Plug-In Electric Vehicle Credit (IRC 30 and IRC 30D)
Qualified Plug-in Electric Drive Motor Vehicles (IRC 30D)
Internal Revenue Code Section 30D provides a credit for Qualified Plug-in Electric Drive Motor Vehicles including passenger vehicles and light trucks. Some low speed vehicles may qualify for the credit if acquired prior to January 1, 2010. The amount of the credit for 2009 is equal to the sum of $ 2,500 plus $ 417 for each kilowatt-hour of traction battery capacity in excess of four kilowatt-hours. The maximum credit can range from $ 7,500 to $ 15,000, depending on the gross vehicle weight rating of the vehicle. For vehicles acquired after 12/31/2009, the maximum amount of the credit will be $7,500 and the 30D credit will no longer apply to low speed vehicles. However, the credit under section 30, discussed below, applies to certain low speed vehicles acquired after 12/31/2009. The vehicle must be acquired for use or lease and not for resale. Additionally, the original use of the vehicle must commence with the taxpayer and the vehicle must be used predominantly in the United States.
Section 30D originally was enacted in the Energy Improvement and Extension Act of 2008. The American Recovery and Reinvestment Act of 2009 amended section 30D effective for vehicles acquired after December 31, 2009. For purposes of the 30D credit, a vehicle is not considered acquired prior to the time when title to the vehicle passes to the taxpayer under state law. The list of qualified vehicles provided below applies only to vehicles acquired by December 31, 2009.
Notice 2009-54 provides procedures that a vehicle manufacturer may use if it chooses to certify that a vehicle meets certain requirements that must be satisfied to claim the new Qualified Plug-in Electric Drive Motor Vehicle Credit and the amount of the credit allowable with respect to that vehicle. Notice 2009-54 applies to vehicles acquired by December 31, 2009.
Notice 2009-89 applies to vehicles acquired subsequent to 12-31-2009 and provides procedures that a vehicle manufacturer may use if it chooses to certify that a vehicle meets certain requirements that must be satisfied to claim the Qualified Plug-in Electric Drive Motor Vehicle Credit and the amount of the credit allowable with respect to that vehicle
Plug-in Electric Vehicles (IRC 30)
Internal Revenue Code Section 30 provides a credit for qualified plug-in electric vehicles. The credit is equal to 10 percent of the cost of a qualified plug-in electric vehicle and is limited to $2,500. Qualified vehicles may include low-speed vehicles or vehicles that have two or three wheels.
Vehicles must be acquired after February 17, 2009, and before January 1, 2012. The vehicle must be acquired for use or lease and not for resale. Additionally, the original use of the vehicle must commence with the taxpayer and the vehicle must be used predominantly in the United States.
Notice 2009-58 provides procedures for a vehicle manufacturer to certify to the Internal Revenue Service that a vehicle of a particular make, model, and model year meets the requirements that must be satisfied to claim the new plug-in electric vehicle credit under § 30.
How to Choose a Tax Return Preparer and Avoid Preparer Fraud
Taxpayers who decide they need assistance when preparing a tax return should choose a tax preparer with care and caution. Even if a return was prepared by an outside individual or firm, taxpayers should remember that they are legally responsible for what they file with the Internal Revenue Service.
Most return preparers are professional, honest and provide excellent service to their clients, but some engage in fraud and other illegal activities. Return preparer fraud involves the preparation and filing of false income tax returns by preparers who claim inflated personal or business expenses, false deductions, unallowable credits or excessive exemptions on returns prepared for their clients.
Preparers may, for example, manipulate income figures to fraudulently obtain tax credits, such as the Earned Income Tax Credit. In some situations, the client, or taxpayer, may not even know of the false expenses, deductions, exemptions and/or credits shown on his or her tax return.
However, when the IRS detects a fraudulent return, the taxpayer — not the return preparer — must pay the additional taxes and interest and may be subject to penalties.
The IRS Return Preparer Program focuses on enhancing compliance in the return-preparer community by investigating and referring criminal activity by return preparers to the Department of Justice for prosecution. The IRS can also assert appropriate civil penalties against unscrupulous return preparers.
Also to combat fraud, IRS Commissioner Doug Shulman recently made a series of recommendations with the twin goals of increasing taxpayer compliance and ensuring uniform and high ethical standards of conduct for tax preparers.
While most preparers provide honest service to their clients, the IRS urges taxpayers to be careful when choosing a preparer –– as careful as they would be choosing a doctor or lawyer. Even if someone else prepares a tax return, the taxpayer is ultimately responsible for all the information on the return. For that reason, taxpayers should never sign a blank tax form. And they should review the return before signing it and ask questions on entries they don’t understand.
Helpful Hints When Choosing a Return Preparer
- Be cautious of tax preparers who claim they can obtain larger refunds than other preparers.
