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
· 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; firstname.lastname@example.org.
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
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 (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
· 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
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
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.
Buchanan Law Group
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