Strack Alerte

Summary of the 2009 Stimulus Package

Tax breaks apply mainly to 2009 — no need to delay 2008 income tax filing. As more details about the tax changes become available, Strack Associates will post them here.

Most taxpayers will get more money in their pockets in 2009. The new recovery act, according to the White House, will give a direct tax break to 95 percent of workers and their families, through the Making Work Pay Credit.

The law contains many other tax breaks that should provide a financial boost to everyone from the unemployed and low income, to families with children and children in college, to first-time homebuyers and taxpayers buying new cars.
The $787 billion legislation, which Congress approved Feb. 13, is designed to get both individuals and businesses to open their wallets and to lift the economy out of its slump. Most of the cuts are good for only a year or two.

Tax breaks for individuals, families:

Workers

Making Work Pay Credit: Workers and the self-employed would get a payroll tax credit for 2009 and 2010 of up to $400 a year for single taxpayers, and up to $800 for couples filing jointly.

The IRS will get the money to taxpayers by adjusting the withholding tables, thereby boosting paychecks. The increase could be as much as $40 per month per worker, depending on when the withholding tables are changed. Self-employed workers will claim the credit on their tax returns. In the meantime, they can reduce their estimated tax payments for 2009.

For single tax filers, the credit will begin phasing out at an Adjusted Gross Income (AGI) of $75,000. For couples filing jointly, the phaseout zone will start at $150,000 of AGI. (Adjusted Gross Income is your total income from wages and other income minus certain adjustments, such as deductible IRA contributions and alimony paid.)

Unemployed

Reduced taxes on unemployment income: Normally, people receiving unemployment benefits must report them as income and can be taxed on them. The new bill makes the first $2,400 of unemployment income nontaxable.

First-time homebuyers

First-time Homebuyer’s Credit:

The tax package increases the $7,500 first-time homebuyer credit to $8,000 for primary residences purchased between Jan. 1, 2009 and Nov. 30, 2009, and eliminates the requirement that the credit be repaid, as long as the house isn’t sold within three years.
College students

Expanded Hope Credit:

The Hope Credit for college costs is increased to $2,500 for 2009 and 2010, covering 100 percent of the first $2,000 of tuition and related expenses per year and 25 percent of the next $2,000. The credit is available for all four years of college, up from only two years, and covers the cost of books. It is 40 percent refundable, and begins to phase out at $80,000 of Adjusted Gross Income for singles and $160,000 of Adjusted Gross Income for married couples.

The bill also allows tax-free distributions from Section 529 College Savings Plans to cover computer purchases.

New car buyers

New car sales tax deduction: Buyers of new cars, light trucks, SUVs, motorcycles or motor homes during 2009, can deduct the state sales or excise tax they pay, even if they don’t itemize their deductions.

This break starts phasing out for single taxpayers with Adjusted Gross Income over $125,000 and couples with AGI over $250,000.

Tax Breaks for Families

Expanded Earned Income Tax Credit (EITC):

More couples who file jointly and have children will qualify for the Earned Income Credit.

The tax package starts the phaseout range at $21,420, an increase of $1,880. Also in 2009, the credit increases for families with three or more children to 45 percent of the first $12,570 of earned income, up from 40 percent.

Enhanced Child Tax Credit:

Plus, the Child Tax Credit will cover more low-income earners: For 2008, the credit is refundable to the extent of 15 percent of an individual’s earned income in excess of $8,500; for 2009 and 2010, that floor drops to $3,000.
Retirees, veterans and the disabled

One-time payment of $250: Because the payroll tax credit only goes to employees and the self-employed, the bill adds something for others as well: a one-time payment of $250 to recipients of Social Security benefits, Railroad Retirement benefits, Supplemental Security Income payments, and pension and disability benefits from the Veterans Administration.

Government retirees who don’t get Social Security will also get a one-time refundable tax credit of $250 in 2009.

