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Tax Credit for Hiring New Employees!

Feb 6

Posted by Christopher in ECONOMY, SMALL BUSINESS, TAX CREDITS, TAXES

President Obama has proposed a temporary tax credit to Congress that will encourage businesses to hire new employees.  The newly proposed Small Business Jobs and Wages Tax Credit would provide businesses with:

  1. A $5,000 tax credit for each new employee hired in 2010!  For example, if a business hires four new employees during 2010 the business would receive $20,000 in tax credits at the end of the year.  However, this credit will be capped at $500,000 per business to ensure that most of the benefit from this credit goes to small businesses!
  2. A reimbursement will be given to businesses for the Social Security payroll taxes that would be paid on real increases in a business’s payroll.  Increases on a business’s payroll would include: raising employee’s wages, expanding employee hours, or hiring of new employees.  The reimbursement would only apply to Social Security payrolls, therefore the reimbursement would not apply to wage increases over the current taxable maximum of $106,800.  Here is an example of how the reimbursement would work:  A business increases all 50 of its employee’s wages by $1,000 in 2010, costing the business $50,000.  Of the $50,000, $3,100 (or 6.2% of $50,000) will be reimbursed to the business to cover the Social Security payroll taxes on those increases that the business would normally have to pay.
  3. Lastly, firms will be able to claim the credit on a quarterly basis!  This will help businesses receive the money faster, plus it will give businesses an early incentive to hire and increase payrolls.

Businesses will not be allowed to cheat the credit either! Businesses will not be allowed to fire current employees and replace them with new ones just to receive the credits benefits.  For example: a company cannot fire 10 employees and hire 10 new employees.  Another example: a business that fires 10 employees making $50,000 each and hires 20 employees making $25,000 each will not receive benefits from this credit either.  There is no way to cheat the system!  The whole objective is for businesses to increase the number of employees, not fire old ones and replace them! Quarterly payroll tax returns serve as an audit point.

This straightforward tax credit, if approved by Congress, will mostly benefit small businesses and hopefully provide a spark for businesses to get the incentive to hire new employees again!

Maco & Associates will update you as soon as word comes out about the approval or rejection of this tax credit by Congress. STAY TUNED!

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Spot and Fluffy: the Next Deduction for Your Family

Feb 4

Posted by Hannah in CREDIT, TAX CREDITS, TAXES

Instead of my dog ate my homework, perhaps your dog can help eat your tax return? and some of the dues associated with it? A new proposal called the H.A.P.P.Y Act, (the Humanity and Pets Partnered Through the Years Act) might just give pet owners one more helpful deduction on their taxes.  The idea is to give pet owners a tax deduction of $3,5oo a year on “qualified pet care expenses”, this would include food and vet bills.  The deductions would be based on a percent of costs and vary for tax brackets.

Benefits could possibly mean more families will adopt animals from shelters or that families who already have pets can continue to provide them with the best care.

The H.A.P.P.Y act has just been presented to the U.S House of Representatives, we will just have to wait and see what the verdict is!

In the meantime, might want to save any vet bills!

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HAITI CONTRIBUTIONS IN 2010 ARE DEDUCTIBLE FOR 2009 TAX RETURNS!

Jan 24

Posted by Teri in CONTRIBUTIONS, TAXES

Your generosity knows no bounds, and your heart breaks for the victims of the Haiti Earthquakes. You are not alone, and the government is allowing you immediate relief for your generosity!  On Fri, January 22, 2010, President Obama signed into law a measure allowing contributions made for the victims of the Haiti Earthquake to be tax deductible on their 2009 tax returns.

The measure sped through Congress, receiving final approval Thursday.

Under current law, donors would have to wait until they file their 2010 returns next year to take the deductions. The bill would allow donations made by the end of February to be deducted from 2009 returns.

For the nuts and bolts of this legislation you can visit the IRS website.

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Uncle Sam’s Deal of the Decade!Roth IRA Conversions!

Jan 8

Posted by Christopher in RETIREMENT PLANNING, ROTH IRA, SAVING MONEY!

It is 2010, and for people who have a traditional IRA (Individual Retirement Account) this is your lucky year; Uncle Sam is offering the deal of the decade!  Starting January 1, 2010 traditional IRA holders will have the opportunity to move money, without restriction, to a Roth IRA where money can grow TAX FREE (until you withdraw it!)

Essentially a Roth and traditional IRA are meant to do the same thing; provide people with a place to save money for retirement.  However that is about the only thing they have in common.  There are many differences between the two, but income restrictions are the most important to consider during 2010 because the changes the restrictions will undergo.  Investing in a traditional IRA’s has no income restriction; a person can make as much money as he or she wants and can open up a traditional IRA.  For Roth IRA’s there are restrictions: individuals who have an AGI (Adjusted Gross Income) that exceeds $120,000 and couples that have an AGI exceeding $176,000 are restricted from opening a Roth IRA.  Also, individuals with an AGI of more than $100,000 and married couples filing separate returns cannot move assets from their traditional IRA to a Roth IRA.

