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Blended Family IRA Beneficiary Designation

Congress recently passed—and the President signed into law—the SECURE Act, landmark legislation that affects the rules for creating and maintaining employer-provided retirement plans. Whether you currently offer your employees a retirement plan, or are planning to do so, you should consider how these new rules may affect your current retirement plan (or your decision to create a new one).

Here is a look at some of the more important elements of the SECURE Act that have an impact on employer-sponsors of retirement plans. The changes in the law apply to both large employers and small employers, but some of the changes are especially beneficial to small employers. However, not all of the changes are favorable, and there may be steps you could take to minimize their impact. Please give me a call if you would like to discuss these matters.

It is easier for unrelated employers to band together to create a single retirement plan. A multiple employer plan (MEP) is a single plan maintained by two or more unrelated employers. Starting in 2021, the new rules reduce the barriers to creating and maintaining MEPs, which will help increase opportunities for small employers to band together to obtain more favorable investment results, while allowing for more efficient and less expensive management services.

New small employer automatic plan enrollment credit. Automatic enrollment is shown to increase employee participation and retirement savings. Starting in 2020, the new rules create a new tax credit of up to $500 per year to employers to defray start-up costs for new 401(k) plans and SIMPLE IRA plans that include automatic enrollment. The credit is in addition to an existing plan start-up credit, and is available for three years. The new credit is also available to employers who convert an existing plan to a plan with an automatic enrollment design.

Increased credit for small employer pension plan start-up costs. The new rules increase the credit for plan start-up costs to make it more affordable for small businesses to set up retirement plans. Starting in 2020, the credit is increased by changing the calculation of the flat dollar amount limit on the credit to the greater of

  1. $500, or
  2. The lesser of:
    1. $250 multiplied by the number of nonhighly compensated employees of the eligible employer who are eligible to participate in the plan, or
    2. $5,000.

The credit applies for up to three years.

Expand retirement savings by increasing the auto enrollment safe harbor cap. An annual nondiscrimination test called the actual deferral percentage (ADP) test applies to elective deferrals under a 401(k) plan. The ADP test is deemed to be satisfied if a 401(k) plan includes certain minimum matching or non-elective contributions under either of two safe harbor plan designs and meets certain other requirements. One of the safe harbor plans is an automatic enrollment safe harbor plan.

Starting in 2020, the new rules increase the cap on the default rate under an automatic enrollment safe harbor plan from 10% to 15%, but only for years after the participant’s first deemed election year. For the participant’s first deemed election year, the cap on the default rate is 10%.

Allow long-term part-time employees to participate in 401(k) plans. Currently, employers are generally allowed to exclude part-time employees (i.e., employees who work less than 1,000 hours per year) when providing certain types of retirement plans—like a 401(k) plan—to their employees. As women are more likely than men to work part-time, these rules can be especially harmful for women in preparing for retirement.

However, starting in 2021, the new rules will require most employers maintaining a 401(k) plan to have a dual eligibility requirement under which an employee must complete either a one-year-of-service requirement (with the 1,000-hour rule), or three consecutive years of service where the employee completes at least 500 hours of service per year. For employees who are eligible solely by reason of the new 500-hour rule, the employer will be allowed to exclude those employees from testing under the nondiscrimination and coverage rules, and from the application of the top-heavy rules.

Looser notice requirements and amendment timing rules to facilitate adoption of nonelective contribution 401(k) safe harbor plans. The actual deferral percentage nondiscrimination test is deemed to be satisfied if a 401(k) plan includes certain minimum matching or nonelective contributions under either of two plan designs (referred to as a “401(k) safe harbor plan”), as well as certain required rights and features, and satisfies a notice requirement. Under one type of 401(k) safe harbor plan, the plan either

  1. Satisfies a matching contribution requirement, or
  2. Provides for a nonelective contribution to a defined contribution plan of at least 3% of an employee’s compensation on behalf of each nonhighly compensated employee who is eligible to participate in the plan.

