McElroy & Company PC
Certified Public Accountants
Certified Public Accountants
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Entity Formation
Contact us about the tax
advantages of
incorporating your
business
Contact us about the tax
advantages of
incorporating your
business
2010 Mileage Rates
Standard Mileage Rate Changes
The IRS issued the 2010 optional standard mileage
rates for the use of a car, van, pickup or panel truck:
50 cents per mile for business
14 cents per mile for charitable contribution
16.5 cents per mile for medical and moving
The depreciation component of the mileage rate is 23
cents per mile (up from 21 cents for 2009 and 2008).
2009 Tax Points
Greetings! The end of the year is quickly
approaching, and now is an excellent time to consider
your current tax position, and think about some
possible year-end strategies to optimize that standing.
Contained in this letter are a few ideas and
suggestions that we believe might be able to help as
you engage in year-end planning.
Year-end tax planning could be especially productive
this year. Timely action can nail down a host of tax
breaks that won't be around next year unless Congress
acts to extend them. These include, for individuals:
the option to deduct state and local sales and use taxes
instead of state income taxes; the standard or itemized
deduction for state sales tax and excise tax on the
purchase of motor vehicles; the above-the-line
deduction for qualified higher education expenses; tax-
free distributions by those age 70 1/2 or older from
IRAs for charitable purposes; and the $8,000 first-time
homebuyer credit (expires for purchases after Nov. 30,
2009). For businesses, tax breaks that are available
through the end of this year but won't be around next
year unless Congress acts include: 50% bonus first
year depreciation for most new machinery, equipment
and software; an extraordinarily high $250,000
expensing limitation; the research tax credit; the five-
year write-off for most farm equipment; and the 15-
year write-off for qualified leasehold improvements,
qualified restaurant buildings and improvements and
qualified retail improvements. Finally, without
Congressional “extender” legislation (which has come
at the eleventh hour for several years), alternative
minimum tax (AMT) exemption amounts for
individuals are scheduled to drop drastically next
year, and most nonrefundable personal credits won't
be available to offset the AMT.
In addition to the above, high-income-earners have
other factors to keep in mind when mapping out year-
end plans. Many observers expect top tax rates on
ordinary income to increase after 2010, making long-
term deferral of income less appealing. Long-term
capital gains rates could go up as well, so it may pay
for some to take large profits this year instead of a few
years down the road. There is also good news that high-
income-earners have to look forward to next year.
There will no longer be an income based reduction of
most itemized deductions, nor will there be a phase-
out of personal exemptions. Additionally, traditional
IRA to Roth IRA conversions will be allowed regardless
of a taxpayer's income.
We have compiled a quick checklist of actions based
on current tax rules that may help you save tax dollars
if you act before year-end. Obviously, not all of these
strategies will be applicable to your particular
situation, but many likely will be, and we would be
more than happy to discuss any of these ideas in
greater detail if you desire. For now, please peruse the
following list and contact us at your earliest
convenience so that we can advise you on which tax-
saving moves to make:
• Increase the amount you set aside for next year in
your employer's health flexible spending account
(FSA) if you set aside too little for this year. Don't
forget that you can set aside amounts to get tax-free
reimbursements for over-the-counter drugs, such as
aspirin and antacids.
• If you become eligible to make health savings
account (HSA) contributions in December of this year,
you can make a full year's worth of deductible HSA
contributions for 2009.
• Realize losses on stock while substantially
preserving your investment position. There are several
ways this can be done. For example, you can sell the
original holding, then buy back the same securities at
least 31 days later. It may be advisable for us to meet
to discuss year-end trades you should consider
making.
• Postpone income until 2010 and accelerate
deductions into 2009 to lower your 2009 tax bill. This
strategy may enable you to claim larger deductions,
credits, and other tax breaks for 2009 that are phased
out over varying levels of adjusted gross income (AGI).
