Beware of expiring tax provisions

About this time every year, we enter a special season known as "Planning Time." With the children back in school, we begin our year-end tax-planning rituals. Eight months of 2009 are behind us, so have a fair idea by now of what our taxable income is going to look like for the year.

The planning process is becoming ever more complex with the year 2010 approaching. If you remember, when President George W. Bush came into office, a tax bill called EGTRRA was enacted. This law provided significant tax breaks; however, to meet budgetary requirements, these breaks were set to expire on Dec. 31, 2010. Since that time, more tax laws have passed that muddied the planning waters further. To assist you in your planning processes for 2009 and 2010, let's discuss the more significant expiring tax provisions coming in the next two years.

First, here is a little good news. Although the allowance of many personal tax credits as reductions in both the regular tax and the alternative minimum tax (AMT) will expire on Dec. 31, 2009, some credits are permanently allowed as reductions. The saverÂÂ’s tax credit, first-time homebuyer's credit and several credits related to energy efficiency, vehicles powered by electricity and other alternative motor vehicles will still be allowed as tax reductions for both systems. At the same time, the increased AMT exemption will expire on Dec. 31, 2009. If Congress does not change the law, millions more Americans will be added to the alternative minimum tax rolls in 2010.

Don't forget the first-time homebuyer credit will expire Nov. 30, 2009. The purchase of a home must be closed by Nov. 30. To be certain you can take advantage of this credit, sign a purchase contract for your home soon - preferably no later than Sept. 30.

Businesses involved in research and experimentation will lose a credit based on qualified expenditures after Dec. 31, 2009. The credit homebuilders get for constructing new energy-efficient homes will also expire at the end of this year. Certain small railroads receive a credit for track maintenance, generally $3,500 per track mile, and this break will go away on Dec. 31, 2009.

The deduction that elementary and secondary school teachers receive for purchasing class supplies expires at the end of this year, as does the additional standard deduction for state and local real property taxes. Unemployment compensation benefits will be fully taxable after Dec. 31, 2009, and the deduction of state and local sales tax will sunset on Dec. 31, too. If you want a deduction for state sales and excise tax on the purchase of an automobile, you better hurry and make your purchase. This provision also goes away at the end of this year.

Certain accelerated depreciation and qualified leasehold improvements will go away at the end of this year. Most notably, the additional bonus depreciation of 50 percent of the basis of qualified property will not be available after 2009. This, along with a reduction in the first year expensing of capital assets after Dec. 31, 2009, makes the purchase of needed equipment a top priority for 2009.

If your business is in a Renewal Community, employment tax credits will cease to exist after Dec. 31, 2009. The 65 percent credit against COBRA premiums will also end.

All in all, 73 tax breaks are set to expire on Dec. 31, 2009. Another 40 will expire in 2010. This will make tax planning and the timing of appropriate strategies both this year and next critical. Give us a call now and letÂÂ’s start planning to minimize your 2009 and 2010 income taxes.

These articles are intended to provide general resources for the tax and accounting needs of small businesses and individuals. Service2Client LLC is the author, but is not engaged in rendering specific legal, accounting, financial or professional advice. Service2Client LLC makes no representation that the recommendations of Service2Client LLC will achieve any result. The NSAD has not reviewed any of the Service2Client LLC content. Readers are encouraged to contact their CPA regarding the topics in these articles.

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