For plan years beginning after Dec. 31, 2019, the new rules change the nonelective contribution 401(k) safe harbor to provide greater flexibility, improve employee protection, and facilitate plan adoption. The new rules eliminate the safe harbor notice requirement, but maintain the requirement to allow employees to make or change an election at least once per year. The rules also permit amendments to nonelective status at any time before the 30th day before the close of the plan year. Amendments after that time are allowed if the amendment provides

  1. A nonelective contribution of at least 4% of compensation (rather than at least 3%) for all eligible employees for that plan year, and
  2. The plan is amended no later than the last day for distributing excess contributions for the plan year (i.e., by the close of following plan year).

Expanded portability of lifetime income options. Starting in 2020, the new rules permit certain retirement plans to make a direct trustee-to-trustee transfer to another employer-sponsored retirement plan, or IRA, of a lifetime income investment or distributions of a lifetime income investment in the form of a qualified plan distribution annuity, if a lifetime income investment is no longer authorized to be held as an investment option under the plan. This change permits participants to preserve their lifetime income investments and avoid surrender charges and fees.

Qualified employer plans barred from making loans through credit cards and similar arrangements. For loans made after Dec. 20, 2019, plan loans may no longer be distributed through credit cards or similar arrangements. This change is intended to ensure that plan loans are not used for routine or small purchases, thereby helping to preserve retirement savings.

Nondiscrimination rules modified to protect older, longer service participants in closed plans. Starting in 2020, the nondiscrimination rules as they pertain to closed pension plans (i.e., plans closed to new entrants) are being changed to permit existing participants to continue to accrue benefits. The modification will protect the benefits for older, longer-service employees as they near retirement.

Plans adopted by filing due date for year may be treated as in effect as of close of year. Starting in 2020, employers can elect to treat qualified retirement plans adopted after the close of a tax year, but before the due date (including extensions) of the tax return, as having been adopted as of the last day of the year. The additional time to establish a plan provides flexibility for employers who are considering adopting a plan, and the opportunity for employees to receive contributions for that earlier year.

New annual disclosures required for estimated lifetime income streams. The new rules (starting at a to-be-determined future date) will require that plan participants’ benefit statements include a lifetime income disclosure at least once during any 12-month period. The disclosure will have to illustrate the monthly payments the participant would receive if the total account balance were used to provide lifetime income streams, including a qualified joint and survivor annuity for the participant and the participant s surviving spouse and a single life annuity.

Fiduciary safe harbor added for selection of annuity providers. When a plan sponsor selects an annuity provider for the plan, the sponsor is considered a plan “fiduciary,” which generally means that the sponsor must discharge his or her duties with respect to the plan solely in the interests of plan participants and beneficiaries (this is known as the “prudence requirement”).

Starting on Dec. 20, 2019 (the date the SECURE Act was signed into law), fiduciaries have an optional safe harbor to satisfy the prudence requirement in their selection of an insurer for a guaranteed retirement income contract, and are protected from liability for any losses that may result to participants or beneficiaries due to an insurer’s future inability to satisfy its financial obligations under the terms of the contract. Removing ambiguity about the applicable fiduciary standard eliminates a roadblock to offering lifetime income benefit options under a plan.

Increased penalties for failure-to-file retirement plan returns. Starting in 2020, the new rules modify the failure-to-file penalties for retirement plan returns.

The penalty for failing to file a Form 5500 (for annual plan reporting) is changed to $250 per day, not to exceed $150,000.

A taxpayer’s failure to file a registration statement incurs a penalty of $10 per participant per day, not to exceed $50,000.

The failure to file a required notification of change results in a penalty of $10 per day, not to exceed $10,000.

The failure to provide a required withholding notice results in a penalty of $100 for each failure, not to exceed $50,000 for all failures during any calendar year.


If you would like to discuss any of the new laws, please call me at 513-731-6612.





William E. Hesch



2019 extender legislation – energy credits

In December, 2019, Congress passed legislation to extend some tax provisions until December 31, 2020.  Since some of the provisions had expired on December 31, 2018, congress not only extended the legislation but also resurrected the provisions retroactively to January 1, 2018.  This means that you not only can apply the tax breaks to your 2019 and 2020 tax returns, you can also amend your 2018 return to tax advantage of the tax savings if they apply to you.

The top tax breaks that have been brought back that will affect the individual taxpayer are:

  • The exclusion from income for the cancellation of acquisition debt on your principal residence (up to $2 million)
  • The mortgage insurance premiums deduction as resident interest
  • The 7.5% floor to deduct medical expenses on Schedule A of your individual tax return (instead of 10%)
  • A deduction for above-the-line tuition and fees
  • The deduction for nonbusiness energy property credit when you have energy-efficient improvements to your residence.