- Avoid preparers who base their fee on a percentage of the refund.Use a reputable tax professional who signs the tax return and provides a copy.
- Consider whether the individual or firm will be around to answer questions about the preparation of the tax return months, or even years, after the return has been filed.
- Check the person’s credentials. Only attorneys, certified public accountants (CPAs) and enrolled agents can represent taxpayers before the IRS in all matters, including audits, collection and appeals. Other return preparers may only represent taxpayers for audits of returns they actually prepared.
- Find out if the preparer is affiliated with a professional organization that provides its members with continuing education and resources and holds them to a code of ethics.
Reputable preparers will ask to see receipts and will ask multiple questions to determine whether expenses, deductions and other items qualify. By doing so, they are trying to help their clients avoid penalties, interest or additional taxes that could result from an IRS examination.
Tax evasion is a risky crime, a felony, punishable by five years imprisonment and a $250,000 fine.
Reporting Suspected Tax Fraud Activity
Tax fraud or abusive return preparers can be reported to the IRS on Form 3949-A, Information Referral. This form is available as a download from the IRS Web site at IRS.gov or by calling (800) 829-3676 to order by mail. The completed form, or a letter detailing the alleged fraudulent activity, should be sent to Internal Revenue Service, Fresno, CA 93888.
The mailing should contain specific information about the individual or business, the activity, when the alleged violation took place, the amount of money involved, how the reporter became aware of it and any other information that might be helpful to an investigation. The identity of the person filing the report is not required but it could be helpful in an investigation and it can be kept confidential.
Rewards based on the amount of additional tax, penalties and interest owed can be made to individuals who report fraud. IRS Form 211, Application for Award for Original Information, can be used to claim a reward.
The IRS’ Whistleblower Office will make the final decision about whether an award will be paid and for how much. Award amounts are based on the value of the information you provided compared with the amount of additional tax, penalties and interest collected by the IRS.
Tax Changes for Individuals
There are several changes affecting Alternative Minimum Tax for 2009.
Child-Related Tax Changes
Information on adoption benefits, child’s investment income, the definition of a qualifying child, and additional child tax credit.
Decreased Estimated Tax Payments for Qualified Individuals With Small Businesses
For 2009, qualified individuals with small businesses may be eligible to make smaller estimated tax payments.
Deduction for Credit or Debit Card Convenience Fees
If you pay your income tax (including estimated tax payments) by credit or debit card, you may be able to deduct convenience fees.
Deduction for Sales and Excise Taxes Imposed on Purchase of New Motor Vehicles
In 2009, you can deduct the state or local sales and excise taxes imposed on the purchase of a qualified motor vehicle after February 16, 2009, and before January 1, 2010.
Earned Income Credit
The earned income credit amounts have increased for 2009 and 2010.
Economic Recovery Payment
Information on new economic recovery payments and credits.
Education-Related Tax Changes
Information on education savings bond exclusion, hope and lifetime learning credits, tuition and fees deduction, and student loan interest deduction.
Health/Medical-Related Tax Changes
Information on Archer Medical Savings Accounts (MSAs), Health Savings Accounts(HSAs), and long-term care premiums.
Home/Residence-Related Tax Changes
Information on mortgage insurance premiums, residential energy credits, and sale of main home by employees of intelligence communities.
Income Averaging for Farmers and Fisherman
New rules apply for averaging farming and fishing income. Information on settlements from Exxon Valdez litigation.
Increase in Limit on Long-Term Care and Accelerated Death Benefits Exclusion
New limits on exclusion payments made under a long-term care insurance contract.
Increase in Personal Casualty and Theft Loss Limit
Generally, a personal casualty or theft loss must exceed $500 to be allowed for 2009. This is in addition to the 10% of AGI limit that generally applies to the net loss.
Itemized Deductions
2009
If your AGI is above a certain amount, you may lose part of your itemized deductions. In 2009, this amount is increased to $166,800 ($83,400 if married filing separately). See the instructions for Schedule A (Form 1040), line 29, for more information on figuring the amount you can deduct.
New Rules for Children of Divorced or Separated Parents
For tax years beginning after July 2, 2008 (the 2009 calendar year for most taxpayers), new rules apply to allow the custodial parent to revoke a release of claim to exemption that was previously released to the noncustodial parent on Form 8332 or similar form.
Penalty for Failure to File Income Tax Return Increased
If you do not file your return by the due date (including extensions) you may have to pay a failure-to-file penalty. For income tax returns required to be filed after 2008, the failure-to-file penalty for returns filed more than 60 days after the due date (including extensions) is increased. In this situation, the minimum penalty is the smaller of $135 or 100% of the unpaid tax.
Personal Exemptions
The deduction amount and phaseout income levels have increased for 2009.
Qualified Transportation Fringe Benefits
Changes to the monthly exclusion for commuter highway vehicle transportation and transit passes and reimbursement for reasonable expenses of qualified bicycle commuting.
