2009 Tax Update

A few things have changed with the coming of a new year—below are some tax items to be aware of.

Estate and gift taxes: The basic federal estate-tax exemption increased to $3.5 million from $2 million in 2008. The increase in the basic estate-tax exemption amount to $3.5 million stems from a 2001 law. Transfers from one spouse to the other typically remain tax-free. The lifetime gift-tax exclusion amount remains unchanged at $1 million.

The annual gift-tax exclusion jumped to $13,000, up $1,000 from 2008. This means you can give as much as $13,000 this year to anyone you want without having to worry about taxes or even file any forms. You can give more than that by paying directly for someone else’s tuition or medical expenses—just be sure to pay the institution directly.

Retirement savings: The maximum amount that someone under age 50 can contribute to a 401(k) plan for 2009 rose to $16,500 from $15,500. Those 50 or older can put away an additional $5,500 this year, for a total of $22,000, up from $20,500.

Social Security taxes: The maximum amount of earnings subject to Social Security taxes rose to $106,800, up 4.7% from $102,000 in 2008.

Mileage rates: Taxpayers who use their vehicles for work can deduct their actual costs or rely on the IRS’s optional standard mileage rate. This year, the IRS rate for using your car for business will be 55 cents a mile.

First-Time Homebuyer Credit: Those who bought a principal residence recently or are considering buying one should take note. This credit of up to $7,500 works much like a 15-year interest-free loan.

The Recovery Rebate Credit: Most people already received their full benefit in the form of the 2007 Economic Stimulus Payment. However, a taxpayer may qualify for the Recovery Rebate Credit, if, they did not get an Economic Stimulus Payment, had a child in 2008 or had a change in income level. If you receive this credit, it will be included in your refund and will not be issued as a separate payment.

Mortgage Workouts and Foreclosures: Eligible homeowners can exclude debt forgiven on their principal residence if the balance of the loan was less than $2 million.

Record Keeping: The links below are helpful when deciding how detailed your records need to be.

Record Keeping for individuals
http://www.irs.gov/pub/irs-pdf/p552.pdf
Starting a business and keeping records
http://www.irs.gov/pub/irs-pdf/p583.pdf
Travel, Entertainment, Gift, and Car Expenses
http://www.irs.gov/pub/irs-pdf/p463.pdf

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