In addition to the nonbusiness energy credit, Congress also retroactively reinstated the energy-efficient home credit and the energy-efficient commercial buildings deduction for improvements back to January 1, 2018 through improvements placed in service by December 31, 2020.

The nonbusiness energy property credit and the residential energy-efficient property credit are for residential property owners.  The nonbusiness energy property credit is available when there are improvements for energy-efficient windows, doors, roofs and added insulation.  This credit is applied to the cost of the improvements but not the installation cost.  The residential energy-efficient property credit is applied the cost of qualified residential solar panels, solar water heating equipment, wind turbines, and geothermal heat pumps.  This credit is applied to the cost, as well as, the assembly and installation expenses.

The energy-efficient commercial buildings deduction was originally enacted in 2005 but expired on December 31, 2017.  With the retroactive reinstatement of this deduction (179D deduction), taxpayers may be able to claim the deduction for any qualifying property placed in service from January 1, 2006 through December 31, 2020 without filing amended tax returns.  The credit is applied to commercial property which includes apartment buildings with at least four stories.  The improvements must be made to the heating, cooling, ventilation, or hot water systems; interior lighting system; or to the building’s envelope.  The credit is up to $1.80 per square foot.  The credit is taken in the first year similar to bonus depreciation.

SECURE Act changes to IRA’s

Do you have an Individual Retirement Account (IRA)?  Are you 70 years or older?  If so, congress passed tax legislation late last year in the Setting Everyone Up for Retirement Enhancement Act of 2019 (SECURE Act) with changes that will benefit you in 2020.

Before December 31, 2019, you were not able to make traditional IRA contributions after you turned 70½.  Now the SECURE Act allows you to continue to contribute to your IRA as long as you have earned income. This is a benefit but there are complications if you make qualified charitable distributions from your IRA after 2019.

Another change is related to the IRA distributions.  Prior to December 31, 2019, you had to take required minimum distributions (RMDs) from your IRA or qualified retirement plan in the year you turned 70 ½.  Starting in 2020, you can put off taking the RMDs until you reach 72.  This change is only available to individuals who turn 70 ½ in 2020 or later.  If you turned 70 ½ prior to 2020, you are still required to take the RMDs or be subject to a penalty.

There was also a change to the Required Minimum Distribution on inherited IRA’s.  In the past, the RMDs could be extended out over several years depending on the beneficiary of the IRA.  The Secure Act has eliminated the RMD each year but the IRA must be fully distributed by the end of the 10th calendar year following the year of death.  There are some exceptions to this rule including distributions to the surviving spouse and minor children but for others, there is the 10 year distribution limit.

If you are near 70 years old or older and have an IRA, give us a call.  Let us help to ensure you are getting the best tax benefits from your IRA.


Under the Affordable Care Act, there are new reporting requirements for the employer to report the cost of coverage under an employer-sponsored group health plan. For years after 2011, employers generally are required to report the cost of health benefits provided on the Form W-2. All employers that provide “applicable employer-sponsored coverage” under a group health plan are subject to the reporting requirement.

The IRS Notices 2011-28 and 2012-9 provide transitional relief from the reporting requirements for the following:

    • Small employers(employers filing fewer than 250 Forms W-2 for the previous calendar year);
    • Self-insured plans of employers not subject to COBRA continuation coverage or similar requirements
    • Multiemployer plans;
    • HRAs;
    • Stand-alone dental and vision plans;
    • Employers furnishing W-2s to employees who terminate before the end of the calendar year and request a W-2 before the end of that calendar year

In the above situations, the new Form W-2 reporting requirements will not apply until the IRS publishes guidance giving at least six months advance notice of any change to the transition relief. The new Form W-2 reporting requirement is effective for taxable years beginning after 2012(the2012 W-2 due in January 2013).

If your business does not qualify for one of the exceptions above, then you must comply with the new W-2 reporting requirements. I have attached a chart from the IRS website which reviews the reporting requirements for Box 12, Code DD, and has no impact on the requirements to report these items elsewhere. For example; while contributions to Health Savings Arrangements (HSA) are not to be reported in Box 12, Code DD, certain HSA contributions are reported in Box 12, Code W.

