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Buchanan Law Group January 7, 2009


Happy New Year! As promised, here is installment #2 of BLG's tax and legal updates for 2009, nicknamed the "2009 Cheat Sheet." We hope you find it useful to have in one place many of the various new thresholds and limits which apply in various contexts. We have not included all such state and federal thresholds and limits, but we believe we have captured most of the items with respect to which you'll be saying to a colleague or friend: "Now, what was that number again?" The changes in law addressed in this Law Note affect the following: - Estate and Gift Tax Planning - Retirement Plan, Qualified Plan, and HSA Limits - Certain Deductions and Credits - Expatriates and Foreign Spouses - Social Security and Medicare - Mileage Rates for Reimbursement - Employee Transportation-Related Benefits - Employment Benefit Changes - Conforming Mortgages
Estate and Gift Tax Planning Unified Credit (Applicable Exclusion Amount): Under prior law, the same unified credit amount applied to both the gift tax and the estate tax. Under current law, however, the unified credit against taxable gifts will remain at $345,800 (exempting $1 million from tax) indefinitely, while the unified credit against estate tax increases until 2009. For estate tax purposes, the Applicable Exclusion Amount for 2009 will be $3,500,000 (reflected in the $1,455,800 Unified Credit against estate tax). Annual Gift Tax Exclusion: The gift tax is integrated with the estate tax under a "unified" rate schedule that imposes a single tax on transfers during life and at death. The annual gift tax exclusion for 2009 is $13,000 (so will not be subject to tax, or a gift tax return filing obligation). Retirement Plan, Qualified Plan, and HSA Limits Retirement/Qualified Plan Limits: The following retirement/qualified plan annual contribution limits apply for tax year 2009: · Traditional IRA Contribution Limit: $5,000 (age 49 & below) or $6,000 (age 50 & above). · Roth IRA Phase-out Range & Limits: $105,000 - $120,000 (for singles); $166,000 - $176,000 (for married filing jointly). · 401(k) Limits: $16,500 (age 49 & below) or $22,000 (age 50 & above). · Defined Contribution Plans, Basic Limits: $49,000 maximum dollar allocation, and $245,000 maximum considered compensation. The maximum amount that can be contributed to a defined contribution plan is 25% of an employee's compensation, which is capped at the indicated maximum compensation cap. · Simple IRA Limits: $11,500 (age 49 & below) or $14,000 (age 50 & above). · SEP IRA: $49,000 maximum dollar allocation, and $245,000 maximum considered compensation. The maximum amount that can be contributed to a simplified employee pension (SEP) plan is 25% of an employee's compensation, which is capped at the indicated maximum compensation cap. HSA Contributions: The maximum annual HSA deductible contribution limit in 2009 for self-only coverage is $3,000, and $5,950 for family coverage. The maximum HSA contribution is increased by an additional catch-up contribution amount (computed on a monthly basis) for individuals age 55 or older as of the last day of the calendar year who are not enrolled in Medicare. The catch-up contribution amount is $1,000 for 2009 and after. Certain Deductions and Credits Section 179 Property: Certain taxpayers can elect to expense (deduct in lieu of depreciation) the cost of "Section 179 Property" (i.e., most depreciable property other than buildings and other land improvements (with certain exceptions and limitations)). For tax years beginning after 2008 and before 2011, the maximum amount is $125,000, inflation-adjusted for tax years beginning after 2008. The maximum amount is $133,000 for tax years beginning in 2009. For tax years beginning after 2010, the maximum amount is $25,000. The maximum annual expensing amount generally is reduced dollar-for-dollar by the amount of section 179 property placed in service during the tax year in excess of $500,000. The inflation adjusted investment ceiling limit for tax years beginning with 2009 is $530,000, and for tax years beginning after 2010, the investment ceiling limit drops to $200,000. For more information on Section 179, contact Charles R. Sterck of Sterck Kulik O'Neill accounting group - (415) 433-4500 Ext.204; csterck@skocpa.com. New Plug-In Electric Drive Vehicle Credit: For tax years beginning with 2009, a taxpayer can claim a credit for new qualified plug-in electric drive motor vehicles purchased before 2015. Subject to a limit based on weight, the amount of the credit is the sum of: (1) $2,500; plus (2) $417 for each kilowatt hour of traction battery capacity in excess of 6 kilowatt hours. First-Time Homebuyer Credit:For qualifying home purchases in the U.S. after April 8, 2008 and before July 1, 2009, certain first-time homebuyers can claim a refundable tax credit equal to the lesser of 10% of the purchase price of a principal residence or $7,500 ($3,750 for married individuals filing separately). The tax credit works like an interest-free loan and must generally be repaid over a 15-year period. Expatriates & Foreign Spouses Tax Cost of Expatriation: The Heroes Earnings Assistance And Relief Tax Act Of 2008 added Code Section 877A to the Internal Revenue Code. Generally, a U.S. citizen who gives up U.S. citizenship can be subject to a mark-to-market rule under which his