These include IRA and Roth IRA contributions,
conversions of regular IRAs to Roth IRAs, child credits,
higher education tax credits, the above-the-line
deduction for higher-education expenses, and
deductions for student loan interest. Postponing
income also is desirable for those taxpayers who
anticipate being in a lower tax bracket next year due to
changed financial circumstances. Note, however, that
in some cases, it may pay to actually accelerate
income into 2009. For example, this may be the case
where a person's marginal tax rate is much lower this
year than it will be next year. Again, we would be
pleased to discuss this with you in regards to your
specific circumstances.
• If you believe a Roth IRA is better than a traditional
IRA, and want to remain in the market for the long
term, consider converting traditional-IRA money
invested in beaten-down stocks (or mutual funds) into
a Roth IRA if eligible to do so. Keep in mind, however,
that such a conversion will increase your adjusted
gross income for 2009 and there are AGI limitations in
2009.
• It may be advantageous to try to arrange with your
employer to defer a bonus that may be coming your
way until 2010.
• If you own an interest in a partnership or S
corporation, you may need to increase your basis in
the entity so you can deduct a loss from it for this year.
Provided you are not subject to the passive loss rules.
• Consider using a credit card to prepay expenses that
can generate deductions for this year.
• If you expect to owe state and local income taxes
when you file your return next year, consider asking
your employer to increase withholding of state and
local taxes (or pay estimated tax payments of state and
local taxes) before year-end to pull the deduction of
those taxes into 2010. Likewise, those facing a penalty
for underpayment of federal estimated tax may be able
to eliminate or reduce it by increasing their federal
withholding.
• If you are planning to buy a car, do so before year-end
in order to nail down a deduction for state sales tax and
excise tax on the purchase. Other big ticket items can
also generate a significant amount of sales tax that can
then be deducted.
• Homeowners can earn substantial tax credits for
installing energy saving features (such as insulation,
energy-saving windows, and solar powered water
heaters) in their homes in 2009.
• A tax credit of up to $8000 is available to first-time
home buyers who purchase their home before
December 1, 2009.
• You may want to pay contested taxes to be able to
deduct them this year while continuing to contest
them next year.
• You may want to settle an insurance or damage claim
in order to maximize your casualty loss deduction this
year.
• Businesses should consider making expenditures that
qualify for the business property expensing option,
which is up to $250,000 for assets bought and placed in
service this year; the maximum expensing amount
will drop to $134,000 for assets bought and placed in
service next year (higher expensing amounts apply in
certain specialized situations). Businesses also should
consider making expenditures that qualify for 50%
bonus first year depreciation if bought and placed in
service this year. This bonus write-off generally won't
be available next year.
• If you are self-employed and haven't done so yet, set
up a self-employed retirement plan.
• You can save gift and estate taxes by making gifts
sheltered by the annual gift tax exclusion before the
end of the year. You can give $13,000 in 2009 to an
unlimited number of individuals but you can't carry
over unused exclusions from one year to the next.
• If you are age 70 1/2 or older, own IRAs (or Roth
IRAs), and are thinking of making a charitable gift,
consider arranging for the gift to be made directly by
the IRA trustee. Such a transfer, if made before year-
end, can achieve important tax savings.
• If you are age 70 1/2 or older and took a distribution
from a retirement plan or IRA earlier this year, you
may be able to avoid tax on the payout by rolling it
over into an eligible retirement plan (including an
IRA) before Dec. 1, 2009.
• If you are receiving Social Security benefits, there are
a number of steps you can take to reduce or eliminate
tax on your benefits.
• Consider extending your subscriptions to
professional journals, paying union or professional
dues, enrolling in (and paying tuition for) job-related
courses, etc., to bunch into 2009 miscellaneous
itemized deductions subject to the 2%-of-AGI floor.
This “bunching strategy” can also be applied to
medical expenses and other itemized deductions.
• Depending on your particular situation, you may also
want to consider deferring a debt-cancellation event
until 2010, electing to deduct investment interest
against capital gains, and disposing of a passive
activity to allow you to deduct suspended losses.
