2009 TAX NEWSLETTER

• Bonus Depreciation. The 50% first year "bonus depreciation" deduction for qualifying new property (recovery period of 20 years or less) was extended for property placed in service through December 31, 2009. New farm machinery qualifies for a 5 year recovery period for 2009 only.
• Cancellation of Debt Income. A 1099C for Discharge of Indebtedness is generally included in gross income. However, for 2009 and 2010 you may elect to defer the CODI in gross income ratably over 5 tax years, beginning in 2014.
• Capital Gains and Dividends Rate. Individuals will generally pay tax on long-term capital gains and dividends received from their qualified stock and mutual funds, held outside of a tax-deferred plan, at a maximum rate of 15%. However, for those in the lower 10% or 15% income tax brackets the rate is 0% from 2008 to 2010. Both rates will revert back to ordinary rates after 2010. This allows for some tax planning for 2009 and 2010 if your taxable income is less than $67,900, joint; $45,500, head of household; $33,950, single.
• COBRA Premium Assistance. The Federal government subsidized up to 65% of an involuntarily terminated worker's COBRA premium for a maximum of 9 months of coverage. The job loss must have occurred between September 1, 2008 and December 31, 2009. The credit is claimed on line 12a of Employers Quarterly Federal Tax Return.
• Economic Recovery Payment. The one time payment of $250 for eligible social security beneficiaries is excluded from federal gross income. No payments will be made after December 31, 2010, so you should contact SSA, VA or RRB if you have not received your payment.
• Energy Tax Incentives. For 2009 and 2010, there is a 30% credit for the cost of energy-efficient improvements to your existing home for insulation, skylights, outside doors, windows, metal and asphalt roofs, water heaters and heating and air conditioning systems. The maximum credit is $1,500 for items installed in your primary home. There is still a 30% credit for the cost of solar, geothermal and wind energy systems used to heat air or water. Certain hybrid gas, diesel, battery-electric and fuel cell vehicles may still be eligible for tax credits. A plug-in electric vehicle credit, ranging from $2,500 to $7,500, applies to certified vehicles purchased or placed in service on or after February 17, 2009.
• Existing Homebuyer Tax Credit. Beginning November 7, 2009, a current homeowner who has lived in their existing home for 5 consecutive years of the previous 8 years may be eligible for a maximum $6,500 tax credit on a new home purchased (not exceeding $800,000) as their principal residence. Single taxpayers with incomes up to $125,000 and married couples with incomes up to $225,000 qualify for the full tax credit on purchases after November 7, 2009 and before May 1, 2010.
• First Time Homebuyer Tax Credit. There were two tax credits and an extension available for first-time home buyers (no ownership in 3 year prior period). If you purchased a home before May 1, 2010, the credit is 10% of the home purchase price up to a maximum credit of $8,000. The credit does not have to be paid back as long as you live in your home for 36 months. Single taxpayers with incomes up to $75,000 and married couples with incomes up to $150,000 qualify for the full tax credit on purchases prior to December 1, 2009. For homes purchased after April 8, 2008 and before July 1, 2009, the maximum credit was $7,000 and worked like an interest-free loan that must be repaid beginning 2 years after the year of purchase over a 15-year period. The extension credit increases income limits after November 7, 2009 for single taxpayers to $125,000 and married couples to $225,000 and limits the purchase price to $800,000
• Hope Credit. For tax years 2009 and 2010, if you, your spouse or dependent incur qualified tuition and course materials expenses for post-secondary education, you may be able to claim an American Opportunity Credit (now available all four years) - new maximum credit of $2,500 per year. Eligibility for the credit is phased out as AGI increases from $160,000 to $180,000 (married filing joint) and $80,000 to $90,000 (single and head of household). Up to 40% of the new credit is refundable if the taxpayer is not subject to the kiddie tax. Eligible expenses now include tuition, fees and course materials.
• IRA Conversions. In 2010, there will be no $100,000 AGI limit on converting traditional IRAs to Roth IRAs. Furthermore, tax on the conversions occurring in 2010 can be spread evenly over a two-year period in tax year 2011 and 2012 or all paid in tax year 2010. One caution to the deferral is that you might expect the tax rates to be higher in 2011 and thereafter.
