Tax Implications and Opportunities

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Tax Implications and Opportunities of
the American Recovery and Reinvestment Act
of 2009 Presented by Michael Burkholder,
Tax Partner Chris Humes, Tax Senior Manager
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Tax Provisions Individual Energy Business
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ARRA Impact

• Frontloads at least 280 billion in tax breaks
  with the first two years
• More than 50 major provisions have been rolled up
  into this tax recovery package
• Law intended to provide immediate relief to
  individual and businesses
• Most tax incentives are retroactive to January 1,
  2009
• Accounts for 35 of the stimulus package cost

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Individual Provisions

• Making Work Pay Tax Credit
• Income tax credit equal to the lesser of
• 6.2 of individual earned income or
• 400 (800 for married couples filing jointly)
• Credit reduced for taxpayers earnings (AGI) over
  75,000 (150,000 married couples filing jointly)
• Credit applies in 2009 and 2010

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Individual Provisions

• Economic Recovery Payment
• One time payment of 250 for
• 2009 Social Security beneficiaries
• SSI recipients
• Veterans receiving disability compensation and
  pension benefits from VA
• Retired government employees
• Corresponding reduction in Making Work Pay Tax
  Credit

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Individual Provisions

• Alternative Minimum Tax
• Patch for 2009
• Increases exemption amounts to
• 70,950 for married couples filing a joint
  return (up from 69,950 in 2008)
• 46,700 for singles and head of household (up
  from 46,200 in 2008)
• Allows tax payers to claim most personal tax
  credits to reduce AMT liability

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Individual Provisions

• Education Credit (2009 and 2010)
• Increases the HOPE Credit to 2,500 (up from
  1,800)
• Extends eligibility to 4 years (up from 2 years)
• Increases the income phase-out levels to
• 80,000 for individuals (up from 50,000)
• 160,000 for married couples filing jointly (up
  from 100,000)
• Renamed American Opportunity Tax Credit
• Credit against AMT liability

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Individual Provisions

• Unemployment Compensation
• Excludes the first 2,400 of unemployment
  compensation from taxable income in 2009
• COBRA Benefits
• Enacts a subsidy for unemployed workers to pay
  for health insurance premiums
• Employee pays 35 of COBRA coverage
• Former employer pays remaining 65 and is
  entitled to a credit against income tax
  withholding and payroll taxes for this amount
• Phased out for individuals with AGI over 125,000
  (250,000 for married couples filing jointly)
• Applies to employees involuntarily separated from
  employment between Sept. 1, 2008 and January 1,
  2010 (effective for months of coverage beginning
  after February 17, 2009)

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Individual Provisions

• Earned Income Tax Credit
• Increases the credit to 45 of the first 12,570
  (from 40) of earned income for taxpayers with
  three or more children
• Child Tax Credit
• Increases the refundable portion of the child tax
  credit by reducing the income threshold to 3000
  (from 15 of earned income in excess of 8,500)

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Individual Provisions

• First Time Homebuyer Credit
• Tax credit for first time homebuyers for
• Homes purchased on or after December 31, 2008 and
  through November 30, 2009
• Increase maximum credit to 8,000 (from 7,500)
• Credit must be repaid ratably of 15 years, but
  requirement is eliminated after 36 months in the
  home
• Phases out for taxpayers with AGI gt 75,000
  (150,000 for married couples filing jointly)

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Individual Provisions

• New Vehicle Deduction
• Creates an above the line deduction for sales and
  use taxes or excise taxes paid on purchase of a
  new car, motorcycle, light truck, or recreational
  vehicle
• Taxpayers that dont itemize can still take the
  credit
• Limited to taxes paid on the first 49,500 of
  purchase price
• Phased out for taxpayers with AGI exceeding
  125,000 (250,000 for married couples filing a
  joint return

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Individual Provisions

• Transit Benefits
• Increase the exclusion for transit passes and van
  pooling employers can provide to employees
• From 120 a month to 230 a month
• Starting March 2009
• Extends through 2010 with an inflation adjustment

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Individual Provisions

• Small Business Capital Gains
• Increases the exclusion for gains on small
  business stock to 75 (from 50)
• Stock acquired after February 17, 2009 and before
  January 1, 2011
• Held for more than 5 years
• The small business cannot have assets over 50
  million
• Must conduct an active trade or business

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Energy Provisions

• Energy Investment Credit
• Repeals the cap (currently 4,000 per year) for
  energy investment credit
• For qualified small wind energy property
• Placed in service after 2008
• Renewable Electricity Production Credit
• Production credit for electricity produced from
  renewable sources
• Extends the placed-in-service date for
• qualified wind facilities through December 31,
  2012
• Most other property through December 31, 2013

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Energy Provisions

• Investment Credit Election
• In lieu of claiming the production credit
• Taxpayers can now treat certain qualified
  property as eligible for 30 of the investment
  credit
• Residential Energy Credit
• Increases the credit from 10 to 30
• Raises the maximum credit to 1,500 (2009 2010)
• Eliminates the 500 lifetime cap

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Energy Provisions

• Alternative Refueling Stations
• Increases the business credit for alternative
  vehicle refueling property to 50 (from 30)
• Increases the maximum credit to 50,000 (from
  30,000)
• Non-business property credit increase to 2,000
• Plug-in Electric Vehicles
• Although not on the market yet, the law has been
  modified to include these vehicles (2,500
  credit)

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Business Provisions

• Bonus Depreciation
• Extends the 50 bonus depreciation through 2009
• Retroactive to January 1, 2009
• Extends through 2010 for
• Property with a recovery period of ten years or
  more
• Transportation equipment
• Certain aircraft

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Business Provisions

• Higher Limit on Vehicle Depreciation
• Extends the increase in the dollar cap on vehicle
  depreciation
• 8,000 for new vehicles placed in service in 2009
• If bonus depreciation is claimed
• Prevents benefits of bonus depreciation from
  being eliminated by the special limits on motor
  vehicle depreciation
• First-year dollar limitation adjusted annually
  for inflation

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Business Provisions

• First Year Expensing
• Extends the Section 179 expensing limit to
  250,000 (from 125,000) and the
• Threshold for reducing the deduction of 800,000
  (from 500,000) for property placed in service in
  2009
• Previously limited to property placed in service
  in 2008

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Business Provisions

• Net Operating Loss Carryback
• Allows taxpayers to carry back net operating
  losses arising in 2008 for three, four, or five
  taxable years (rather than two)
• Only for eligible small business with annual
  gross receipts of less than 15 million
• Normal NOL carryback (2 years) returns for losses
  incurred in 2009

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Business Provisions

• Work Opportunity Credit
• Adds unemployed veterans and disconnected youth
  to targeted groups eligible for the credit
• Applies to individuals who are hired and begin
  work in 2009 or 2010
• Combined with the Welfare-to-Work credit for
  qualified individuals who begin working for an
  employer after December 31, 2006 and before
  September 1, 2011

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Business Provisions

• S Corporation Built-In Gains Tax Relief
• The recognition period for the section 1374
  built-in gains tax will be temporarily reduced
• From ten years to seven years
• For taxable years beginning in 2009 or 2010
• Provides a benefit for C corporations that
  converted to S corporation status in taxable
  years beginning in 2000 through 2003

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Business Provisions

• Estimated Taxes
• Decreases required estimated tax payments for
  individuals whose income comes from a small
  business in 2009
• Estimated quarterly tax payments will be based on
  90 of 2008 returns (rather than 100)

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More Information

• bmc Tax Department
• Mike Burkholder (Lancaster) or
• Chris Humes (Harrisburg)
• 800.267.9405
• www.bmcvision.com