This is just a quick summary of some common
strategies that you can employ to help optimize your
tax position for 2009, while still maintaining a longer-
term outlook. Again, we would be more than happy to
discuss any of these ideas as they relate to your
particular situation, and of course we would also be
pleased to help you in any other way possible.
We thank you for the opportunity to serve year this
year, and hope to continue to have the privilege of
providing you with the highest level of service in the
future.
Our best wishes for a good, safe, and successful end of
the year.
Very truly yours,
Larry McElroy & the staff of McElroy & Company, P.C.
Standard Mileage Rate Changes
The IRS issued the 2010 optional standard mileage
rates for the use of a car, van, pickup or panel truck:
50 cents per mile for business
14 cents per mile for charitable contribution
16.5 cents per mile for medical and moving
The depreciation component of the mileage rate is 23
cents per mile (up from 21 cents for 2009 and 2008).
2009 Tax Points
Greetings! The end of the year is quickly
approaching, and now is an excellent time to consider
your current tax position, and think about some
possible year-end strategies to optimize that standing.
Contained in this letter are a few ideas and
suggestions that we believe might be able to help as
you engage in year-end planning.
Year-end tax planning could be especially productive
this year. Timely action can nail down a host of tax
breaks that won't be around next year unless Congress
acts to extend them. These include, for individuals:
the option to deduct state and local sales and use taxes
instead of state income taxes; the standard or itemized
deduction for state sales tax and excise tax on the
purchase of motor vehicles; the above-the-line
deduction for qualified higher education expenses; tax-
free distributions by those age 70 1/2 or older from
IRAs for charitable purposes; and the $8,000 first-time
homebuyer credit (expires for purchases after Nov. 30,
2009). For businesses, tax breaks that are available
through the end of this year but won't be around next
year unless Congress acts include: 50% bonus first
year depreciation for most new machinery, equipment
and software; an extraordinarily high $250,000
expensing limitation; the research tax credit; the five-
year write-off for most farm equipment; and the 15-
year write-off for qualified leasehold improvements,
qualified restaurant buildings and improvements and
qualified retail improvements. Finally, without
Congressional “extender” legislation (which has come
at the eleventh hour for several years), alternative
minimum tax (AMT) exemption amounts for
individuals are scheduled to drop drastically next
year, and most nonrefundable personal credits won't
be available to offset the AMT.
In addition to the above, high-income-earners have
other factors to keep in mind when mapping out year-
end plans. Many observers expect top tax rates on
ordinary income to increase after 2010, making long-
term deferral of income less appealing. Long-term
capital gains rates could go up as well, so it may pay
for some to take large profits this year instead of a few
years down the road. There is also good news that high-
income-earners have to look forward to next year.
There will no longer be an income based reduction of
most itemized deductions, nor will there be a phase-
out of personal exemptions. Additionally, traditional
IRA to Roth IRA conversions will be allowed regardless
of a taxpayer's income.
We have compiled a quick checklist of actions based
on current tax rules that may help you save tax dollars
if you act before year-end. Obviously, not all of these
strategies will be applicable to your particular
situation, but many likely will be, and we would be
more than happy to discuss any of these ideas in
greater detail if you desire. For now, please peruse the
following list and contact us at your earliest
convenience so that we can advise you on which tax-
saving moves to make:
• Increase the amount you set aside for next year in
your employer's health flexible spending account
(FSA) if you set aside too little for this year. Don't
forget that you can set aside amounts to get tax-free
reimbursements for over-the-counter drugs, such as
aspirin and antacids.
• If you become eligible to make health savings
account (HSA) contributions in December of this year,
you can make a full year's worth of deductible HSA
contributions for 2009.
• Realize losses on stock while substantially
preserving your investment position. There are several
ways this can be done. For example, you can sell the
original holding, then buy back the same securities at
least 31 days later. It may be advisable for us to meet
to discuss year-end trades you should consider
making.