• Making Work Pay Credit. Most taxpayers with income less than $75,000, single or $150,000, joint qualified for the credit delivered through reduced payroll withholding beginning April 1, 2009. The annual maximum credit is $400 single and $800 joint for 2009 and 2010 and will be calculated on Schedule M.
• Property Tax Deduction for Non-Itemizers. For tax year 2009, even if you do not itemize, you can deduct the lesser of actual state and local real property taxes paid for the year, or $500, single and $1,000, married filing joint as an addition to the standard deduction.
• Required Minimum Distribution. For 2009 only, the RMD rules were waived. Forgoing the distribution is optional, allowing planning opportunities up until December 31, 2009. Traditional IRA required minimum distributions generally begin by April 1 of the year following attainment of age 70 ½. If you are 70 ½ or older and are required to take a distribution from your traditional, SEP or SIMPLE IRA the last day to do so is December 31. Meeting the deadline is important because the IRS may assess a 50% penalty on any amount not distributed as required. The waiver was not extended past 2009.
• Sales Tax Deduction for Non-Itemizers. For new auto purchases from February 17 through December 31, 2009, even if you do not itemize, you can deduct the lesser of actual state and local taxes paid for the year, or the sales tax paid on up to $49,500 for a new vehicle as an addition to the standard deduction.
• Unemployment Compensation. For 2009, $2,400 of unemployment compensation is excluded from federal income tax for each spouse.

Annual Updates

• Adoption Credit. The maximum adoption credit allowed in 2009 is the amount of adoption expenses up to $12,150. The adoption credit begins to phase out for taxpayers with modified adjusted gross income in excess of $182,180 to $222,180.
• Alternative Minimum Tax. The AMT is a parallel tax system directed at taxpayers who pay too little regular income tax because of the use of certain deductions, credits and tax preferences. The AMT tax rates are 26% on AMT income of up to $175,000 and 28% on AMT income above $175,000. The AMT exemption amount was increased for 2009 to $70,950 for married couples filing jointly and surviving spouses, $46,700 for single and head of household taxpayers and $35,475 for married couples filing separately and nonrefundable personal credits may be applied to AMT tax.
• Automobile Depreciation. 2009 passenger auto depreciation is $2,960; light trucks and vans is $3,060. However, if the auto, truck or van is new, the additional first year deduction is increased to $10,960 for autos and $11,060 for trucks and vans weighing 6,000 lbs or less. Heavier luxury sports utility vehicles between 6,000 and 14,000 pounds have a section 179 limit of $25,000, with any excess depreciated using MACRS and bonus depreciation rules.
• Capital Gains and Losses. For capital assets held more than one year, the top tax rate on net capital gains remains at 15%. However, for those in the lower 10% or 15% income tax brackets the rate is 0% from 2008 to 2010. With proper planning some taxpayers could generate income, implement various asset management strategies or satisfy gift and income shifting objectives at no tax cost. Collectibles or realty, up to the amount of prior allowable depreciation, are taxed at 28% and 25%, respectively. The IRS now says that an office located within the home does not have to be treated as business property when the residence is sold. If you qualify for the capital gain exclusion on sale of a residence ($250,000 for single and $500,000 for joint filers), only capital gain up to the amount of allowable depreciation would be taxable at a maximum rate of 25%. Capital losses are fully deductible against capital gains with any excess deductible against ordinary income of up to $3,000 per year.
• Charitable Contributions. Cash donations will no longer be deductible without a receipt from the charity showing its name, date and amount of contribution or a canceled check, bank record or pay stub showing date and name of the charity. A receipt is needed for donations of clothing and household goods and will only be allowed for items in good used condition. The charitable deduction for a vehicle is generally limited to the proceeds from the vehicle resale by the charity.
• Charitable IRA Distributions. Extended through 12/31/09, up to $100,000 per year of qualified IRA distributions made directly to an IRA trustee of a qualified charitable organization by an IRA owner who is 70 ½ years old will be tax free. A charitable deduction may be available for the basis reduction.
• Child or Dependent Care Credit. A credit is available for 20% or more of your eligible employment-related child or dependent care expenses to a maximum of $3,000 for one dependent or $6,000 for two or more dependents if not already deducted by an employer in a cafeteria plan.