Homeowners

Extended energy-saving credits: The 10 percent tax credit for energy-saving home improvements climbs to 30 percent and is extended through 2010. Improvements that qualify for the credit include energy-efficient skylights, windows and outer doors, along with energy-saving water heaters, central air conditioners and biomass stoves.

The bill also eliminates individual credit caps for the different types of property, and instead imposes a $1,500 cap on all qualifying property.
Middle-income taxpayers

One-year “patch” on the Alternative Minimum Tax: To keep millions of middle-income taxpayers from being forced to pay the Alternative Minimum Tax (AMT) for 2009, the measure increases the minimum tax exemptions to $70,950 for couples filing jointly and $46,700 for single filers. Otherwise, the exemptions would top out at just $45,000 for couples and $33,750 for singles.

Businesses will get a big share of the tax breaks

Small businesses would most likely be affected by the following changes:

Bonus depreciation.

Special 50 percent, first-year bonus depreciation is revived for assets bought and placed in service during 2009.

Loss Carry Backs

Businesses that averaged $15 million or less in gross receipts over the past three years will be allowed to carry back losses for five years instead of two. The easing applies only to 2008 losses

Here’s a look at many of the spending programs and tax cuts included in the stimulus legislation.

Healthcare

•87 billion for Medicaid health care coverage for the poor.

•$19 billion to accelerate the use of health information technology systems.

Education

•$53.6 billion in direct aid to states, including $40.6 billion for local school districts, $5 billion in bonus grants for meeting key education performance measures and $8 billion for public safety and other critical services.

•$2,500 annual tax credit for higher education expenses.

•$500 increase in the maximum Pell Grant for low-income college students to $5,350 in 2009 and $5,550 in 2010.

•$13 billion for Title I grants for schools in low-income areas.

•$12.2 billion for special education.

•$2 billion for the Child Care Development Block Grant program to help

low-income parents.

•$1.1 billion for Early Head Start and $1 billion for Head Start.

Infrastructure

•$29 billion to modernize roads and bridges.

•$18 billion for clean water, flood control and environmental restoration.

•$8.4 billion for transit.

•$8 billion for high-speed rail.

•$5 billion to upgrade Defense Department facilities, including housing

•$4.5 billion to make federal buildings more energy-efficient.

Tax cuts

•”Making Work Pay” tax credit of $400 for single filers and $800 for couples. The credit would begin phasing out at $75,000 of income for single filers and $150,000 for couples.

•Allow low-income families earning as little as $3,000 to qualify for the child tax credit.

•Expands the Earned Income Tax Credit for families with three or more children and increases marriage penalty relief.

•Exempts 24 million taxpayers, for another year, from the Alternative Minimum Tax.

•Revises the $7,500 tax credit for first-time homebuyers by removing repayment requirement.

•Exempts from federal taxes the state and local sales taxes paid on the purchase of cars, light trucks and SUVs.

•Temporarily exempts some unemployment benefits from income taxes.

Unemployed

•Continues through December 2009 the program that provides up to 33 weeks of extended unemployment benefits.

•$25 increase in weekly unemployment benefits.

•A 60 percent federal subsidy for up to nine months for the cost of continuing an employer’s health care coverage after a layoff under COBRA.

Food

•Increase monthly food stamp benefits by more than 13 percent.

•$100 million for emergency food and shelter to help community groups.

Workers

•$4 billion for job training.

•$2 billion for the Neighborhood Stabilization Program to help communities buy and fix up foreclosed, vacant properties.

•$1.5 billion for the Emergency Shelter Grant program to provide short-term rental assistance and other aid.

•Payment of $250 to Social Security and disability recipients and veterans receiving disability compensation and pension benefits from the Department of Veterans Affairs.

•Extends Trade Adjustment Assistance benefits in the next two years for at least 160,000 new workers who lose jobs due to increased imports or factory shifts to certain foreign countries.