or her property is deemed to be sold on the day before the expatriation, and is taxed on the gain above a $600,000 threshold amount (cost-of-living indexed for 2009). An election is available to defer the tax, at the cost of an interest charge. Gifts from Expatriates: For certain "covered gifts or bequests" received after June 16, 2008, a special transfer tax is imposed on any U.S. citizen or resident who receives a "covered gift or bequest" from a "covered expatriate." The tax generally applies to any covered gift or bequest valued in excess of the annual exclusion amount in effect for gift tax purposes in the year of the transfer ($13,000 in 2008). Foreign Spouses:Only up to $133,000 may be transferred to a noncitizen spouse free of gift tax for 2009. For more information on these items, contact Thomas J. Spott of Spott, Lucey & Wall, Inc. CPA's - (415) 217-6901. Social Security and Medicare A 7.65% FICA (Social Security and Medicare) tax for employers and employees is imposed: the 6.20% Social Security tax plus the 1.45% Medicare tax. For 2009 the 6.20% Social Security tax is computed on the first $106,800 of the employee's wages. Thus, the maximum Social Security tax for 2009 is $6,621.60 (6.20% of $106,800). The 1.45% Medicare tax is computed on the employee's total wages (no ceiling). Mileage Rates Mileage Rates (Business Use): For 2009, the standard mileage rate for the cost of operating your car for business use is 55 cents per mile. Car expenses and use of the standard mileage rate are explained in chapter 4 of Publication 463, Travel, Entertainment, Gift, and Car Expenses. Mileage Rates (Medical & Move-Related Mileage): For 2009, the standard mileage rate for the cost of operating your car for medical reasons or as part of a deductible move is 24 cents per mile. Mileage Rates (Charitable Use): For 2009, the standard mileage rate for the cost of operating your car for charitable purposes remains 14 cents per mile. Employee Transportation-Related Benefits Parking Reimbursement: For 2009, up to $230 a month of qualified parking may be excluded from an employee's income. Transit Passes & Vanpools: For 2009, up to $120 a month of the combined value of transit passes and vanpools may be excluded from an employee's income. Bicycle Commuting: For 2009, up to $240 a year of qualified bicycle commuting reimbursement may be excluded. San Francisco Commuter Benefits: Beginning December 20, 2008, San Francisco employers with 20 or more employees are required to provide commuter benefits to employees who work at least 10 hours per workweek within the geographic boundaries of San Francisco. This includes offering employees at least one of the following transportation benefits: · A pre-tax election of a maximum of $110 per month; · An employer-provided transportation pass (or reimbursement for one) equal in value to $45 (or more) per month; or · Employer provided transportation at no cost to employees Employment Minimum Pay for Exempt Computer Professionals: Starting in 2009, Labor Code Section 515.5 was amended to allow payment to computer professionals as a monthly or annual salary. Before this change, computer professionals had to earn a minimum hourly rate, set by the Division of Labor Statistics and Research (DLSR) annually. The hourly rate for 2009 is increased from $36.00 to $37.94. For 2009, the minimum monthly salary exemption is $6,587.50, and the minimum annual salary exemption is $79,050.00. Minimum Wage Increase:San Francisco's minimum wage increases from $9.36 to $9.79 beginning in 2009. As a comparison, California's general state minimum wage remains at $8.00, and the federal minimum wage is currently $6.55 per hour, rising to $7.25 per hour effective July 24, 2009. HCSO (Healthy San Francisco) Increases: Beginning in 2009, employers with 100 or more employees must increase their contribution to the HCSO program from $1.76 to $1.85 per hour. Employers with 20 or more but less than 100 employees must increase their contribution from $1.17 to $1.23 per hour. Foreign Earned Income: The foreign earned income exclusion limit for individuals in 2009 is $91,400. Nanny Tax: Noncash payments for domestic services in an employer's private home are excluded from FICA wages. Cash remuneration paid by an employer for domestic service in the employer's private home isn't FICA wages if the cash remuneration paid during the year is less than the "applicable dollar threshold", which is $1,700 in 2009. Mortgages Jumbo Conforming Mortgages: In 2009 the conforming loan limits have been increased. In high-cost areas loan limits have gone from $417,000 to as high as $625,500. The new loan limits are calculated by taking 125% of the area median home price. These new loans are known as high-cost mortgages, jumbo conforming mortgages or conforming jumbo mortgages. (The conforming loan limit is the maximum size of loans that Fannie Mae and Freddie Mac can purchase in 2009.)
The above constitutes just a summary of a selection of the many changes in California and Federal law affecting tax thresholds and limits. We don't pretend to cover all such thresholds, limits or tax items. If you would like more information about a certain change, or would like information on other changes in law not addressed in this Law Note, please do not hesitate to call us. Sincerely,
Robert Buchanan Buchanan Law Group
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