• Child Tax Credit. The tax credit for each dependent child under age 17 in 2009 is $1,000. The child tax credit begins to be phased out on tax returns with modified adjusted gross income in excess of $110,000 for married filing joint taxpayers, $75,000 for single or head of household filers, and $55,000 for married taxpayers filing separate returns. The law also makes the child tax credit refundable to the extent of 15% of the taxpayer’s earned income in excess of $3,000.
• City of Lebanon Occupational License Tax. Ordinance No. 07-17 requires every business to obtain a license, file an annual license fee return and withhold on gross wages before deduction for pension, profit sharing or other salary reduction agreement and file returns accordingly.
• Combat Zone and Armed Forces. There are several exclusions and credits related to combat pay for individuals serving in the armed forces in a combat zone. In addition, there are provisions for extensions for filing returns and paying taxes and licenses.
• Coverdell Education Savings Accounts. An education savings account is a trust created exclusively for the purpose of paying the qualified higher education expenses of a designated beneficiary if certain requirements are met. A contribution of up to $2,000 per child is available for joint filers with $190,000-$220,000 of AGI, and single filers with $95,000-$110,000. (Any contributions to an Educational Savings Account do not affect ability to contribute to a Traditional or Roth IRA.) Contributions may be made as late as April 15 of the following year. Tax-free withdrawals may be used to pay for qualifying costs not only at college but also at any level of education from kindergarten through graduate school. Covered expenses include tuition, fees, room, board, books, computer equipment, and uniforms.
• Domestic Production Activity Deduction. Certain taxpayers that report income from lease, rental, license, sale, exchange or other disposition of qualifying production property that is manufactured, produced, grown or extracted by the taxpayer within the U. S. may be eligible to receive a maximum 6% (9% after 2009) deduction on their Form 1040 if they have W-2 production wages.
• Educator Expense. A Federal deduction of up to $250 of unreimbursed qualified expenses for items used in the classroom was extended through 12/31/2009. You must be a kindergarten through 12th grade teacher, principal, counselor or aide who works at least 900 hours during a school year.
• Electronic Filing. The IRS e-file program has many benefits for taxpayers. Tax refunds are received in half the time compared with paper filing and are received even faster with direct deposit. The IRS e-file computer system quickly checks for errors and omissions, thereby reducing the likelihood that a taxpayer will receive an error notice from the IRS. IRS e-file provides a proof of receipt within 48 hours to confirm that a tax return has been accepted. Taxpayers with a balance due may also choose to e-file early and schedule a payment for a future date. Please advise us when you bring in your information if you want direct deposit so we can check routing and account numbers.
• Electronic Payment. The Internal Revenue Service (IRS) is now letting individuals pay their federal tax and their estimated tax payments via its Electronic Federal Tax Payment System (EFTPS) over the internet. Millions of businesses already use EFTPS to make payroll tax deposits over the Internet. Sign up by filling out an enrollment form at the EFTPS Web site, www.eftps.gov. You will get a personal identification number (PIN) from the IRS in approximately 15 days with instructions on how to obtain an Internet password. Armed with your PIN and password, you can then send payment instructions to the IRS over the Internet, and EFTPS will automatically debit your bank account. Payment instructions must be initiated at least one day before they are due, but can be scheduled up to one year in advance.
• E-Mail. Our tax software will allow us to e-mail your tax return to you electronically for review if you provide us your e-mail address. You will need Adobe Acrobat Reader 5.0, or higher, for this option to work.
• Estate Planning. The federal estate tax exclusion is $3,500,000 for 2009. For deaths occurring in 2010, there was scheduled to be no estate tax for that year only and in 2011, under the general “sunset” provision of the law, estate taxes were due to return. We believe there will be additional legislation passed to change this and to at least hold the exclusion to the 2009 amount. If there is estate tax repeal, the unlimited marital deduction is also eliminated. The stepped-up basis that estates now enjoy will be replaced by new modified carryover basis rules. Stepped-up basis allows property to be transferred after death without paying capital gains tax that would have been due had the same property been sold before death. Tax will continue on lifetime gifts above a $1 million exemption. Don’t Drop Plans or Protection—Be careful about changing estate plans already made or dropping insurance coverage designed to pay estate taxes. Count on estate planning complexity to continue for the next decade. People who assume their estate will owe no tax, because of the increasing Unified Credit Exemption Equivalent, may leave heirs vulnerable to new estate tax rules Congress may create in the future. If insurance coverage is canceled, there is no guarantee that it can be replaced at the same rates in the future.
