Michael Choate Associates CPA

Obama Stimulus Bill Includes Some Tax Breaks

President Obama’s $787 billion Economic Stimulus Bill was passed by Congress on February 13, 2009. Although heavily weighted toward government spending, it does include some “targeted tax incentives” which could save some Americans significant tax money and many Americans a little tax money. ( what some would call “small change” ).

Anyway, even though I am disgusted with wasteful government spending, I am always encouraged when taxpayers get to keep some of THEIR money! So here is the hottest list of tax winners for 2009 and 2010:

First Time Homebuyers: If you have not owned a home in the last 3 years and you buy a home before December 1, 2009, you can receive a tax credit of $8,000. And, unlike the 2008 version of this credit, you will not have to pay it back if you live in the house for at least 3 years. Eligibility begins to phase out at $75,000 for singles and $150,000 for couples. This is a good stimulus that is related to our economic woes.

New Car Buyers: If you buy a new car in 2009, you can deduct the sales tax from your gross income even if you don’t itemize your deductions. The sales tax on car purchases up to $49,500 is eligible. The deduction is phased out for singles with income over $125,000 and couples earning over $250,000. Example: you buy a new car for $30,000 and pay sales tax of 9% or $2,700. When you file your income tax return and claim this deduction and if you are in the 25% tax bracket, you save $675. This is also a stimulus in the right direction.

College Tuition: The Hope Education Credit is now called the American Opportunity Tax Credit. This is a $2500 tax credit for the first two years of college tuition. If you don’t have any tax liability, 40% or $1,000 can actually be refunded to you. Of course, in Louisiana , if you receive a “TOPS” or other scholarship, then you would not get this credit. Eligibility is phased out at $80,000 for singles and $160,000 for couples.

Payroll Tax Credit: This one’s for the masses…$400 tax payroll tax credit for singles and $800 payroll tax credit for couples. This payroll credit can begin in June 2009 thru paycheck withholding adjustments ( about $13/wk ) or in total on next year’s tax return. The credit is phased out for singles earning from $75,000-$95,000 and couples earning $150,000-$190,0000. Retirees without paychecks will get a one time payment of $250. Self employed individuals may also be included. Stay tuned. As a stimulus in dire economic times, this is almost embarrassing. In 2008, then President Bush issued stimulus checks of $600 for singles and $1,200 for couples and was roundly derided as wasteful and ineffective.

Energy Tax Credits: If you buy energy efficient windows, furnaces and air conditioners, etc you can receive a tax credit of 30% of the purchase up to $1500. Example: you spend $5,000 or more and you will get a tax reduction of $1500.

Other Individual Items: Other tax items of note include:

  1. Unemployment insurance benefits up to $2,400 will not be taxable.
  2. Low income individuals earning at least $3,000 will now be eligible for $1,000/child tax credit.
  3. Earned income tax credit will be expanded also.
  4. Alternative minimum tax levels increased to $46,700 for singles and $70,950 for couples.

Business Tax Incentives:

  1. Business equipment, furniture, computers and vehicles can be expensed if purchased in 2009. The expense is capped at $250,000. ( this is known as Sec 179 expense election ). You can also take a 50% bonus depreciation deduction for any remaining balance. Remember a SUV weighing over 6000 pounds qualifies as equipment but the Sec 179 expense is capped at $25,000. 
    Example: You buy a Chevy Suburban for $50,000 and use it 80% for business. You can deduct Sec 179 expense of $20,000 ( 80% of $25,000 ) plus 50% of the remaining balance of $30,000 or $15,000 times 80% or $12,000 for a grand total write off of $32,000. If you are in the 30% federal and state combined tax bracket, you save $9,600 for 2009 taxes… sweet!
  2. Tax credit for hiring Veterans or individuals 16-25 years old. The credit is 40% of $6,000 or $2,400. So far, this looks pretty good for companies still growing and not impacted by recession.
  3. Net operating losses can be carried back 5 years instead of 2 years to recoup previously paid taxes. Only available for companies with gross receipts of $15 million or less. Interesting , $15 million in gross receipts includes 98% of small business but excludes 95% with taxable income.

Send comments to mike@choatecpa.com.