thanks!

Tax Question

AskTaxGuru.com Junior Member, feng, asked:

I am a 21 year old college student (dependent).
My parents invested my college savings in stocks. They have about 30,000 dollars left in shares of Apple (I am a senior at a public university)
They are in the 33% tax bracket.
Edit: I am in California Edit: I do not have a job (doing unpaid internship overseas)

Questions: What happens if they transfer the 28,000 dollars worth of stock into a brokerage account under my own name.

Effectively gifting the shares to me. They have a joint account so I should be safe under 28,000 dollars from gift tax.
The stock gained 7000 dollars so was bought with 21,000 dollars.
If I get the stock, will I have to pay kiddie tax on the 7000 if I do not sell the stock?
Will it benefit me if I keep the stock until I graduate, and get a job to be taxed at my own lower rate?

Thanks in advance!

minimizing impact of taxes

AskTaxGuru.com Junior Member, Anonymoose, asked:

Hello all,

I'm currently a college student who's going to be working in the finance industry after college. My salary will be $100k base + $30-40k in bonus. According to tax bracket references, my federal tax would be 28%, and my state tax will probably be 5%. To be conservative, I'm estimating a 33% tax in total, which would leave me with around 90k post tax.

I've heard of people starting corporations to avoid excessive taxation, as well as investments. I consider myself a skilled investor and I definitely plan on investing some of my income, but I wanted to understand how that would affect my AGI.

For example, if I'm paid biweekly, I think federal and state taxes are directly deducted and I receive the post-tax amount. This means that I can't invest over 90k (roughly) because I'll never have that money, correct? (ignoring living expenses, etc).

Also, could someone explain how I could start a corporation to minimize taxation? I definitely don't want to do anything illegal, but I'd like to retain my income if I can.

Thanks. 

IRS Announces Increased Pension Plan Limitations for 2012 for Individual taxpayers

The Internal Revenue Service announced cost of living adjustments affecting dollar limitations for pension plans and other retirement-related items for Tax Year 2012. Per IRS, "many of the pension plan limitations will change for 2012 because the increase in the cost-of-living index met the statutory thresholds that trigger their adjustment." The major changes outlined by the IRS include the following:

1. The elective deferral (contribution) limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased from $16,500 to $17,000.

2. Unfortunately, the catch-up contribution limit for those aged 50 and over remains unchanged at $5,500.

3. The deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are covered by a workplace retirement plan and have modified adjusted gross incomes (AGI) between $58,000 and $68,000, up from $56,000 and $66,000 in 2011. For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range is $92,000 to $112,000, up from $90,000 to $110,000. For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $173,000 and $183,000, up from $169,000 and $179,000.

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IRS announces several "Tax Benefits Increase Due to Inflation Adjustments for the tax year 2012."

Per the IRS, "for tax year 2012, personal exemptions and standard deductions will rise and tax brackets will widen due to inflation."

Due to the existing Tax Law, "the dollar amounts for a variety of tax provisions, affecting virtually every taxpayer, must be revised each year to keep pace with inflation." Thus, the New dollar amounts affecting 2012 returns, filed by most taxpayers in early 2013, include the following:

The value of each personal and dependent exemption, available to most taxpayers, is $3,800, up $100 from 2011.

The new standard deduction is $11,900 for married couples filing a joint return, up $300, $5,950 for singles and married individuals filing separately, up $150, and $8,700 for heads of household, up $200. Nearly two out of three taxpayers take the standard deduction, rather than itemizing deductions, such as mortgage interest, charitable contributions and state and local taxes.

Tax-bracket thresholds increase for each filing status. For a married couple filing a joint return, for example, the taxable-income threshold separating the 15-percent bracket from the 25-percent bracket is $70,700, up from $69,000 in 2011.

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