• Estimated Tax Payment. The 4th quarter payment is due January 15, 2010. For 2009, an underpayment penalty may be assessed if you have not paid in estimated tax payments equal to 90% of the tax liability on the prior years return. Also, if you itemize deductions for federal purposes and are required to make Kentucky estimated payments, it is recommended that you make your Kentucky 4th quarter estimate before December 31, 2009.
• Exemption Amount. Personal and dependent exemption amounts are $3,650 in 2009 and 2010. Significant changes in the definition of a qualifying child occurred after 2008. The Adjusted Gross Income phase-out of the exemption starts at $250,200 for married taxpayers filing jointly, $166,800 for single filers, $125,100 for married filing separately and $208,500 for head of household filers. The phase-out is currently scheduled to be eliminated in 2010 but returns in 2011.
• Farm Disaster Assistance. If you sold more livestock than you normally would during the year because of drought, flood, or other weather-related conditions, you can include the income from selling the additional livestock in next year’s income. To qualify, the weather-related condition must result in an area designated as eligible for assistance by the federal government. The livestock does not have to be raised or sold in the disaster area, but the sale must occur solely because of weather-related conditions that affect the water, grazing, or other requirements of the livestock. Disaster payments, insurance or federal assistance money, received as a result of crop damage or destruction is generally taxable in the year received. You may, however, be eligible to elect to defer such payments until next year’s tax return by showing that income from the damaged crops would have been reported in the next year or later.
• Gift Exclusion. The annual gift tax exclusion is $13,000 in 2009 and 2010.
• Health Savings Account. A health savings account (HSA) is a tax-exempt trust or custodial account that you set up any time during the year with a U.S. financial institution which allows you to pay or be reimbursed for certain medical expenses. This account must be used in conjunction with a high deductible health plan (HDHP).Tax-favored HSAs can be established by eligible individuals who are covered by a high deductible health plan and not covered by any other health plan. For 2010, a health plan with deductibles of $1,200-individual and $2,400-family, with out of pocket limits of $5,950- individual and $11,900-family is a high deductible plan. For 2010, if you have self-only coverage, you can contribute up to the amount of your annual health plan deductible, but not more than $3,050. If you have family coverage, you can contribute up to the amount of your annual health plan deductible, but not more than $6150 ($1000 addition if you 55 or older). The HSA can be established using a qualified trustee or custodian that is different from the HDHP provider. Contributions to an HSA must be made in cash or through a cafeteria plan. You may enjoy several benefits from having an HSA. You can claim a tax deduction for contributions you make even if you do not itemize your deductions on Form 1040. Contributions made by your employer (including contributions made through a cafeteria plan) may be excluded from your gross income. The contributions remain in your account from year to year until you use them.The interest or other earnings on the assets in the account are tax-free. Distributions aren’t taxed if you pay qualified medical expenses.
• Interest on Higher Education Loans Deduction. Interest you pay on education loans used to pay tuition, room and board and other related educational costs can be deducted up to a limit of $2,500 for 2009 and 2010. The income limits to claim the deduction are $120,000 - $150,000 for joint filers and $60,000 - $75,000 for single filers. The interest deduction may be taken directly from gross income.
• IRA Conversions. Conversion from an IRA to a ROTH IRA can be made at any time. The 10% tax on early withdrawal does not apply to the conversion. However, if you withdraw these funds from the ROTH within the five-year period beginning with the year of conversion then that withdrawal is subject to a 10% penalty. Currently, only taxpayers with an adjusted gross income of less than $100,000 are eligible to roll over or convert an IRA into a ROTH IRA. However, the new law eliminates the income limits for conversion after December 31, 2009 (see new legislation section).