Residential Energy Credits
Information on residential energy credits.
Social Security and Medicare Taxes
2009 Changes
The maximum amount of wages subject to the social security tax for 2009 is $106,800. There is no limit on the amount of wages subject to the Medicare tax.
2010 Changes
The maximum amount of wages subject to the social security tax for 2010 is $106,800. There is no limit on the amount of wages subject to the Medicare tax.
Special Limitation Period for Retroactively Excluding Military Retirement Pay
If you retire from the armed services based on years of service and are later given a retroactive service-connected disability rating by the VA, your retirement pay for the retroactive period is excluded from income up to the amount of VA disability benefits you would have been entitled to receive.
Standard Deduction Increased
The standard deduction increased.
Standard Mileage Rate
2009
For 2009, the standard mileage rate for the cost of operating your car for business use is 55 cents per mile.
Medical- and move-related mileage. For 2009, the standard mileage rate for the cost of operating your car for medical reasons or as part of a deductible move is 24 cents per mile.
Charitable-related mileage. For 2009, the standard mileage rate for the cost of operating your car for charitable purposes remains 14 cents per mile.
Unemployment Compensation
For any tax year beginning in 2009, each recipient of unemployment compensation can exclude from gross income up to $2,400 of the amount he or she received during the year.
Wage Threshold for Household Employees
The social security and Medicare wage threshold for household employees is…
Benefit from Roth “ordering rules”
For the first time ever, taxpayers can convert a traditional IRA to a Roth, regardless of their annual income. Previously, conversions weren’t allowed for taxpayers with a modified adjusted gross income (MAGI) over $100,000.
But nothing has changed in the rules for Roth IRA distributions. Unless payouts are treated as “qualified distributions,” they are subject to tax.
Nevertheless, despite th
e common perception, the tax burden on taxable distributions may be less than you think. Some “taxable” distributions might be completely tax-free. The exact tax treatment depends on the “ordering rules” for Roth IRA distributions.
If a withdrawal meets the requirements for a qualified distribution, it is 100% exempt from tax. A qualified distribution is one that is made from a Roth IRA in existence for at least five years after reaching age 59 1/2, upon death or disability or used to pay first-time homebuyer expenses (up to a lifetime limit of $10,000).
All other distributions are nonqualified. Nonqualified distributions are treated as coming from Roth IRA assets in the following order:
- Regular Roth IRA contributions
- Taxable traditional IRA conversions
- Nontaxable traditional IRA conversions
- Earnings on Roth IRA assets
Because distributions are treated as coming first from Roth contributions, you may be able to take out as much as you put in — at any time — without any dire tax consequences.
We can walk you through the “ordering rules” to minimize the tax liability, if any, for your particular situation. There may be additional complications for early withdrawals. We can provide the necessary guidance in this area. Contact us for more details and we will be glad to assist you.
Roth IRA conversion in 2010
The buzz about Roth IRA conversions is getting louder. And why not: For the first time ever, higher-income taxpayers can convert their traditional IRAs into a Roth. Beginning in 2010, the prior restriction for taxpayers with an adjusted gross income (AGI) above $100,000 is eliminated. Also, you can split the tax bill for a 2010 Roth conversion evenly over 2011 and 2012. (You report 50% of the income in each of those years.)
But should you convert to a Roth? That’s another story. Don’t assume that a conversion is right for you just because you can do it for the first time. Also, if it suits your purposes, you might convert only part of your traditional IRA assets and leave the rest alone.
Qualified distributions from a Roth (e.g., distributions after age 59 ½ and after having a Roth IRA in existence for more than five years) are federal-income-tax-free. Plus, you’re not required to take minimum distributions after age 70 1/2 like you are with a traditional IRA. These future benefits offer plenty of incentive to convert to a Roth this year.
However, there are other variables to consider. For example:
- Many online calculations assume that you’ll be paying the full amount of tax on the conversion with funds outside of your IRA. That might not the case. If you have to use some or all of the IRA assets to pay the tax piper, this will dilute or even wipe out the benefit of the conversion.
- The numbers will also change if you’ve contributed to IRAs on a nondeductible basis. There’s no tax on the portion attributable to these contributions.
- Consider the impact of any state and local income taxes owed in addition to federal income tax. This is especially critical if you live in a high-tax state.
- The additional tax liability on the conversion could push you into a higher tax bracket. Conversely, if you delay the conversion until you’re in a lower tax bracket, you might come out ahead.
This critical decision requires a thorough analysis of the facts. Remember: Every situation is different. Do not hesitate to contact our office to schedule a consultation for personal guidance.
