Winter 2009 Volume XIV, No. 2 Newsletter

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Winter Notes:

winterOur past newsletter focused on a major legislative tax change passed during March, 2009. Known as the American Recovery and Reinvestment Act (ARRA), it's general purpose is to stabilize the economy and ensure a healthy recovery from the recession. Almost all of the major ARRA provisions are designed to stimulate the economy and help businesses and individuals who have been hurt by poor economic conditions.

Since our last newsletter, the President has signed a new tax bill which was enacted on November 6, 2009. A tax credit of up to $6,500 is available for current homeowners buying a replacement principal residence for under $800,000. This credit will be available to current homeowners purchasing a replacement home between November 7, 2009 and April 30, 2010. For an excellent consumer resource with frequently asked questions on both the $6,500 credit and the previous $8,000 credit, visit www.federalhousingtaxcredit.com

It appears unlikely that any other significant tax legislation will pass before year-end, owing to the Congressional debate on healthcare, which seems to be preoccupying the President and Congress.

Roth IRA Conversion Update:

What's New:
For years prior to 2010, only taxpayers with modified adjusted gross income of $100,000 or less were permitted to convert a traditional IRA into a Roth IRA. Beginning in 2010, this restriction will be removed, permitting retirement investors at any income level to move assets from a traditional IRA into a Roth IRA.

What's the Catch?
You will owe taxes on the converted amounts (with the exception of amounts that you have basis in). For conversions occurring in 2010, none of the amounts are includible in gross income in 2010 -instead half the income resulting from the conversion is includible in gross income in 2011, and half in 2012.

What to Do:
There is no simple answer to the question "Should I convert my traditional IRA to a Roth IRA"? The benefits are many: tax-free buildup inside the Roth IRA, ability to leave it tax-free to your heirs, tax-free withdrawals after age 59 1/2, no required minimum distributions, and reduction of your estate via taxes paid at the Roth's conversion.

IRS Standard Mileage Rates:

Beginning on January 1, 2009, the standard mileage rates for the use of a vehicle are:

  • 55 cents per mile for business miles driven
  • 24 cents per mile for medical or moving purposes
  • 14 cents per mile for charitable purposes

The 2009 rates for business, medical and moving purposes are slightly lower than rates for 2008, which reflected a spike in gasoline prices. The rate for charitable purposes is set by law and is unchanged from 2008. The mileage rates for 2009 reflect generally higher transportation costs compared to a year ago, but the rates also factor in the recent reversal of rising gasoline prices. While gasoline is a significant factor in the IRS mileage rate, other fixed and variable costs, such as depreciation, enter the calculation.

The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs as determined by the same study.

IBD's Ten Secrets to Success:

Investor's Business Daily has spent years analyzing leaders and successful people in all walks of life. Most have ten traits that, when combined, can turn dreams into reality. Each day IBD highlights one trait. Here are IBD's ten secrets to success. Please visit them at www.investors.com to learn more and for subscription information:

  1. How You Think Is Everything: Always be positive. Think success, not failure. Beware of the negative environment.
  2. Decide Upon Your True Dreams And Goals: Write down your specific goals and
    develop a plan to reach them.
  3. Take Action: Goals are nothing without action. Don't be afraid to get started.
    Just do it.
  4. Never Stop Learning: Go back to school or read books. Get training and acquire skills.
  5. Be Persistent And Work Hard: Success is a marathon, not a sprint. Never give up.
  6. Learn to Analyze Details: Get all the facts, all the input. Learn from your mistakes.
  7. Focus Your Time And Money: Don't let other people or things distract you.
  8. Don't Be Afraid To Innovate; Be Different: Following the herd is a sure way to mediocrity.
  9. Deal And Communicate With People Effectively: No person is an island. Learn to understand and motivate others.
  10. Be Honest and Dependable; Take Responsibility: Otherwise, Numbers 1-9 won't matter.

2009 Dollar Limitations for Retirement Plans:

Annual dollar limit for defined contribution plans, SEP’s $49,000
Maximum salary deferrals for 401(k), 403(b) plans $16,500
Catch-up contribution limits for 401(k), 403(b) plans $5,500
Maximum salary deferral for SIMPLE IRA plans $11,500
Maximum IRA contribution $5,000
Catch-up contribution limits for IRA’s $1,000
Social Security taxable wage base $106,800

Closing:

Whether we're recommending an attorney, a financial advisor, a banker or insurance
professional, when it comes to financial matters, we believe it's very important to have a team of professionals who are knowledgeable in their respective fields. That's why we have aligned ourselves with other professionals who share similar philosophies, share client concerns and have equivalent ethical standards as we do.

It's hard to believe another year has gone by, and it's time to think about gathering all of that tax information again. We hope that you had a great 2009 and are happy and healthy. This tax season we return all of our exceptional professionals -- Jeff, Ellen, Scott & Marilee. We sincerely appreciate your continued business and look forward to speaking with each of you shortly.

We would like to thank you for the many referrals throughout the summer and fall -- they are very much appreciated. As we head into what promises to be a very busy and productive season, I'd like to thank everyone who came in recently for income tax planning. I think you will agree that it was time well spent.

Enjoy the Holidays and we'll see you soon!

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Matthew R. Horowitz, C.P.A.
(410) 312-7622 • email
10015 Old Columbia Rd. Suite B-215, Columbia, Maryland 21046