TAX SEASON LESSONS: Confusion, complexity mark season (758 hits)
Now is the time to start thinking about 2009 tax consequences here's why. The following i a piece of an article that covers the lessons learned from the 2008 tax filing season. Due to the economy and all the changes that our government has made to deal with it there are area's that could reduce, lesson or even increase your tax burden if you are not properly positioned. Don't leave it to chance and watch out for all of the big box tax preparer companies.
Gov't stimuli and a tough economy made the 2009 tax season unusual
Taxpayers feeling the pinch of the down economy made this tax season atypical of those in recent years, say practitioners.
In addition to taxpayers "harvesting" losses they suffered in the downturn, congressional actions to stimulate the economy added to the usual complexity.
In 2008, Congress created a $7,500 refundable tax credit for first-time homebuyers. Congress increased that credit to a maximum of $8,000 in February 2009.
Adding to this season's complexity was the Economic Stimulus Act of 2008, which resulted in more than 119 million payments totaling more than $96 billion. Most individuals received the stimulus payment in advance of filing their 2008 tax return based on information from their 2007 return, while some individuals who qualified for a larger payment received a Recovery Rebate Credit on their 2008 return.
"There was some confusion among taxpayers," revealed Rochester, N.Y.-based CPA Ellyn A. Schaefer. "Everybody that came in was nervous about their taxes. They wanted to know what was happening with the legislation that was pending in Congress. The general theme was unrest and unease. I've never experienced so much political talk at tax time."
"Some of our clients had a hard time dealing with their losses," explained Kara Cefalo, a tax partner in the Boston-based firm of DiCicco, Gulman & Co. "They were afraid to deal with it, so they came in later than usual."
"Their tax bills went down for the wrong reason," added Joel Rothenberg, also a partner at DiCicco.
Schaefer had two clients that qualified for the increased homebuyer credit. "One of them was aware of the credit, but the other hadn't heard of it," she said. "But a taxpayer who acquired ownership of the residence as part of a divorce was not qualified for the credit because she acquired it from a related party."
Normally, clients take a week off to coincide with their school-age children's spring break, which usually adds to the disorder of tax season, said Schaefer. "However, this year spring break was the week after April 15, so it helped make things flow more smoothly," she said.
RATE HIKES
Jonathan Wittlin, CPA, a senior vice president at Lenox Advisors, said that the economy and proposed changes in the Tax Code impacted tax season in several ways. "There's going to be a tax rate increase. Our top tax bracket is now 35 percent, but it will likely roll back to the pre-Bush rate of 39.6 percent, with an increase in the capital gains rate as well. Because of these likely increases, our conversation with clients about strategy was flipped," he said. "Normally, we talk about taking deductions now and pushing income into a future year. This year we talked with them about trying to pull income into the current year. Any item that would be a deduction for the current year we tried to push off into the future."