Please contact our office if you wish to discuss how the new reporting requirements effect you individually. We will be happy to answer any question you might have.


  • Employers Hiring Tax Incentives
    • Qualified new hire:
      • Must sign affidavit on new IRS Form W-11 under penalties of perjury that he qualifies as a new hire…has not worked a total of 40 hours over 60 days prior to hire date.
      • Begins work for a qualified employer which is not a governmental entity (exclusive of a public higher education institute).
      • Not employed to replace another employee of employer unless such employee separated for cause or voluntarily quits work.
      • Is not a related party.
    • Applies to all new hires that began work after 2/3/10 and before 1/01/11, whether full time or part time.
    • Benefit to employer….does not pay 6.2% social security tax for wages paid to qualifying employee beginning 3/19/10 and ending 12/31/10.
    • If employee qualifies for New Hire Credit and Work Opportunity Tax Credit, employer has election to claim only one credit, not both.
  • Business credit for retention of new hire for one year,
    • Employer may claim a general business income tax credit equal or lesser than $1,000 or 6.2% of wages for each qualified new hire who:
      • Is employed on any date during tax year after 3/18/10.
      • Continues to be employed for a period not less than 52 consecutive weeks.
      • Receives wages during last 26 weeks of such period that are at least 80% of such wages during first 26 weeks.
    • Prospective planning points:
      • Prospective employee who is out of work and looking for a job needs to work only 40 hours during 60 day period prior to begin working.
      • Prospective employee should find out if employee qualifies for Work Opportunity Tax Credit, which may provide a better tax credit to employer and needs to be certified at time hired.
      • The credit may be claimed on a return for calendar year 2011 or any fiscal year ending 3/31/11 or later.
  • Employer tax credit for company paid health related insurance,
    • Small businesses who pay for 50% or more of the cost of health related premiums (i.e. – health insurance as well as dental, vision, long-term care, etc) qualify for a tax credit for 2010.
    • The credit ranges from 9% for company with 15 or less employees and average wages of $35,000 to 35% for a company with 10 or fewer employees and average of $25,000. For tax exempt organizations, the credit is limited to 25%
    • The 35% credit percentage decreases rapidly for employers with more employees and higher average wages.
    • Insurance premiums paid for owners and related parties do not qualify for the credit.


Proper Planning of Investments In Start-Up Businesses May Eliminate Tax on Gains.

Investors in new start-up businesses should consider the benefits of a provision in the Small Business Jobs act of 2010 which eliminates the tax on gains on the sale of Qualified Small Business (QSB) stock issued between September 27, 2010 and December 31, 2010 and held for more than 5 years.

The act modifies Section 1202, which is a tax provision intended to stimulate cash flow into new start-up companies by reducing the taxes on future gains. The provision was originally enacted in 1993 and excluded 50% of gains on Qualified Small business Stock. The exclusion was increased to 75% for stock acquired after February 17, 2009 and was increased to 100% for stock issued between September 27, 2010 and December 31, 2010.

Qualified Small Business Stock Defined

Qualified Small Business Stock is common or preferred stock which meets the following requirements:

    • Is stock in a domestic C corporation.
    • Is acquired by the investor at original issue. The original issuance requirement is designed to encourage inflows of new capital into businesses. The stock may be acquired through the exercise of an option, warrant, or conversion of convertible debt.
    • Is acquired in exchange for money, property (except stock) or services.
    • The corporation has aggregate gross assets of less than $50 million or less at all times prior to date of issue.
    • At least 80% of the value of the corporation’s assets is used in the active conduct of one or more qualified trades or businesses.

A Qualified Trade or Business means any business other than:

    • Any trade or business involving the performance of services in the fields of health, law, engineering, architecture, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage services, or any trade or business where the principal asset of such trade or business is the reputation or skill of one or more employees.
    • Banking, insurance, financing, leasing, investing or similar business.
    • Any farming business (including raising or harvesting trees).
    • Any mining or mineral extraction business.
    • Any business of operating a hotel, motel, restaurant or similar business.

The amount of gain that can be excluded from gross income under Section 1202 for any particular corporation over a taxpayer’s lifetime is limited to the greater of $10,000,000 or 10 times the adjusted basis of the stock.