Standard Deduction Increased
The standard deduction for people who do not itemize their deductions on Schedule A (Form 1040) is, in most cases, higher for 2009 than it was for 2008. In addition to the annual increase due to inflation adjustments and the increase allowed for the deduction for certain real estate taxes and a net disaster loss, your 2009 standard deduction is increased by any state or local sales tax imposed on the purchase of a qualified motor vehicle after February 16, 2009, and before January 1, 2010. To figure your 2009 standard deduction, see your tax return instructions booklet. However, you must use Schedule L (Form 1040A or 1040) to figure your standard deduction if:
- You paid state or local real estate taxes in 2009.
- You have a net disaster loss on Form 4684, line 18, or
- You paid state or local sales or excise taxes (or certain other taxes or fees in a state without a sales tax) on the purchase of any new motor vehicle(s) after February 16, 2009, and before January 1, 2010.
COBRA subsidies extended
The COBRA subsidy program was scheduled to expire on Dec. 31, 2009. But a late reprieve from the government keeps the program up-and-running awhile longer. The extensions were tacked onto a defense appropriations bill — the Defense Appropriations Act of 2010 — which was signed on Dec. 19, 2009.
Under COBRA (short for the Consolidated Omnibus Budget Reconciliation Act of 1985), an employee who is terminated from work by an employer with 20 or more employees may elect to continue employer-provided health insurance coverage for up to 18 months. But the employee generally has to pay the full cost of the premiums to the employer plus a 2% administrative fee.
At least the 2009 economic stimulus law provided some measure of relief: a 65% discount for workers “involuntarily terminated” from the job between Sept. 1, 2008 and Dec. 31, 2009, for up to nine months. The employer must pay the balance, but it can recoup the cost through special payroll tax adjustments
This 
COBRA discount program phases out for high-income taxpayers. Single filers with an AGI exceeding $125,000 and joint filers with an AGI exceeding $250,000 must repay part of the amount as an additional tax. The phase-out is complete at $145,000 of AGI for single filers and $290,000 for joint filers.
The new defense appropriations law includes four key changes for involuntarily terminated employees who qualify for assistance.
1. The eligibility period for COBRA assistance is extended by two months. Previously, it applied to involuntary terminations between Sept. 1, 2008, and Dec. 31, 2009. Now it stretches our through Feb. 28, 2010.
2. The length of time an ex-employee can benefit from the subsidy is expanded to 15 months. So some workers can continue paying reduced COBRA premiums into 2011.
3. Employers must provide credit against future payments to qualified employees who paid the full premium in December 2009. Individuals should contact their plan administrator or employer sponsoring the plan.
4. Employers are required to inform laid off workers about the latest changes in the COBRA subsidy program.
We are glad to provide additional guidance relating to the COBRA subsidies. Both employees and employers may contact our office for more information. Congress may yet extend the COBRA subsidy program again. To stay on top of the latest developments, we encourage you to call our office.
Special Limitation Period for Retroactively Excluding Military Retirement Pay
If you retire from the armed services based on years of service and are later given a retroactive service-connected disability rating by the VA, your retirement pay for the retroactive period is excluded from income up to the amount of VA disability benefits you would have been entitled to receive. You can claim a refund of any tax paid on the excludable amount (subject to the statute of limitations) by filing an amended return on Form 1040X for each previous year during the retroactive period.
Generally, under the statute of limitations a claim for credit or refund must be filed within 3 years from the time a return was filed or 2 years from the time the tax was paid, whichever period expires later. However, if you receive a retroactive service-connected disability rating determination, the statute of limitations is extended for 1 year beginning on the date of the determination. The extension applies to claims for credit or refund filed after June 17, 2008, and does not apply to any tax year that began more than 5 years before the date of the determination
Example.You retired in 2004 and receive a pension based on your years of service. On August 6, 2009, you receive a determination of service-connected disability retroactive to 2004. Generally, you could claim a refund for the taxes paid on your pension for 2006, 2007, and 2008. However, under the special limitation period, you can also file a claim for 2005 as long as you file the claim by August 5, 2010. You cannot file a claim for 2004 because that tax year began on January 1, 2004, which is more than 5 years before date of the determination.
Residential Energy Credits
2009
Nonbusiness energy property credit. This credit, which expired after 2007, has been reinstated. You may be able to claim a nonbusiness energy property credit of 30% of the cost of certain energy-efficient property or improvements you placed in service in 2009. This property can include high-efficiency heat pumps, air conditioners, and water heaters. It also may include energy-efficient windows, doors, insulation materials, and certain roofs. The credit has been expanded to include certain asphalt roofs and stoves that burn biomass fuel.
Limitation. The total amount of credit you can claim in 2009 and 2010 is limited to $1,500.
Residential energy efficient property credit. Beginning in 2009, there is no limitation on the credit amount for qualified solar electric property costs, qualified solar water heating property costs, qualified small wind energy property costs, and qualified geothermal heat pump property costs. The limitation on the credit amount for qualified fuel cell property costs remains the same.