• Postpone income until 2010 and accelerate
deductions into 2009 to lower your 2009 tax bill. This
strategy may enable you to claim larger deductions,
credits, and other tax breaks for 2009 that are phased
out over varying levels of adjusted gross income (AGI).
These include IRA and Roth IRA contributions,
conversions of regular IRAs to Roth IRAs, child credits,
higher education tax credits, the above-the-line
deduction for higher-education expenses, and
deductions for student loan interest. Postponing
income also is desirable for those taxpayers who
anticipate being in a lower tax bracket next year due to
changed financial circumstances. Note, however, that
in some cases, it may pay to actually accelerate
income into 2009. For example, this may be the case
where a person's marginal tax rate is much lower this
year than it will be next year. Again, we would be
pleased to discuss this with you in regards to your
specific circumstances.
• If you believe a Roth IRA is better than a traditional
IRA, and want to remain in the market for the long
term, consider converting traditional-IRA money
invested in beaten-down stocks (or mutual funds) into
a Roth IRA if eligible to do so. Keep in mind, however,
that such a conversion will increase your adjusted
gross income for 2009 and there are AGI limitations in
2009.
• It may be advantageous to try to arrange with your
employer to defer a bonus that may be coming your
way until 2010.
• If you own an interest in a partnership or S
corporation, you may need to increase your basis in
the entity so you can deduct a loss from it for this year.
Provided you are not subject to the passive loss rules.
• Consider using a credit card to prepay expenses that
can generate deductions for this year.
• If you expect to owe state and local income taxes
when you file your return next year, consider asking
your employer to increase withholding of state and
local taxes (or pay estimated tax payments of state and
local taxes) before year-end to pull the deduction of
those taxes into 2010. Likewise, those facing a penalty
for underpayment of federal estimated tax may be able
to eliminate or reduce it by increasing their federal
withholding.
• If you are planning to buy a car, do so before year-end
in order to nail down a deduction for state sales tax and
excise tax on the purchase. Other big ticket items can
also generate a significant amount of sales tax that can
then be deducted.
• Homeowners can earn substantial tax credits for
installing energy saving features (such as insulation,
energy-saving windows, and solar powered water
heaters) in their homes in 2009.
• A tax credit of up to $8000 is available to first-time
home buyers who purchase their home before
December 1, 2009.
• You may want to pay contested taxes to be able to
deduct them this year while continuing to contest
them next year.
• You may want to settle an insurance or damage claim
in order to maximize your casualty loss deduction this
year.
• Businesses should consider making expenditures that
qualify for the business property expensing option,
which is up to $250,000 for assets bought and placed in
service this year; the maximum expensing amount
will drop to $134,000 for assets bought and placed in
service next year (higher expensing amounts apply in
certain specialized situations). Businesses also should
consider making expenditures that qualify for 50%
bonus first year depreciation if bought and placed in
service this year. This bonus write-off generally won't
be available next year.
• If you are self-employed and haven't done so yet, set
up a self-employed retirement plan.
• You can save gift and estate taxes by making gifts
sheltered by the annual gift tax exclusion before the
end of the year. You can give $13,000 in 2009 to an
unlimited number of individuals but you can't carry
over unused exclusions from one year to the next.
• If you are age 70 1/2 or older, own IRAs (or Roth
IRAs), and are thinking of making a charitable gift,
consider arranging for the gift to be made directly by
the IRA trustee. Such a transfer, if made before year-
end, can achieve important tax savings.
• If you are age 70 1/2 or older and took a distribution
from a retirement plan or IRA earlier this year, you
may be able to avoid tax on the payout by rolling it
over into an eligible retirement plan (including an
IRA) before Dec. 1, 2009.
• If you are receiving Social Security benefits, there are
a number of steps you can take to reduce or eliminate
tax on your benefits.
• Consider extending your subscriptions to
professional journals, paying union or professional
dues, enrolling in (and paying tuition for) job-related
courses, etc., to bunch into 2009 miscellaneous
itemized deductions subject to the 2%-of-AGI floor.