In order to take full advantage of this provision investors should acquire the shares in a QSB before December 31, 2010. On January 1, 2011the exclusion percentage goes down to 75%. Likewise holders of convertible debt or vested options in a QSB should consider exercising before year end.

In addition entrepreneurs seeking financing prior to January 1, 2011 should consider operating as a C corporation in order that investors may take advantage of this provision.


Congress has approved and the President quickly signed a multi-billion dollar tax cut package, the Tax Relief, Unemployment Insurance Re authorization and Job Creation Act of 2010 (2010 Tax Relief Act) (H.R. 4853).  The new law follows through on the framework agreed to on December 6 by President Obama and GOP leaders in Congress.  The 2010 Tax Relief Act extends the Bush-era individual and capital gains/ dividend tax cuts for all taxpayers for two years.

The bill provides the following major changes:

  1. A patch to the Alternative Minimum Tax (AMT) so that 21 million taxpayers will not be subject to AMT for 2009.
  2. A one year 2% payroll tax cut for the employee’s portion of Social Security taxes on a wage base of up to $106,800.  Self-employed individuals will pay 10.4% in Social Security taxes on self-employment income up to the threshold of $106,800, which is also a 2% rate reduction.
  3. For business owners, the 100% bonus depreciation has been extended through 2011 and the 50% bonus depreciation now applies for 2012.

The top Federal estate tax rate beginning January 1, 2011 will be 35% and an individual will be able to transfer $5,000,000 to his heirs free from Federal estate tax.  This change will expire on December 31, 2012.  On January 1, 2013, the estate rate will go to 55% and the amount exempt from estate tax will decrease from $5,000,000 to $1,000,000.

The tax law changes are numerous and taxpayers should seek professional assistance in the preparation of their 2010 tax returns.  Beware, of “off the shelf” tax software for 2010 tax returns, which may not include these December 2010 tax changes.

For a detailed 11 page tax briefing on the new tax law by CCH a Wolters Kluwer business, go to, click on the link for “Latest Tax Legislation Updates” and click on the December 17, 2010 updates. There is also a comprehensive on line copy of the 2012/2013 Tax Planning Guide.  The tax planning guide provides tax planning tips for individuals and business owners.  To find answers to your estate tax and elder law questions go to where William E. Hesch is the estate planning attorney who provides answers to your questions.


Home Buyer Tax Credits

The National Association of Home Builders has set up a website to find answers to your questions about the $8,000 tax credit for first time home buyers and $6,500 tax credit for qualified repeat home buyers.

The “new” tax credit is available for qualified purchases with a binding sales contract in place on or before 4/30/2010 and closed by 6/30/2010.  For qualified military, Foreign Service or employees of the intelligence community, these dates are extended one year.

For sales occurring after November 6, 2009, the new law establishes higher income limits for the $8,000 tax credit of $125,000 for single taxpayers and $225,000 for married couples filing joint returns.

Dependency Exemption for Divorced or Separated Parents

If a taxpayer is a noncustodial parent and wants to claim a child as a dependent  then he or she must be sure to attach IRS Form 8332, Release/Revocation of Release of Claim to  Exemption for Child by Custodial Parent. This new rule is effective for  all divorce decrees entered into after July 2, 2008.  This new IRS regulation is first effective for 2009 tax returns and was not required in 2008 and prior years.  In 2008 and prior years non-custodial parents could attach relevant pages of the divorce decree to their tax return to claim a dependency exemption.

There is an exception to the new rule.  If the divorce decree was executed prior to July 2, 2008 and the decree constitutes a statement  substantially similar to Form 8832 under the requirements in effect at the time the decree was executed, then the non-custodial parent can attach relevant pages of the divorce decree to their tax return to qualify for the dependency exemption.

The IRS statute identifies three requirements to be met in order for the non-custodial parent to claim the dependency exemption.

The divorce decree must provide:

1. The exemption is available without regard to any conditions, such as payment of support.

2. The custodial parent will not claim the exemption and

3. The years in which the non-custodial parent can claim the deduction.

If the years are not identified in the decree, or if the decree requires the non custodial parent to pay child support to claim the exemption, then the exemption is not available to the non-custodial parent.


