Kess on 2009 Tax Legislation: Economic Stimulus Act

• Changes for Individuals
  • Learning Objectives
  • Making Work Pay Credit
    • Unemployment Compensation
    • Earned Income Tax Credit
    • Child Tax Credit
    • Alternative Minimum Tax Relief
    • Small Business Owners’ Estimated Tax
• Changes for Housing and Transportation
  • Learning Objectives
  • First-time Homebuyer credit
    • Home Sale Exclusion
    • Home Energy Credits
    • Exclusion of Debt Forgiveness
    • Transit Passes
    • Deduction for Motor Vehicle Taxes
    • Credit for Plug-In Electric Vehicles
    • Credit for Certain Low-Speed Vehicles
    • Credit for Converting to a Plug-In Electric Vehicle
• Changes For Education and Health
  • Learning Objectives
  • American Opportunity Credit
    • Pell Grants
    • 529 Plans
    • COBRA for Unemployed Individuals
    • Health Coverage Tax credit
    • Health Coverage for Children
    • Public safety officers
• Retirement Changes
  • Learning Objectives
  • Required Minimum Distributions
    • Non-Spouse Rollovers
    • Roth IRA Conversions
    • Funding for Defined Benefit Plans
• Business Changes
  • Learning Objectives
  • First-Year Expensing
    • Bonus Depreciation
    • Rapid Depreciation of Race Horses
    • Net Operating Losses
    • Small Business Stock
    • Built-In Gains for S Corporations
    • Deferral of Discharge of Indebtedness Income
    • Domestic Production Activities Deduction
    • Work Opportunity Tax credit
    • Business Energy Credit
    • Funding Requirements for Defined Benefit Plans
    • Small Business Owners’ Estimated Tax
    • Corporate Estimated Tax
    • Withholding Tax on Goods and Services for Governments
    • Payroll Reductions for Cobra subsidies
    • Payroll for Making Work Pay Credit
    • FUTA Surtax
    • Filing Penalties for Partnerships and S Corporations
• Miscellaneous Changes, Changes Not Made, and Future Legislation
  • Learning Objectives
  • Estate and Gift Tax Changes for 2009 and Beyond
    • Changes Not Made
    • Expiring Provisions
    • Future Legislation
  • Answers to Study Questions
  • Sample Client Letters
  • Index
  • CPE Quizzer Instructions
  • CPE Quizzer
  • Answer Sheet
  • Evaluation Form

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Chapter 0 - Introduction

These are unprecedented economic times. The stock market has declined precipitously, foreclosures are up (one in every 466 U.S. homes received a foreclosure filing in January 2009), home prices have declined dramatically and unsold home inventory is high, and the unemployment rate is rising. To provide immediate relief for individuals, businesses, and state and local governments and to create ways to get the economy back on track, Congress enacted a massive package, the American Recovery and Reinvestment Act of 2009 (P.L. 111-5), which was signed into law on February 17, 2009. The package is the largest one in U.S. history. About one third of the $790 billion package is tax incentives under the American Recovery and Reinvestment Act of 2009 (the ’09 Stimulus Act).

The ’09 Stimulus Act provides a staggering $300 billion in tax breaks over 10 years and contains virtually no revenue raisers. The ’09 Stimulus Act contains more than 300 changes to the Internal Revenue Code. Most of the tax benefits (about $280 billion) are concentrated in 2009 and 2010, with many provisions retroactive to January 1, 2009. Many are effective starting on January 1, 2009, just as most Stimulus Act changes are effective on that date.

In addition, other recent new laws including the Worker, Retiree, and Employer Recovery Act (P.L. 110-458) and the Emergency Economic Stabilization Act of 2008 (P.L. 110-343) contain an array of tax changes. Most of the changes are temporary, applying for one or two years. Some of the changes are retroactive.

This course is designed to provide you not only with a solid overview of the various provisions in the new laws, it will also give you important practical pointers and suggestions on how to best take advantage of new opportunities created by the laws. More specifically, you will find two types of designations: Observations and Planning Pointers. Use the Observations to take note of certain facts that are vital to an understanding of a particular provision. Use the Planning Pointers as guidelines for actions, either positive or negative, to maximize opportunities presented by law changes. You will also find “Alerts” to emphasize how the changes affect prior year returns and may require the filing of amended returns to take advantage of tax saving opportunities. For simplicity, the American Recovery and Reinvestment Act of 2009 is usually referred to as the “’09 Stimulus Act” rather than specifying the full name of the act. Changes made by other recent legislation are included here; reference to these specific acts is made.

For greater details on the new rules discussed in this course you can review the CCH American Recovery and Reinvestment Act of 2009: Law, Explanation and Analysis.

