Posted by John_NorCal on 1/28/09 11:07am
Msg #275812
Obama Taxation Prognostications - (information only)
This is not intended as a political post, I am posting it here because I know many of you do not frequent the Just Politics forum. This information was sent to me by one of the organizations where I take my continuing education for my enrolled agent license.
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President Barack Obama is formulationg and finalizing his tax proposals as part of an overall economic recovery stimulus package. Taxpayers will be "stimulated" by his new proposals. Positive stimulation comes in the form of new tax credits and payments to a number of taxpayers. Negative stimulation comes in the form of increased taxes for many, including increased estate taxes.
President Obama continues to advocate retaining the federal Estate Tax after 2009. For 2010 and beyond, he proposes to retain the current 2009 unified credit exemption equivalent of $3.5 million as well as retaining the current maximum estate tax rate of 45%. The Estate Tax was scheduled to disappear in 2010. It is hoped that the $3.5 million "exemption" will be inflation-indexed for future years.
The American Recovery and Reinvestment Tax Act of 2009 (ARRT) is a large part of the Obama tax package. The act includes a broad range of economic, revenue, tax, compensation, and health proposals, reported in a 328-page House bill introduced by Congressman Charles Rangel. Title I of the ARRT enumerates "Tax Provisions" of the proposed legislation in 8 major categories:
1) Making Work Pay Credit: This refundable credit is equal to the lesser of 6.2% of earned income of the taxpayer, or $500 for a single person or $1,000 in the case of a joint return. The credit is limited when modified adjusted gross income exceeds $75,000 for a single person or $150,000 for a married person. The credit would be available for 2009 and 2010. The 6.2% rate is the same rate as the social security tax withholding rate.
2) Additional Tax Relief for Families with Children: Temporary increases for 2009 and 2010 in the Earned Income Tax Credit for families with 3 or more children and the refundable portion of the Child Tax Credit are proposed.
3) American Opportunity Tax Credit: This provision is essentially a modification and renaming of the existing Hope Scholarship Tax Credit. A credit of up to $2,500 for the first 4 years of higher education expenses would be available. The credit would be calculated based on 100% of the first $2,000 of qualified tuition and related expenses, plus 25% of the next $2,000 of such expenses. The credit would begin to phase out at $80,000 of modified AGI for a single taxpayer and $160,000 for married taxpayers. Up to 40% of the credit would be refundable. The American Opportunity Tax Credit would also be allowed for the Alternative Minimum Tax.
4) Housing Incentives: The major housing proposal is a waiver of the requirement to repay the First-Time Home Buyer's Tax Credit for qualifying homes purchased from January 1, 2009, through June 30, 2009. Another housing incentive is the coordination of the Low-Income Housing Tax Credit with low-income housing grants.
5) Tax Incentives for Business: Bonus depreciation of up to 50% of new equipment would be extended for 2009. The increased immediate expensing of up to $250,000 of new and used equipment would also be extended for 2009. Another business incentive is the proposal to allow a 5-year carryback of net operating losses for any tax year ending in 2008 or 2009. If a 5-year carryback is elected, the net operating loss would be permanently reduced by 10%. The Alternative Minimum Tax net operating loss limit of 90% is suspended for 2008 and 2009 net operating losses. The Work Opportunity Tax Credit would be expanded to include unemployed veterans and disconnected youth.
6) Fiscal Relief for State and Local Governments: This provision includes a temporary proposal to exclude all interest income from private activity bonds issued during 2009 and 2010 as a tax preference item for the Alternative Minimum Tax.
7) Energy Incentives: Numerous energy incentives are proposed including increased research credits for energy research. The rules for nonbusiness energy credits and residential energy-efficient properties have also been modified. For tax years beginning after December 31, 2008, the bill would remove the present-law cap on the credit for residential solar hot water, geothermal, and wind property. For 2009 and 2010, the bill would increase the amount of the tax credit to 30% for all qualified residential energy-efficient property, and it would replace the existing property-by-property dollar caps on the tax credit with an aggregate $1,500 cap for all qualifying property.
8) Tax Incentives: This category discusses federal grants in lieu of tax credits in limited circumstances.
The House bill does not include a 2009 "patch" for the Alternative Minimum Tax. It is anticipated that the Senate version will include an AMT patch.
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Joseph W. Walloch is a CPA in Redlands, California. Joe holds a Master's Degree in Taxation, is a Professor of Advanced Taxation and Advanced Financial Accounting at the University of California, Riverside, is an instructor for Western CPE, and was recently named one of "The Top 50 Tax Professionals in America" by CPA Magazine. Joe recently received the 2008 AICPA Tax Division Award for Exemplary Public Service. You can reach him at his Web site: www.walloch.com.
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