Higher Education Costs

The deduction for higher education costs expires at the end of 2009.  In addition the American Opportunity Credit replaces the Hope Credit with an increase in the maximum tax credit from $1,800 to $2,500 for 2009 and 2010.  Income phase-out levels are raised to $160,000 of adjusted gross income (AGI) for joint filers and $80,000 of AGI for single filers.  Also new is the change to make 40% of the tax credit refundable which should enable lower income taxpayers to get a tax refund for 2009 and 2010.

Depreciation Limits

Business owners need to review whether to accelerate into 2009 the purchase equipment that under Sec. 179 was planned to be purchased in 2010. The 50% bonus depreciation and higher limits under Sec. 179 to expense equipment purchased up to $250,000 will expire at the end of 2009.

Sales Tax Deduction for Purchased Vehicles

The deduction for sales tax paid on a new vehicle purchased (up to $49,500) will expire at the end of 2009. Taxpayers may elect to take the deduction as an addition to the standard deduction, as an additional itemized deduction along with the deduction for state and local taxes or as part of the deduction for state and local taxes.  The rules need to be reviewed carefully so that there is no double deduction and to determine whether the vehicle sales tax is deductible for Alternative Minimum Tax (AMT) purposes.  The deduction is phased out for taxpayers whose modified AGI is $135,000 or more for single filers and $260,000 or more for joint filers.

Making Work Pay Refundable Tax Credit

This provision provides a refundable tax credit of up to $400 for working individuals and up to $800 for married taxpayers filing joint returns in 2009 and 2010.  Through automated withholding changes that began this spring, most individuals with earned income that is subject to withholding received an increase in their paychecks.  Pensioners do not qualify for this credit unless they have earned income.  However, the new withholding tables apply to all taxpayers, including pensioners. Pensioners and other taxpayers (including those who have more than one job and whose earnings in those jobs are subject to withholding) need to determine if enough tax is being withheld.  If necessary, adjustments to withholding can be made by filing FORM W-4P, Withholding Certificate for Pension or Annuity Payments.  More information on this credit can be found in News Release 2009-13 and Publication 15-T.

Roth IRA  New Rules for 2010

The conversion of a traditional IRA to a Roth IRA, previously only available to those with modified adjusted gross income of less than $100,000, will be available in 2010.They are enabling anyone to make the rollover, and they’re allowing you to pay tax on the rollover in two installments. If you do the rollover in January 2010, you can pay the tax in 2012 and 2013 (on the 2011 and 2012 returns). The government determined that when you convert, it means they get more tax revenue.  Since most people don’t like to pay up front, the government gives a tax break to encourage taxpayers to do it.  The decision to do it or not will be a major question for CPAs to deal with this coming tax season.  Upper-income taxpayers should consider making nondeductible IRA contributions for 2009 up to April 15, 2010, and that way the client can convert the funds from a nondeductible traditional IRA to a Roth IRA. It’s a way to put them in line to take greater advantage of the Roth IRA.

Health Savings Accounts

The HSA is a tax-deductible savings account that may be funded by employees, employers or both.  It must be coupled with a Health Insurance Plan that requires the insured to first pay a deductible (the amount of money which the insured party must pay) before the insurance company’s coverage begins.  This is called a “High Deductible or Catastrophic” Health Plan.  The policy can be in the form of a HMO, PPO or indemnity plan, as long as it meets the HDHP requirements.  The deductible amount has a minimum and maximum which is determined by the Internal Revenue Service (IRS) each year. The 2009 amounts are $3,050 for single and $6,150 for family coverage. The beauty of the HSA is that unused funds may be rolled over year after year and employers may offer HSAs as an alternative to traditional health plans by paying into the accounts as well.  Everyone may participate in an HSA, including people who have no earned income.  There is no age limit for withdrawals from the account, as compared to the Traditional IRA which requires minimum distributions at age 70½.

The established HSA account can be funded as often as the holder desires, up to the maximum annual amount allowed by law.  It is most effective if the holder contributes a regular amount into the account and then uses it to pay for doctor visits, prescriptions and other medical care.  These accounts may have a nominal monthly cost and earn interest.  The preferred tax treatment of the HSA comes with some conditions.  There are forms to be filed with the tax returns and employers with plans will include information on the employee W-2s.  As long as the account is held and used for medical costs, it is not taxable to the account holder.  Use for nonmedical reasons prior to age 65 may be subject to penalties.  Taxpayers should retain all receipts as proof that spending is approved healthcare costs. Other restrictions may apply.