In 2010 the income restrictions for individuals and couples will remain the same, but Uncle Sam is permanently (well, as permanent as any tax code item is!) eliminating the income and filing status restrictions on transferring money from a traditional IRA to a Roth IRA.  Basically, starting January 1, 2010, individuals with an AGI of more than $100,000 and married couples filing separate returns WILL NOW be allowed to move their money from a traditional IRA to a Roth IRA. What a deal!  Here’s why:

  1. Withdrawals from a Roth IRA are tax free for 5 years after the transfer, or after the individual turns 59 ½ years of age, (whatever comes first) is thed time frame when withdrawing money without a penalty can occur.  Traditional IRA withdrawals are not tax free; every withdrawal made is taxed.
  2. A Roth IRA has NO required withdrawals, which allows a persons’ money to grow tax free without being touched.  With a traditional IRA withdrawals are mandatory after the age of 70 ½ years old, and people have to pay taxes on those withdrawals.
  3. Another advantage a Roth has over a traditional IRA occurs when leaving accounts to a heir.  Whether it is a traditional or Roth IRA the heir must make annual withdrawals from the account that is given to them.  The advantage that Roth has over the traditional IRA is that although money has to be withdrawn annually, no income tax has to be paid on the withdrawals.

Unfortunately, this is not as simple as moving money from one account to another and that’s it; there is a cost to converting the money: an “income-tax bill.”  Every time money is withdrawn from a traditional IRA, income-tax must be paid on the withdrawal.  Essentially, when moving money from a traditional IRA to a Roth IRA a person has to pay income tax on the conversion.  To help determine the amount of tax that will be on the money conversion, use the Roth conversion calculator provided here: Roth IRA conversion calculator!

Although there is a cost to converting, Uncle Sam has a special offer for people who do choose to convert their money in 2010!  Those who choose to convert their money in 2010 will have the option to put the amount converted on their 2010 tax return, OR have it spread out equally among their 2011 and 2012 returns.  So, instead of paying income tax on the whole conversion amount in one year, a person has the option of spreading the payment out to two years.   Due to the risk of Congress increasing tax rates, it may be beneficial to put the conversion amount on the 2010 tax return to avoid possibly paying higher taxes on the amount in 2011 or 2012.

There are a myriad of other reasons one may wish to convert than those listed above. If the value of a traditional IRA has fallen, the tax on the conversion of a lower asset base may make this attractive if an investor wishes to reinvest in the same securities. Discuss the particulars with your Financial Advisor before making any transfer of assets to a Roth, but 2010 is the year to do it if you choose to take advantage of this new opportunity to shelter money!

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Expiring Tax Credits..Don’t miss these!

Dec 15

Posted by Teri in ENERGY CREDIT, HOUSING ASSISTANCE, INVESTMENTS, TAX CREDITS, TAXES

Deferring Taxes

Deferring Taxes

You’ve heard a lot about Stimulus bills throughout the year. Many of the tax breaks of the recent stimulus bills will expire at the  end of 2009, and there are no guarantees they will still be available in 2010. So, consider some of the following:

  • Income Shifting: Currently the top two tax rates are 33% and 35%, but they expire after December 31, 2010. Current proposals reinstate the 36 % and 39.6% rates in 2010. The potential exists that Congress can make these moves retroactive to January 1, 2010. So, if you are higher income individual, you need to look at ways to accelerate income into the current year to protect your risk.
  • Gains and Losses: Look at year end trades (tax harvesting) as a method to manage your liability from any gain.
  • First Time Homebuyer Credit: The Worker, Homeownership, and Business Assistance Act of 2009 extends the deadline for qualifying home purchases from Nov. 30, 2009, to April 30, 2010. Additionally, if a buyer enters into a binding contract by April 30, 2010, the buyer has until June 30, 2010, to settle on the purchase.The maximum credit amount remains at $8,000 for a first-time homebuyer –– that is, a buyer who has not owned a primary residence during the three years up to the date of purchase.
    But the new law also provides a “long-time resident” credit of up to $6,500 to others who do not qualify as “first-time homebuyers.” To qualify this way, a buyer must have owned and used the same home as a principal or primary residence for at least five consecutive years of the eight-year period ending on the date of purchase of a new home as a primary residence.
    For all qualifying purchases in 2010, taxpayers have the option of claiming the credit on either their 2009 or 2010 tax returns.
    A new version of Form 5405, First-Time Homebuyer Credit, will be available in the next few weeks. A taxpayer who purchases a home after Nov. 6 must use this new version of the form to claim the credit. Likewise, taxpayers claiming the credit on their 2009 returns, no matter when the house was purchased, must also use the new version of Form 5405. Taxpayers who claim the credit on their 2009 tax return will not be able to file electronically but instead will need to file a paper return.
  • Green Incentives: We have talked about these throughout the year. Make your improvements up to 30% of the sum of the improvements, limited to $1500 for 2009 and 2010. Make sure the improvement is qualified and has the appropriate documentation. Look also at the New Residential Energy Property Credit.
  • Contributions: Tighter rules- now a bank

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Pennsylvania Appliance Rebate..the specifics!

