New Tax Laws Passed In 2009
During 2009 the President signed into law several Congressional Acts containing amendments to the Internal Revenue Code which could affect your tax liability for 2009. Just as important as we go forward into 2010 is the unfinished tax business of 2009 both at the Federal and State level which no doubt will be addressed in 2010.
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:
| - | The IRS does not initiate taxpayer communications through e-mail. | |
| - | The IRS does not request detailed personal information through e-mail. | |
| - | The IRS does not send e-mail requesting your PIN numbers, passwords or similar access information for credit cards, banks or other financial accounts. | |
| - | The IRS advises that if you receive an e-mail from someone claiming to be the IRS or directing you to an IRS site:- Do not reply. - Do not open any attachments. - Do not click on any links. |
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.
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