Getting the most out of the amnesty and avoiding any increased penalties will vary based on your particular tax situation.  If you are currently being audited, for example, and that audit will complete before November 8, you must wait until the audit completes and then pay the resulting tax liability.  If your audit will not be completed before the end of the amnesty period, things get a bit complicated.  You must estimate your expected tax liability (ideally with the help of an Illinois tax attorney) and pay that amount before the end of the amnesty period.  You’ll want to be careful with the estimate because if the audit comes up with a higher tax liability, you will be charged for the difference plus double penalties and interest.

For help navigating the tax amnesty, contact the Chicago tax attorneys of Horowitz and Weinstein.

We look forward to discussing with you in more detail any of the following that affect your particular situation.

FINISHED BUSINESS

1. IRS WARNING: SPAM: Throughout 2009 and continuing as late as January 4, 2010, the IRS has been issuing consumer warnings advising taxpayers about the fraudulent use of the IRS name in Phishing and Spam scams.  The basic rule is:

2. Retroactive Changes:  Haiti:

On the evening of January 22, 2010 the President signed the Haiti Assistance Income Tax Incentive Act that permits taxpayers to make contributions between January 12, 2010 and February 28, 2010 for Haitian relief and deduct those contributions on their 2009 tax return.  Moreover, the only documentation needed to vouch the deduction is a telephone bill if it shows the name of the donee organization, the date of the contribution, and the amount of the contribution.

3. 2010 Opportunity to Convert to Roth IRA.

2010 is the first year in which taxpayers may convert funds in traditional IRAs (as well as qualified retirement plan funds) to Roth IRAs regardless of their income level. A Roth IRA is a nondeductible IRA that allows income to accrue tax free.  Unlike traditional IRAs, Roth IRAs are not subject to taxation on distribution if certain age and timing requirements are met.  Conversions to a Roth IRA are subject to tax in the year of conversion.  In spite of the upfront tax liability, conversion may be desirable because distributions from Roth IRAs will be tax-free if the age and timing conditions are met.  Moreover, a Roth IRA owner does not have to commence lifetime required minimum distributions (RMDs) from Roth IRAs after he or she reaches age 70 1/2. Accordingly, if you do not need to withdraw funds from your IRA for living expenses, a Roth IRA allows you to accumulate tax free income for your beneficiaries.  Roth IRAs are popular now because account values are low and a special rule allows you to elect to defer the tax due on your conversion to 2011 and 2012.  By converting, you would be paying tax now for the future privilege of tax-free withdrawals, and freedom from the RMD rules. The conversion is not for everyone and if your account value drops you could end up paying tax on income you never receive.  However, it does have a reconversion option to mitigate your risk of declining account values for the next year.  Conversions are subject to several technical rules and strict time limits.  We can discuss with you whether a conversion is appropriate for your situation.

Read more of the New Tax Laws passed in 2009.

Alert: The following provisions are actual law as of December 31, 2008.  In January 2009, Congress is considering and expected to pass amendments which could further modify the following.

We look forward to discussing with you in more detail any of the following that affect your particular situation. 

1.       Alternative Minimum Tax:  To prevent millions of taxpayers falling prey to the AMT, Congress passed a one year stop gap extension of the AMT exemption.  For tax years 2008, and 2008 only, the AMT exemption amounts are increased from their 2007 level as follows:

·     From $66,250 to $69,950 in the case of married individuals filing a joint return and surviving spouses;

·     From $44,350 to $46,200 in the case of unmarried individuals other than surviving spouses; and

·     From $33,125 to $34,975 in the case of married individuals filing a separate return.

·     The significance is that without this one year extension and without a similar extension for 2009, substantially more taxpayers would be subject to Alternative Minimum Tax because the exemption would be:

·     $45,000 instead of $69,950 in the case of married individuals filing a joint return and surviving spouses;

·     $33,750 instead of $46,200 in the case of unmarried individuals other than surviving spouses; and

·     $22,500 instead of $34,975 in the case of married individuals filing a separate return.

2.   Deductions – Charitable:  Extends for 2008 and 2009 the up-to-$100,000 annual exclusion from gross income for taxpayers age 70 1/2; who make otherwise taxable individual retirement account (IRA) distributions that are qualified charitable distributions.

3.   Deduction – Section 179:  For tax years beginning in 2008, the maximum regular section 179 property expense deduction is $250,000.  The $250,000 limitation is reduced by the amount by which the cost of section 179 property placed in service during the tax year beginning in 2008 exceeds $800,000. 

4.   Depreciation – Passenger Automobiles:  For passenger automobiles placed in service in 2008, first year depreciation is increased by $8,000.  The maximum first year depreciation is $10,960.  The usual rules regarding deducting auto expense continue to apply.

5.   Depreciation – Recycling:  For property placed in service after Aug. 31, 2008, 50% first year bonus depreciation is allowed for any machinery and equipment (not including buildings or real estate), which is used exclusively to collect, distribute, or recycle scrap plastic, scrap glass, scrap textiles, scrap rubber, scrap packaging, recovered fiber, scrap ferrous and nonferrous metals or electronic scrap.

Visit the National Tax Law Firm of Horowitz & Weinstein for the full list of new tax laws.