• IRA Provisions. The total amount you may contribute to a deductible IRA plan is $5,000 in 2009 and 2010. The “catch-up” provision for taxpayers over age 50 is $1,000. Contributions for a tax year must be made before the tax filing deadline-no extensions. The adjusted gross income phase-out for traditional IRAs for taxpayers who are active participants in a pension plan is $55,000 - $65,000 for single filers; $89,000 - $109,000 for joint filers; and $0 - $10,000 for married filing separately. For 2009, if you are not covered by a retirement plan, but you either live with or file a joint return with a spouse, then your IRA deduction is phased out if your AGI is more than $166,000, but less than $176,000. If your AGI is more than $176,000, you cannot take a deduction for contributions to a traditional IRA. The minimum distribution options for an inherited IRA vary and depend on whether the owner died before or after the required beginning date for distributions. A spouse can roll the inherited IRA into their own IRA account or elect to be treated as a beneficiary. A non-spouse beneficiary must take required minimum distributions determined under IRS rules.
• Itemized Deduction Limitations. For 2009, taxpayers with adjusted gross income over $166,800 ($83,400, Married filing separate) will have their itemized deductions reduced by 3% of adjusted gross income. Timing of deductions may allow you to maximize your itemized and standard deduction election. The phase-out is currently scheduled to be eliminated in 2010 but returns in 2011.
• Kentucky Limited Liability Entity Tax. Limited liability pass-through entities will be subject to the Limited Liability Entity Tax (LLET) imposed by KRS 141.0401 (2). Each separate “corporate entity” will pay the greater of corporate income tax, alternative minimum calculation tax (based on gross receipts or gross profits if greater than $3,000,000) or $175. All other “corporate entities” will now report their distributive share income on their individual tax returns after December 31, 2006 and pay tax at the individual level.
• Kentucky Pension Exclusion. Kentucky's pension exclusion from income tax remains at $41,110.
• Kiddie Tax. Any unearned income above $1,900 of a child under 19 and full time students under age 24 will be taxed at the top rate of the parent unless the child provides more than one-half of own support with earned income.
• Lifetime Learning Credit. If you, your spouse or dependent incur qualified tuition and required fees for post-secondary education, you may be able to claim a Lifetime Learning Credit-maximum credit of $2,000 per taxpayer return. Eligibility for the credits is phased out as AGI increases from $100,000 to $120,000 (married filing joint) and $50,000 to $60,000 (single & head of household).
• Mileage Rate Allowances. The standard mileage rate allowed for business use of a car is 55¢ per mile for 2009. This rate is used to calculate the tax deduction for business travel for up to four vehicles as an alternative to deducting actual costs of maintaining an automobile. The charitable mileage rate is 14¢ per mile and medical and moving rates are 24¢ for 2009. The mileage rates for 2010 are 50¢ for business use, 16.5¢ for medical and moving expenses and 14¢ for charitable expenses.
• Minimum Wage. The federal minimum wage increased to $7.25 per hour effective July 24, 2009.
• Mortgage Debt Forgiveness. You may qualify to exclude from federal gross income, debt forgiveness on your principal residence (does not apply to vacation homes, rental or business property, credit cards or auto loans) from 2007-2012.
• National Guard/Reserve Travel. Members of National Guard and Reserve units traveling at least 100 miles away from home and overnight may deduct their travel expenses. Federal and Kentucky both treat this as a deduction from Adjusted Gross Income.
• Net Operating Loss Carryback. A net operating loss may be carried back 2 years and forward 20 years. The new law will allow an election of carryback for up to 6 years for tax losses in 2008 and 2009.
• Private Mortgage Insurance Deduction. Homeowners with low down payment loans will be able to deduct the cost of their mortgage insurance premiums on mortgage insurance contracts issued after 1/1/ 2007 if adjusted gross income is $100,000 or less (or $50,000 if you are married and filing separately). The deduction is reduced for adjusted gross incomes between $100,000 and $110,000 and phases out completely if your adjusted gross income is $110,000 or more. The new law that makes PMI deductible was extended through 2010.
• Property Tax Homestead Exemption. Any persons who are 65 years of age or totally disabled who own real property used as their permanent residence qualify for a homestead exemption of $33,700 for 2009 against their property tax bill. Application with the county property valuation administrator where the applicant resides can be made in the year the resident turns 65 or becomes totally disabled. Only one application need be filed and only one exemption per residential unit is allowed. Any person making application and qualifying for the homestead exemption after property tax bills have been paid shall be entitled to a refund of property taxes paid in excess of the amount applicable to the value of the homestead exemption.