Energy

•$30 billion for a smart power grid, advanced battery technology and other energy-efficiency measures.

•$20 billion in tax incentives for renewable energy and energy efficiency over the next 10 years.

•$6.3 billion for energy efficiency in multifamily housing getting federal assistance, such as HUD-sponsored low-income housing.

•$5 billion to weatherize more than 1 million homes owned by “modest-income” families.

Science

•$8.5 billion for programs at the National Institutes of Health, including biomedical research on Alzheimer’s, Parkinson’s, cancer and heart disease.

•$3 billion for basic research by the National Science Foundation.

•$1.6 billion for the Department of Energy’s Office of Science for areas such as climate, biofuels, high-energy physics, nuclear physics and fusion energy.

•$1.5 billion for NIH to renovate university research facilities.

•$1 billion for NASA, including $400 million for climate change research.

Broadband

•$7 billion to expand broadband services to underserved communities.

Many investors will receive their year-end tax statements later than in past years, but these forms are likely to be more accurate, according to the Internal Revenue Service.

A new law, enacted last fall, changed the deadline from Jan. 31 to Feb. 15, when brokers, including brokerage firms, mutual fund companies and barter exchanges, must furnish year-end Forms 1099-B to their customers. Where a broker furnishes these forms by mail, this means that the forms must be mailed, not received by that date.

Because Feb. 15 falls on Sunday in 2009, and Monday, Feb. 16 is a federal holiday, the deadline is Feb. 17 this year. In addition, the IRS said earlier this month that for calendar-year 2008 reporting, the Feb. 17 deadline also applies to other tax information that brokers report to their customers, including such items as interest and dividends, on a combined year-end statement.

This change is designed to make it easier for brokers to provide investors with accurate year-end statements on stock sales and other transactions. Inaccurate year-end statements that have to be corrected later often force investors to file amended individual returns.

In its 2006 annual report, the Information Returns Program Advisory Committee (IRPAC) recommended changing this deadline from Jan. 31 to Feb. 15. The report noted that, “Form 1099 reporting has become very complex over recent years. As a result, many broker dealers are currently experiencing 20% amended Forms 1099. There is insufficient time to make the necessary changes in January, verify the data, print the forms and mail them by Jan. 31.” IRPAC is a federal advisory committee that advises the IRS on issues related to information returns, such as Forms 1099.

The long-standing Jan. 31 deadline for providing other year-end forms remains unchanged. However, because Jan. 31 falls on Saturday, employers, banks and other businesses have until Monday, Feb. 2 to mail or otherwise make available various 2008 year-end tax statements. This includes forms in the W-2, 1098 and 1099 series.

Taxpayers can make the tax-filing process faster and easier and often avoid follow-up correspondence with the IRS by carefully reviewing all year-end statements. Make sure all social security numbers are correct, check income and withholding amounts and contact the issuer promptly, if any mistakes are found.

New York Times via NewsEdge :

BOB SEIWERT, the senior vice president for the Center for Commercial Lending and Business Banking at the American Bankers Association, a trade group in Washington, urges small-business owners to start meeting with bankers before they need a new loan or credit line. Mr. Seiwert spoke in a recent interview about the challenges facing small-business owners seeking business loans.

Before joining the bankers’ association, Mr. Seiwert worked for 30 years as a commercial banker — more than half of that with the Banc One Corporation. Among other roles, he was the chairman and chief executive of one of Banc One’s separately chartered community banks, based in Wooster, Ohio. Here are excerpts from an interview:

Q.What is your top piece of advice for small-business owners who are worried about their ability to continue financing their company in this credit environment?

A. You may have a great relationship with your bank, but you should always have a backup relationship. That is really critical in today’s environment. You should visit a number of financial institutions and get a feel for which ones are seeking business like yours. Many banks offer small-business loans, but they don’t specialize in them. And some banks only specialize in small-business loans to certain industries. So ask the bankers if they would be open to extending credit to your business, and if so, under what terms. You may find that the loan window is open for you, and you may find that it’s not.