Nov 25

Posted by Hannah in CREDIT, ENERGY CREDIT, TAX CREDITS

Family of feet warming at a fireplaceEarlier this year we discussed news regarding an appliance rebate, similar to the cash for clunkers rebate.  Well, now some more of the specifics for each state are available!   So time to start planning for any appliances you might be in the market for!

Pennsylvania will be receiving $10.9 million for this credit and has decided to focus the credit for non-electrical heating, air conditioning and water heating appliances.  The funds still need approval, but hopes are that it will be completed by the end of this year and ready for consumers by March 2010.

So far we know that the appliances must be fueled by propane, gas, or oil and must meet energy star standards.  More specifics, such as the amount for each appliance, will be available once the funds are approved for Pennsylvania.  Other states will have their own set of standards of using the credit funds.

This is something to help you plan if you are looking to purchase a more efficient heater, air conditioning or water heater.  For those who cannot wait through the cold winter to replace their heater, there are other credits available for energy star appliances!

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“Toxic” Assets? Yuck!

Nov 22

Posted by Christopher in ECONOMY, RECESSION

Credit CrisisFebruary 10th, 2009 marks yet another step taken by the government to help stabilize the economy with the introduction of The Financial Stability Plan.  The overall objective of the plan is quite simple: to provide stability to the financial markets.  The plan focuses mainly on the government helping the credit crisis by:

  • Injecting capital (money) into the banks that need it.
  • Purchasing “toxic” securities (bonds, notes, mortgages, etc.) from banks.
  • Supporting banks to give out loans to businesses and people.

However, banks do not receive money just because they exist!  The Capital Assistance Program (CAP) decides who gets money by performing a stress test.  Here are the steps:

  1. Banks with undergo stress tests: The stress test, performed on the banks, examines a bank’s capital requirements under two different economic forecasts.  The first forecast will examine the bank’s capital requirement under current average economic conditions of unemployment and the housing market.  Then, the second forecast will suppose that unemployment hits 10% and housing prices fall by another 25%, and these conditions will be used to examine a bank’s capital requirements.
  2. If the stress tests indicates that the bank needs more capital, then the bank will have six months to raise the capital requirement in private markets- refers to holding stock in a company that is not public or not quoted on the stock exchange.
  3. If unable to raise the capital:  The government will provide the capital required in a form of convertible preferred stock, which is convertible to common equity.  Basically, if the bank cannot repay the preferred shareholders (the government) back in the required time, then whatever is left will convert to common equity.
  4. After capital is received:  After the capital is received by the bank, the bank has 7 years to repay the preferred shareholders (the government), and if they cannot do that the preferred stock will covert to common equity.

Thankfully, some of the largest banks (JP Morgan, Morgan Stanley) have already paid back the capital the government has given them, believe it or not.  It seems that the BIG banks are heading in the right direction for financial stability.

Who purchases the “toxic” securities? Both the private market investors and the government will be purchasing the toxic securities or assets under the Public-Private Investment Partnership (PPIP).  The private firms get the money from a select group of investment managers, chosen by the government, which will raise funds to invest into legacy securities (toxic securities or assets).  Whatever amount the private firm raises to buy toxic securities or assets will be matched by the government.  For example, if the private firm raises $100 million the government will match it, and provide the same amount towards buying toxic securities or assets: $100 million.  The partnership calls for the government and private inspectors to co-invest in the purchase of $500 billion of legacy assets (toxic securities or assets) that can grow to $1 trillion.

Once the bad assets or securities are bought the BIG banks can now focus their attention to preventing another crisis like this from happening again.

The objective…to loosen the purse strings for borrowing!

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Stimulus? ARRA? Same thing!

Nov 14

Posted by Christopher in CREDIT, ECONOMY, HOUSING ASSISTANCE, RECESSION, SAVING MONEY!, SMALL BUSINESS

Uncle sam“Stimulus plan” is the phrase commonly used by people to describe the massive amounts of money the government is spending to help stop the economic freefall.  The other name and the more technical term for this is, The American Recovery and Reinvestment Act of 2009 (ARRA).

