This quarterly update provides some of the most important tax developments that have occurred in the past three months that may affect you, your family, your investments, and your livelihood. At BSPJ we are committed to being proactive in providing information to help you maximize tax benefits. Please call us for more information about any of these developments and what steps you should implement to take advantage of favorable developments and to minimize the impact of those that are unfavorable.
New opportunity to convert to Roth IRA.
This year is a pivotal one for retirement planning as it is the first year in which taxpayers may convert funds in regular IRAs (as well as qualified plan funds) to Roth IRAs regardless of their income level. Such a conversion may be desirable because distributions from Roth IRAs may be tax-free if several conditions are met, and a Roth IRA owner does not have to commence lifetime required minimum distributions (RMDs) from Roth IRAs after he or she reaches age 70 1/2. An in-depth analysis is likely required to determine the best course of action, but for some taxpayers this will be a very favorable opportunity.
Estate Tax Repeal.
From its inception, legislation enacted in 2001 provided for the complete repeal of estate taxes for one year beginning January 1, 2010 returning to pre-2001 law in 2011. Virtually all estate planners expected that Congress would remedy the situation it created by passing permanent estate legislation prior to 2010. Shockingly, Congress failed to pass pending legislation allowing, at least for the time being unless reinstated retroactively, the complete repeal of estate tax. The uncertainty created by this inaction on the part of Congress creates significant issues that will affect many people and need to be considered very carefully. Click here for more information
New option to choose longer carryback period for net operating loss (NOL).
A new law enacted last November makes it easier for most taxpayers to get immediate tax savings from NOLs. It does so by allowing certain NOLs to be carried back to earlier, more profitable years. In these tough economic times, that's good news for businesses who have suffered losses recently after better years when high taxes were paid. Specifically, the new law generally permits any taxpayer to increase the carryback period for an applicable NOL to 3, 4, or 5 years from 2 years (however, businesses getting certain federal bailout funds are not eligible). An applicable NOL is a business NOL for any tax year ending after Dec. 31, 2007, and beginning before Jan. 1, 2010. Generally, an election may be made for only one tax year. The amount of the NOL that can be carried back to the 5th tax year before the loss year can't be more than 50% of a business's taxable income for that 5th preceding tax year determined without taking into account any NOL for the loss year or for any tax year after the loss year.
Homebuyer credit extended and liberalized.
A new law enacted last November extended and generally liberalized the tax credit for first-time homebuyers, making it a much more flexible tax-saving tool. Before the new law, the credit was to have expired for homes purchased after Nov. 30, 2009. The new law extended the credit to apply to a principal residence bought before May 1, 2010; it also applies to a principal residence bought before July 1, 2010 by a person who enters into a written binding contract before May 1, 2010, to close on the purchase of the principal residence before July 1, 2010. Also, effective for purchases after Nov. 6, 2009, the new law allows existing homeowners who meet certain conditions to qualify for a reduced credit of up to $6,500. For purchases after Nov. 6, 2009, the phaseout rules have been eased. These are the rules that cause the credit to be reduced or eliminated as modified adjusted gross income exceeds certain levels. Much higher income levels are now allowed before there is any reduction of the credit. A credit cannot be claimed for a home whose purchase price exceeds $800,000.