Since Congress passed the 2009 Recovery Act back in February, the Internal Revenue Service has released more guidance on extended net operating losses carry-back for small businesses (NOL), the Making Work Pay credit, the first-time homebuyer tax credit, new sales tax deduction for automobile purchases, and the COBRA subsidy.
The net operating loss carry-back allows businesses can offset the loss against income earned in five prior years. This special break is intended to accelerate refunds and generate cash for struggling small businesses.
Do not overlook the NOL carry-back if your small business is in a loss situation. The requirements for the carry-back are somewhat complicated, so you might want to contact your tax professional to find out about its application to your circumstances.
Most employers have implemented the Making Work Pay credit act, and it is an automatic increase of $400 for single taxpayers and $800 for those married filing jointly. You might want to take a look into your situation in order to determine if the credit pushes you into a higher tax bracket, so you are not confronted by any surprises at tax time. For some taxpayers, the Making Work Pay credit creates a situation where they might want to submit an adjusted W-4 form to guarantee sufficient withholding.
The 2009 Recovery Act raised the first-time homebuyer tax credit to $8000 and removed the repayment obligation for those purchasing a home in 2009. The credit has income restrictions and begins to phase out for single taxpayers with an Adjusted Gross Income of $75,000 and married couples filing jointly with an AGI of $150,000.
Social Security recipients, retired government employees, and disabled veterans might qualify for an economic recovery payment of $250. This payment will be a reduction to any Making Work Pay credit for which the taxpayer might qualify.
If you lost your job between September 1, 2008 and December 31, 2009, you may qualify for a 65% COBRA premium subsidy. If you are eligible, you pay only 35% of the COBRA premium and your former employer pays 65%. The COBRA subsidy faces out for single taxpayers with an Adjusted Gross Income of $125,000 and married couple filing jointly with an AGI of $250,000. Single tax payers earning more than $145,000 and married couples filing jointly with an income over $290,000 do not qualify for the COBRA subsidy at all.
State and local sales and excise taxes paid on the purchase of a new car, light truck, motorcycle, or mobile home are a deduction for 2009. The deduction is good for the tax on the first $49,500 of the vehicle cost. This deduction is limited to single taxpayers earning up to $135,000 and couples married and filing jointly with income up to $260,000.
In this period of economic recovery Congress has introduced a number of incentives in the 2009 Recovery Act. Since these incentives affect majority of taxpayers including self-employed people, people who lost jobs due to economic downturn and first time home buyers, it is better to know the fine prints of these incentives. These incentives will affect your 2009 tax return. Chintamani Abhyankar discusses these fine prints.