The act, passed by Congress and signed by President Obama Feb. 17, 2009, resulted in the government pumping $787.2 billion into the economy to help stop the longest economic downfall since the Great Depression.  The ARRA hopes to prevent a longer recession by using the $787.2 billion on individual and small business tax cuts, investments in a variety of sectors (science, education, public works, etc.), and aid for states and programs serving individuals (unemployment, insurance, etc.).  Basically the main goal of the ARRA is to jump-start the economy, with the $787.2 billion, and hopefully prevent a longer recession.

Goals of ARRA?

  • To preserve and create jobs and promote economic recovery.
  • To assist those most impacted by the recession.
  • To provide investments needed to increase economic efficiency with technological advances in science and health.
  • To invest in transportation, environmental protection, and other infrastructure that will provide long-term economic benefits.
  • To stabilize State and local government budgets

Where is the money being spent? Of the $787.2 billion:

  • $287 billion will be used in a form of tax cuts and breaks for individuals and small businesses (e.g. “Making Work Pay” tax credit, EITC, and First-time Homebuyers Credit).
  • $308 billion will be used for discretionary spending (science, education, energy).
  • $192 billion will be used for direct aid to states and for programs that help individuals in need (i.e. unemployment).

For a complete list of all of the government’s spending allocations please visit ARRA Spending.

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Tax Credit Extension – Not Just for First Time Homebuyers!

Nov 14

Posted by Hannah in HOUSING ASSISTANCE, TAX CREDITS, TAXES

Since the home buyers’ credit began, 1.4 million home buyers have taken advantage of it to earn up to $8,000 when buying a home!  This success has caused the government to extend the credit until April 30, 2010.

Home BuyersWhat does it all mean?

The new guidelines will be extended to:

  • Home owners that have owned their current home for at least 5 years are now eligible for the credit up to $6,500.
  • Further, first-time home buyers remain eligible for up to $8,000 or 10% of the cost
    of the home.
  • First-time home buyers…


    First-Time Homebuyer Tax CreditThe extension of the credit is available for homes that are under agreement by April 30, 2010 and completely purchased/settled by June 30, 2010. The new regulations for this credit have a higher income limit as well, set at $125,000 for individuals and $225,000 for married couples. The credit will remain at 10% of the cost, with a maximum of $8,000. To receive these benefits, you — and if you’re married, your spouse — must be first-time home buyers, meaning that you have not owned a home in the previous 3 years. Further, unlike the tax credit of 2007/2008, this does not need to be paid back!

Repeat home buyers…
Current home owners that are looking to purchase a new home are eligible for the credit as well! To qualify as a repeat home buyer, you must have owned and lived in your current residence for 5 consecutive years. Now these home buyers can receive a credit for up to $6,500 or 10% of the cost of the home. The new home does not have to be more or less expensive than your current home. The same income limits apply as for first time home buyers.

The fine print..The fine print.. For both credits,

  • The homes purchased must be less than $800,000.Home Buyer Tax Credit
  • The credit is refundable, meaning it will be issued as a check to you if your tax liability is less than the refund.
  • The new extension cannot be applied retroactively; for example, it cannot be used if a home was purchased before November 6, 2009 and the owners did not receive the credit because of the old income limits.

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Nonbusiness Energy Property Tax Credit

Nov 5

Posted by Teri in ENERGY CREDIT, TAX CREDITS

Tax Tip

Seven Facts about the Nonbusiness Energy Property Credit

Taxpayers who take energy saving steps this year may get bigger tax savings next year. The Nonbusiness Energy Property Credit, a tax credit for making energy efficient improvements to homes has been increased as part of the American Recovery and Reinvestment Act of 2009.

Here are seven things the IRS wants you to know about the Nonbusiness Energy Property Credit:

1. The new law increases the credit rate to 30 percent of the cost of all qualifying improvements and raises the maximum credit limit to $1,500 claimed for 2009 and 2010 combined.
2. The credit applies to improvements such as adding insulation, energy-efficient exterior windows and energy-efficient heating and air conditioning systems.
3. To qualify as “energy efficient” for purposes of this tax credit, products generally must meet higher standards than the standards for the credit that was available in 2007.
4. Manufacturers must certify that their products meet new standards and they must provide a written statement to the taxpayer such as with the packaging of the product or in a printable format on the manufacturers’ Website.
5. Qualifying improvements must be placed into service after December 31, 2008, and before January 1, 2011.
6. The improvements must be made to the taxpayer’s principal residence located in the United States.
7. To claim the credit, attach Form 5695, Residential Energy Credits to either the 2009 or 2010 tax return. Taxpayers must claim the credit on the tax return for the year that the improvements are made.

Homeowners who have been considering some energy efficient home improvements may find these tax credits will get them bigger tax savings next year.

For more information on this and other key tax provisions of the Recovery Act, visit the official IRS Website at www.irs.gov/recovery

Source: ATX, 11/05/09

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