Q. How much weight do bankers give to a small-business owner’s individual credit history — or FICO score — the credit score created by the Fair Isaac Corporation, which has so much influence over what consumers pay for credit cards and home loans?

A. For very small loans — $10,000 to $30,000, for example — banks automate the process. Every bank has its own credit scoring model, but FICO scores are a part of that model. If you have a FICO score below 700, you’re going to have a hard time getting a small-business loan. Standards have tightened recently, so I assure you the baseline is higher than 700 now. For small-business loans in excess of that, the banker is really trying to determine the character of the borrower. Checking the past payment history with the credit bureaus is a part of that. But it’s more involved. What he is asking himself is, ‘’If your business gets into trouble, will you work with me to repay the loan? Or are you going to look for ways to get out of paying me?'’ If you flunk the character test, it’s all over.

Q. Once a banker has extended a small-business loan, what are some of the red flags that he is watching for, especially in a recession like this when so many small businesses are hurting?

A. As a banker, I always knew that if I didn’t get the company’s financial statements on time, it probably wasn’t a good sign. People were always quick to give me good news. Make sure you share all the news with your banker: the good, the bad and the ugly. Bankers don’t like surprises. That’s not how you build trust. And don’t kid yourself. That banker sees a lot of businesses in your line of work. He banks a lot of your competitors and reads the national statistics. You will get a lot of points with your banker if you demonstrate that you understand the risks of your business in this economy.

Q. If a small-business owner has an open credit line with a bank that she has not tapped out, should she be worried that the bank might slice into the unused portion of her credit line?

A. There are two types of credit line. If you have a contractual line of credit, the bank is obligated to maintain that. There is usually an upfront fee because, in essence, the bank is reserving those funds for you. But you may have gotten a letter from the bank giving you a guidance line of credit, and the bank is not obligated to maintain that. The key words to look for in a guidance letter are ‘’terms that are mutually agreeable to both parties,'’ and ‘’subject to review from time to time.'’ This is essentially a feel-good line of credit. If you got one of those letters a year or so ago, you should talk to your banker and ask him point blank if this money is there for you if you need it tomorrow. If you’re not comfortable with your banker’s answer, shop around.

Q. Given the severity of the credit crisis, what are some of the forthright questions that borrowers should be asking about the financial health of their bank?

A. Not all banks are equally affected by this credit crisis. Banks that rely mostly on local sources of funding — like checking accounts, savings accounts and local C.D.’s — are not as affected as banks that rely on what I call ‘’hot money.'’ The other aspect of this is that if your bank lent to certain industries that have been hard hit, it may have to ratchet up its lending standards. Those banks that specialized in construction and development loans, for example, are really hurting today. But the important thing to understand is that there are 8,000 banks in this country, and most of them are well capitalized and open for business.

Generally speaking, your estate plan should be reviewed every two years to determine whether it needs to be changed or updated.

Additionally, if any of the following events occur, you’ll probably need to update your estate plan (i.e., your will, health care documents, powers of attorney, life insurance coverage, and post-mortem letters). Tip: I suggest that you consult with the professional who prepared your estate plan should any of these events occur.

1. Divorce

2. Marriage or remarriage

3. Birth/adoption of child

4. Death of spouse or child

5. Sale of residence or purchase of new residence

6. Retirement

7. Enactment of new tax laws

Here are some of the steps you may need to take: Tip: Because of the recent changes to the estate tax laws, many estate plans may need to be revised.

1. Change an executor,

2. Revise a will to account for an increase in assets,

3. Reassess your life insurance needs,

4. Add or change a power of attorney,

5. Change legal documents to comport with state laws if you move to a
different state,

6. Change wills or trust instruments to account for changes in beneficiaries,

7. Change your post-mortem letter to reflect new assets, changes in executors, or other changes.