Recovery Act Reminders for 2009

Filed in Deductions, Small Business, Tax Credits, Tax Law by on October 20, 2009

Income

  • Net operating losses – The ARRA amended IRC Sec. 172(b)(1)(H) to allow eligible small businesses to carry back a 2008 net operating loss up to five years instead of the otherwise available two-year limit. To be eligible for the longer carryback period, the loss must arise from an eligible small business – a proprietorship, partnership, or corporation with average gross receipts of $15 million or less for the three-year period ending in 2008. 
  • Unemployment compensation – For 2009, $2,400 of unemployment compensation is excluded from tax.

Deductions

  • Motor vehicle taxes – Taxpayers may deduct “qualified motor vehicle taxes,” defined as state or local sales or excise taxes imposed on the purchase of a new qualified motor vehicle. The vehicle must be a passenger car, light truck, or motorcycle weighing 8,500 pounds or less, or a motor home. The vehicle must be acquired after Feb. 17, 2009, and before 2010. The deduction is limited to tax on the first $49,500 of the purchase price.

Tax Credits

  • Child tax credit – While the amount of the child tax credit remains at $1,000 per dependent child under age 17, the refundable portion is increased for tax years 2009 and 2010 to the extent of 15% of the taxpayer’s earned income over $3,000 (lowered from $8,500). Beginning in tax year 2009, a child who qualifies for the child tax credit must also be the taxpayer’s dependent.
  • Hope credit – Beginning in tax year 2009, the Hope credit is increased to a maximum of $2,500 per year (100% of the first $2,000 of qualifying expenses and 25% of the next $2,000), with 40% of the credit refundable. The provision extended the credit to all four years of college and expanded the definition of qualifying expenses to include course materials.
  • Earned income credit – For tax years 2009 and 2010, the earned income tax credit percentage for families with three or more qualifying children is increased from 40% to 45%.

Alternative Minimum Tax

  • AMT exemptions increased for 2009 to $70,950 for a joint return, $46,700 for single taxpayers and heads of household, and $35,475 for married taxpayers filing separately. Commonly referred to as the “AMT patch,” this measure comes with an estimated cost of $70 billion to provide AMT relief to an estimated 26 million taxpayers.

Source: “Recovery Act Reminders for 2009” by Ellen Cook, CPA, Anna Fowler, CPA, Ph.D., Annette Nellen, Esq., CPA, Nora Stapleton, CPA, and Joseph W. Walloch, CPA, Journal of Accountancy, October 2009

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