The course is divided into six chapters. Chapter 1 covers general tax changes for individuals, including the highlight of the package: the new making work pay credit. Chapter 2 discusses changes affecting housing and transportation. Chapter 3 covers changes for education and health. Chapter 4 explains changes in retirement savings. Chapter 5 covers business tax changes. Chapter 6 is a roundup estate and gift tax changes for 2009, key changes that were not made by the American Recovery and Reinvestment Act of 2009, and various provisions that are set to expire at the end of 2009. At the end of each chapter are questions that can be used to ensure you have mastered the material in that chapter. Answers to the questions can be found at the end of the course. Also at the end of the course is Appendix A: Client Letters that you can use or adapt for use with your clients to inform them of the new law and how you can help them.

March 2009
Sidney Kess
Barbara Weltman

Course Objectives

This course was prepared to provide the participant with an overview of new tax legislation. Upon course completion, you will be able to:

• Identify who is eligible to receive the making work pay credit and how it will be paid

• Calculate the amount of employment benefits exempt from tax

• Define the income tax break for discharge of indebtedness related to a principal residence

• List revisions to the first-time homebuyer credit

• Identify new COBRA coverage for certain unemployed workers

• Define the new American Opportunity tax credit

• Determine which required minimum distributions have been suspended

• List the benefits of the new non-spouse rollover rules

• Calculate estimated 2009 taxes for small business owners

• Identity situations for which the reduced built-in gains tax for S corporations applies

• Explain estate and gift tax changes for 2009

• Describe tax changes that need to be addressed in the near future

About the Authors

SIDNEY KESS, Esq., CPA, JD, LL.M, is a nationally renowned tax expert and author or coauthor of hundreds of tax books on financial and estate planning. Having lectured to more than 700,000 practitioners on tax, financial, and estate planning, he is one of the nation’s best-known lecturers in Continuing Professional Education. Mr. Kess is consulting editor of CCH’s FINANCIAL AND ESTATE PLANNING and consultant for the CCH Estate Planning Guide. He is also the editor of CCH newsletters and author of numerous CCH books and audio programs. Mr. Kess is chairman of the advisory board of Tax Hotline and is a member of the PPC Tax Action Panel. He has edited a column on “Tax Tips” for the New York Law Journal for over 30 years. He has also written several AICPA tax workshops, audio and video programs, and is the recipient of the AICPA Distinguished Lecturer Award. Mr. Kess is often quoted in The Wall Street Journal, The New York Times, and other national publications. He was the national director of taxes at KMG Main Hurdman and a tax partner at KPMG Peat Marwick. For over 35 years he has chaired or conducted some of the leading estate, financial planning, and income tax conferences. Mr. Kess is the recipient of the AICPA’s Special Recognition Award for his many years of contributions to the AICPA’s Continuing Professional Education program. He received his JD from Harvard University School of Law and LL.M from New York University Graduate School of Law.

BARBARA WELTMAN, JD, has written extensively on a wide variety of tax, small business, and financial planning matters for both professionals and the general public. She is the coauthor, along with Sidney Kess, of CCH’s Individual and Small Business Tax Planning Guide and CCH’s Retirement Planning Guide. She is also the coauthor of a number of self-study programs for CCH. She is publisher of Big Ideas for Small Business® and she maintains a small business information Web site at www.barbaraweltman.com. Ms. Weltman is a graduate of Brooklyn Law School and a member of the New York State Bar.

Chapter 1 - Changes for Individuals

Learning Objectives

This chapter was prepared to enable participants to learn about changes made by the American Recovery and Reinvestment Tax Act affecting individuals, particularly the making work pay credit, the increase in the earned income tax credit, and the increase in the refundable portion of the child tax credit. It also explains changes for 2009 enacted by prior laws. More specifically, upon completion, you will be able to:

• Identify who is eligible to receive the making work pay credit and how it will be paid

• Cite individuals eligible for an alternative $250 one-time payment

• Determine the amount to which certain individuals are entitled to a larger earned income credit and a greater refundable child tax credit

• Calculate the amount of employment benefits exempt from tax

• Determine what special relief is given to prevent or reduce AMT liability in 2009

Introduction

The American Recovery and Reinvestment Act of 2009 (the ’09 Stimulus Act) introduced a new tax credit designed to put money into the pockets of working individuals. It also expanded the earned income credit and child tax credit so that eligible taxpayers will receive greater amounts. The purpose of these provisions is to give taxpayers, other than higher income taxpayers, more money to spend with the hopes that this will stimulate the economy. These changes apply for two years only: 2009 and 2010, unless Congress later extends them.

What should be noted at the outset is the fact that the new law does not make any changes in the marginal tax rates for individuals and does not change the favored rates on net capital gains and qualified dividends. These rates are set to run through 2010 and will expire automatically at that time unless Congress changes these rates prior to 2011.

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