• Qualified Tuition Plans (529 Plans). Qualified Tuition Plans (Section 529 Plans) are tax-advantaged programs authorized for state, state-sponsored and private institutions. Contributions to Section 529 plans are made on an after-tax basis for federal tax purposes and some states allow deductions against state income taxes. Distributions made to a designated beneficiary are excluded from taxable income. Tax-free distributions can be taken against a variety of education expenses, including tuition, fees, books, supplies and the costs of supporting a special-needs student. New for 2009 and 2010, expenses for computer technology and equipment and internet access and related fees if necessary are also allowable distributions. It’s important to note hat penalties can apply at both the state and federal level on withdrawals that are not made for qualified education expenses and these withdrawals also are fully taxable. The major tax advantages of the 529 Plans are: a) Qualified withdrawals will be exempt from Federal and Kentucky Income Tax; b) No income earnings limits apply to Qualified Tuition Plans; and c) There are no annual limits on amounts that may be contributed to Qualified Tuition Plans. Each state has different contribution limits. In Kentucky, the limit is $100,000 per beneficiary; however, there may be a gift tax return due for excess contributions.
• Rate Changes. The tax brackets for 2009 are:



Rate	Single	Head of Household	Married Filing Joint/Surviving Spouse	Married Filing Separate
10%	$0 - 8,350	$0 - 11,950	$0 - 16,700	$0 - 8,350
15%	$8,351 - 33,950	$11,951 - 45,500	$16,701 - 67,900	$8,351 - 33,950
25%	$33,951 - 82,250	$45,501 - 117,450	$67,901 - 137,050	$33,951 - 68,525
28%	$82,251 - 171,550	$117,451 - 190,200	$137,051 - 208,850	$68,526 - 104,425
33%	$171,551 - 372,950	$190,201 - 372,950	$208,851 - 372,950	$104,426 - 186,475
35%	OVER $372,951	OVER $372,951	OVER $372,951	OVER $186,476



• Retirement Plan Contributions Listed below are the 2009 and 2010 employee/employer contribution limits for qualified plans and the “catch-up” provisions for taxpayers over age 50. The limit for defined contribution plans cannot exceed 100% of compensation. The maximum compensation allowed for the calculation is $245,000 in 2009 and 2010. The maximum deduction for employer contributions is 25% of all participants' compensation. A self-employed individual may contribute up to the lesser of 25% of net earnings (less ½ social security and retirement contribution) from the trade or business or $49,000. The salary dollars you contribute are not subject to Federal or State income tax until you receive a distribution from the plan and your contributions are invested on a tax-deferred basis. Employer contributions for a tax year must be made before the tax filing deadline including extensions.



Year	401(k), 403(b) & SAR-SEP	Over age 50	SIMPLE IRA Plan	Over Age 50	Defined Contribution Plan
2009 & 2010	$16,500	$22,000	$11,500	$14,000	$49,000



• ROTH IRA. Contributions made to a Roth IRA are not tax deductible. The major benefits of Roth IRAs are that earnings from investments are tax-free, there is no 70 1/2 age limit on making contributions; individuals of any age with compensation are eligible to contribute to a Roth IRA and there are no minimum distribution requirements for withdrawal during the owner’s lifetime. The total amount you may contribute to a Roth IRA plan is $5,000 in 2009 and 2010. The “catch-up” provision for taxpayers over age 50 is $1,000. Your ROTH IRA contribution is phased out if your adjusted gross income is $105,000 - $120,000 for single filers; $166,000 - $176,000 for joint filers; and $0 - $10,000 for married filing separately. A Roth IRA can be established at any time during the year but contributions for a tax year must be made before the owner’s tax filing deadline.
• Saver's Tax Credit. A maximum $1,000 tax credit will be available to individuals who put their own money into retirement plans and have AGI of $55,500 or less for joint filers, $41,625 or less for head of household or $27,750 or less for single filers. The percentage is 10%, 20% or 50% of qualified contributions based on AGI and filing status. The taxpayer must be at least 18 years old, not a full time student and not claimed as a dependent on another’s tax return. Example: A single filer contributes $2,000 to a Roth IRA and has AGI of $20,000. The credit will be calculated as 10% of $2,000 ($200). Since the credit reduces taxes dollar for dollar, this will be like getting a $200 “matching contribution” from the government.