NOL – 5 Year Carry Back for Business – Extended 1 Year (2008 – 2009)

The new NOL carryback provision benefits businesses experiencing financial difficulty by expanding their ability to use net operating losses attributable to 2008 or 2009.  Taxpayers can elect to carry back a 2008 or 2009 NOL for three, four, or five years, instead of the normal two years.  The tax advantage of the extended carryback period is tempered by a limitation of the NOL amount that can offset income from the fifth tax year proceeding the loss year. Under the new law, the amount of any NOL that can be carried back to that fifth out year cannot exceed 50 percent of the taxpayer’s taxable income for such a fifth year. Taxpayers can make the election under the new law for only one year, either for 2008 NOLs or 2009 NOLs, but not for both.  Qualifying small businesses (those with $15 million or less in gross receipts) that  have elected the five-year carryback for 2008 NOLs under the 2009 Recovery Act, under which no 50 percent limitation is imposed for the fifth carryback year, are allowed to elect a five-year carryback of their 2009 NOLs under the new law as well.

Taxpayers that qualify for the extended carryback period for applicable NOLs must make an affirmative election to use the longer carryback period. An election to use a four or five-year carryback period for an applicable loss from operations must be made by the due date, including extensions, for filing the return for the taxpayer’s last tax year beginning in 2009. Once an election is made, it cannot be revoked.

Standard Mileage  Rates

2009                        2010

Business miles driven                                 55 cents                  50 cents

Medical or moving miles                            24 cents                  16.5 cents

Charitable miles                                          14 cents                  14 cents

Maximize Retirement Plan Contributions for 2009

Maximizing your retirement plan contribution is the easiest way to defer income. Maximum contribution for 2009 are $16,500 for 401(k), $11,500 for SIMPLE plan if you are under age 50 by December 31, 2009.  If your will be 50 years old by the end of 2009 tax minimum limits are increased by $2,500 for SIMPLE  and $5,500 for each of the §401(k), §403(b), and §457 government plan.  If you attain age 70½  in 2009, you are not required to take the minimum distribution by April 1, 2010 for IRAs or defined contribution plans §401(k), §403 (a) and (b) annuity plans, and §457(b) plan.  This will help keep your AGI low as your taxable income will not have to absorb a distribution from your retirement account.

No Repeal of Federal Estate Tax for 2010

Congress has extended the $3,500,000 lifetime exclusion for estate purposes for one year, through 12/31/2010.  The federal estate tax which had been scheduled to be  repealed effective 1/1/2010 has been reinstated for 2010 at the same rates and exemptions currently in place for 2009.


Cincinnati Estate Tax Rules Relating to Debt Discharged in Connection With Your Personal Residence

The Mortgage Forgiveness Debt Relief Act of 2007 and subsequent amendments allow taxpayers to exclude up to $2 million of income from the discharge of indebtedness as a result of debt discharge on their principal residence. This applies to debt forgiven in calendar years 2007 through 2012. This applies to foreclosures as well as short sales, so it is not required that the taxpayers stay in the home until the foreclosure.

The amount of cancellation of debt income on recourse loans is the amount of debt immediately prior to the cancellation minus the fair market value of the property (there is never any cancellation of debt on non-recourse loans). The cancellation of debt income is excluded from gross income by filing Form 982 with the taxpayer’s tax return for the year of discharge.

If the taxpayers stay in the same principal residence as part of a loan modification, they must reduce their basis in the home (but not below zero) by the amount of cancellation of debt income excluded. If the taxpayers no longer own the residence there are no basis adjustments required.

There may also be a gain on the foreclosure. The gain is the excess of the fair market value of the residence over the taxpayer’s basis (purchase price plus cost of major improvements) in the residence. If the property was owned and used as a personal residence for any two of the last five years prior to the date of foreclosure the taxpayers may exclude up to $500,000 ($250,000 if filing separate)of the gain from income. Any loss on the foreclosure of a personal residence is not deducted.

In conclusion The Mortgage Forgiveness Debt Relief Act of 2007 provides that taxpayers will not have to include any cancellation of debt income unless the amount of debt forgiven is over $2 million.