This “bunching strategy” can also be applied to
medical expenses and other itemized deductions.
• Depending on your particular situation, you may also
want to consider deferring a debt-cancellation event
until 2010, electing to deduct investment interest
against capital gains, and disposing of a passive
activity to allow you to deduct suspended losses.
This is just a quick summary of some common
strategies that you can employ to help optimize your
tax position for 2009, while still maintaining a longer-
term outlook. Again, we would be more than happy to
discuss any of these ideas as they relate to your
particular situation, and of course we would also be
pleased to help you in any other way possible.
We thank you for the opportunity to serve year this
year, and hope to continue to have the privilege of
providing you with the highest level of service in the
future.
Our best wishes for a good, safe, and successful end of
the year.
Very truly yours,
Larry McElroy & the staff of McElroy & Company, P.C.
Retirement Planning
There is a limit on the amount of elective deferrals that you can contribute
to your traditional or safe harbor 401(k) plan.
• The limit is $15,500 for 2008 and $16,500 for 2009.
• The limit is subject to cost-of-living increases after 2009.
Generally, all elective deferrals that you make to all plans in which you
participate must be considered to determine if the dollar limits are
exceeded.
Limits on the amount of elective deferrals that you can contribute to a
SIMPLE 401(k) plan are different from those in a traditional or safe harbor
401(k).
• The limit is $10,500 for 2008 and $11,500 for 2009.
• The limit is subject to cost-of-living increases after 2009.
Although, general rules for 401(k) plans provide for the dollar limit
described above, that does not mean that you are entitled to defer that
amount. Other limitations may come into play that would limit your elective
deferrals to a lesser amount. For example, your plan document may
provide a lower limit or the plan may need to further limit your elective
deferrals in order to meet nondiscrimination requirements.
Catch-up contributions. For tax years beginning after 2001, a plan may
permit participants who are age 50 or over at the end of the calendar year
to make additional elective deferral contributions. These additional
contributions (commonly referred to as catch-up contributions) are not
subject to the general limits that apply to 401(k) plans. An employer is not
required to provide for catch-up contributions in any of its plans.
However, if your plan does allow catch-up contributions, it must allow all
eligible participants to make the same election with respect to catch-up
contributions.
If you participate in a traditional or safe harbor 401(k) plan and you are
age 50 or older:
• The elective deferral limit increases by $5,000 for 2008 and $5,500
for 2009.
There is a limit on the amount of elective deferrals that you can contribute
to your traditional or safe harbor 401(k) plan.
• The limit is $15,500 for 2008 and $16,500 for 2009.
• The limit is subject to cost-of-living increases after 2009.
Generally, all elective deferrals that you make to all plans in which you
participate must be considered to determine if the dollar limits are
exceeded.
Limits on the amount of elective deferrals that you can contribute to a
SIMPLE 401(k) plan are different from those in a traditional or safe harbor
401(k).
• The limit is $10,500 for 2008 and $11,500 for 2009.
• The limit is subject to cost-of-living increases after 2009.
Although, general rules for 401(k) plans provide for the dollar limit
described above, that does not mean that you are entitled to defer that
amount. Other limitations may come into play that would limit your elective
deferrals to a lesser amount. For example, your plan document may
provide a lower limit or the plan may need to further limit your elective
deferrals in order to meet nondiscrimination requirements.
Catch-up contributions. For tax years beginning after 2001, a plan may
permit participants who are age 50 or over at the end of the calendar year
to make additional elective deferral contributions. These additional
contributions (commonly referred to as catch-up contributions) are not
subject to the general limits that apply to 401(k) plans. An employer is not
required to provide for catch-up contributions in any of its plans.
However, if your plan does allow catch-up contributions, it must allow all
eligible participants to make the same election with respect to catch-up
contributions.
If you participate in a traditional or safe harbor 401(k) plan and you are
age 50 or older:
• The elective deferral limit increases by $5,000 for 2008 and $5,500
for 2009.