• Section 179 Deduction. The Federal annual expense limit remains $250,000 for qualified depreciable property purchased and placed in service during 2009. The deduction is limited to the taxable income from the trade or business and is reduced dollar-for-dollar as asset acquisitions exceed $800,000. Heavier luxury sports utility vehicles between 6,000 and 14,000 pounds have a section 179 limit of $25,000. For tax years beginning 2010, the election reverts to $134,000 up to $530,000 of acquisitions. Kentucky’s annual maximum dollar limit for Section 179 is $25,000 for tax year 2009. The Kentucky deduction is limited to the taxable income from the trade or business and is reduced dollar-for-dollar as asset acquisitions exceed $200,000.
• Self-employed Health Insurance Deduction. Self-employed taxpayers can deduct 100% of their health insurance premiums (not in a pre-tax cafeteria plan) as an adjustment to income on their Federal and Kentucky returns.
• Small Company Retirement Plans. Small companies with 100 or fewer employees may take a tax credit of up to $500 against qualified plan expenses in each of the first three years after starting a new plan. The law simplifies the “top-heavy rules” which subject many small companies to complex requirements while making compliance with these rules more manageable.
• Social Security. The maximum FICA Wage Base is $106,800 for 2009 and 2010. Social Security recipients under full retirement age have an earnings limit of $14,160 for 2009 and 2010. The earnings test for an individual reaching full retirement age is $37,680 in 2009 and 2010. Those over full retirement age (65-67yrs) can continue to earn unlimited amounts without reduction in Social Security benefits. Wage earners and self-employed individuals earn one-quarter credit for each $1,090 in 2009, for up to four quarters per year. The optional method for SE tax has been increased to allow taxpayers to earn four quarters of coverage. If your AGI is above $32,000 to $44,000 for married filing joint or $25,000 to $34,000 for single filers then 50% to 85% of your Social Security benefits may be taxable.
• Standard Deduction. For 2009 and 2010, the federal standard deduction (for those who don’t itemize deductions) is $5,700 for single filers or married filing separate filers, $11,400 for married filing joint or qualifying widow, and $8,350 for head of household filers. You are entitled to an additional standard deduction of $1,100 for each married individual or $1,400 for single individuals if you are blind or 65 years of age or older. The standard deduction for dependent children is the greater of $950 or $300 plus earned income of the dependent up to $5,700. The Kentucky standard deduction is $2,190 for 2009.
• State and Local Sales Tax. Extended through 2009, taxpayers choose between deducting state and local income taxes or state and local sales taxes. There will be two options for determining the sales tax deduction; (1) accumulating receipts; or (2) using IRS sales tax tables and adding actual sales taxes paid for major items, such as vehicles, boats, etc. Please advise us of any purchases of out of state tangible personal property you made for use in Kentucky on which sales tax was not charged (i.e., catalog and internet purchases or magazine subscriptions). KRS 139.330 requires reporting on at least an annual basis at 6% of total out of state purchases.
• Tax Preparer Penalties. New rules for paid tax-return preparers are expected this year as the IRS seeks to increase taxpayer compliance. We will be asked to be more diligent in compliance, record management, questionable positions, and filing responsibilities. There will be significant penalties for non-compliance. We will be asking our clients to complete engagement letters, sign consent to use or release information forms, bring in more documentation to support deductions and retaining more records to support positions in case of review or audit.
• Tuition Deduction. Extended through 12/31/09, $4,000 in tuition costs can be deducted against taxable income for taxpayers with income limits below $65,000, single and $130,000, married filing joint. Taxpayers with income between $65,001 - $80,000, single and $130,001 - $160,000, joint will be limited to a $2,000 deduction. However, a deduction and an education credit cannot be taken for the same student in the same year. The deduction is not available to married couples filing separate returns.
• Work Opportunity Credit. Hiring of certain targeted employment groups that are certified by a designated local agency qualify the employer for a employer tax credit of 40% of up to $6,000 of first year wages (maximum $2,400 per employee).

THE FOLLOWING WARNING IS REQUIRED BY THE IRS WHENEVER TAX ADVICE IS GIVEN:

Phone: (270)-692-3141 or (800)-587-1761 | Fax: (270)-692-6693
Email: sh@spragenshigdonlaw.com

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