1. Individual Income Tax 2009 Update Julie Emanuele Brad Hungate Kevin Klein

2. Today’s Presentation 2009 Federal Update Looking Forward: 2010 Federal Changes 2009 Virginia Update Looking Forward: 2010 Virginia Changes

3. Elective Salary Deferrals 401(k) maximum elective deferral for 2009: –Under age 50: $16,500 –“Catch up” contribution of $5,500 allowed if age 50 or older

4. IRA Contributions Maximum to a Traditional or Roth is $5,000 Catch up contribution of $1,000 for taxpayers at least age 50 by the end of 2009 Have until due date of return (not including extension) Phase-out range of $89k-$109k for joint filers

5. Health Savings Accounts Pay out-of-pocket medical expenses with pre-tax income Fund an HSA account with direct transfer from IRA Maximum Contribution of $3,000 for single coverage ($5,950 for family coverage) If 55 or older, additional $1,000 catch-up contribution is available

6. Higher Education Expenses Extended through the Tax Extenders and AMT Relief Act of 2008 through 2009 Deduct up to $4,000 instead of Hope or Lifetime Learning tax credits Subject to phase out Deduction taken on Form 8917

7. Education Credits American Opportunity Tax Credit –Formerly known as Hope Scholarship credit –Maximum $2,500 credit per student –First 4 years of undergraduate education –Half time student –Phaseout begins at $80K for single filers ($160K for joint) and ends at $90K ($180K for joint) Lifetime Learning Credit –Maximum $2,000 credit per –Maximum $2,000 credit per return – –Available for unlimited number of years – –Less than half time enrollment-non degree seeking students – –Phaseout begins at $50K for single filers ($100K for joint) and ends at $60K ($120K for joint) *Credit is taken on Form 8863

8. Qualified Educator Expenses Available for any Teacher, Instructor, Counselor, Principal, or Aides teaching K-12 grades Must work at least 900 hours during taxable year Can deduct “above-the-line” up to $250 of expenses incurred for books and (non-athletic) supplies Excess expenses of $250 can be deducted on Schedule A subject to 2% of AGI Expires at end of 2009

9. Sales & Use Tax Deduction Available through 2009 Deduct either state income tax or sales and use tax Use Receipts Method or Sales Tax Table

10. Qualified Motor Vehicle Taxes For purchases on or after Feb. 17, 2009 and before Jan. 1, 2010 State or local sales or excise taxes can be added to itemized or standard deduction Only taxes on the portion of the vehicle not exceeding $49,500 may be deducted

11. Charitable Contribution Substantiation Some form of substantiation for charitable contributions must be retained Examples: Receipt, Letter from Charity, etc. Deductions only available if taxpayer itemizes deductions Distributions directly from IRA, expires in 2009 (discussed in more detail later)

12. Residential Energy Credits Nonbusiness Energy Property Credit –Credit equal to 30% of the cost of qualified energy efficiency improvements to principal residence –Credit is limited to $1,500 –For property placed in service after 2008 and before 2011

13. Kiddie Tax Now effects children ages 19-23 who are full time students Earned income is less than half of support Investment income greater than $1,900

14. 2009 Capital Gains Capital gains that would have been taxed at 5% will not be taxed at all Capital gains that would have been taxed at 15% will remain at 15% Will expire in 2010 when the 0% rates will go to 10% and 15% rates will go to 20%

15. Excluded Combat Pay Can elect to have excluded combat pay count as earned income in the calculation for the earned income tax credit Counts towards “compensation” for IRA contribution limitations & Making Work Pay Credit (discussed later)

16. Roth IRA Conversions Limit on modified adjusted gross income of $100,000 lifted for all taxpayers beginning in 2010 Convert all or any portion of a Traditional, SEP, or SIMPLE IRA into a Roth IRA during 2010 Retain option to recharacterize conversion until due date of return (including extensions)

17. Roth IRA Conversions Elect to defer taxes on conversion until 2011 & 2012 (only available for conversions in 2010) Possible Benefits from Converting –Enjoy Tax-Free Distributions in Retirement –Benefit from Tax-Free Earnings Growth –Manage Personal Income Tax Implications –Take Advantage of Perfect 20/20 Hindsight with Roth IRA Recharacterizations

18. Making Work Pay Credit Enacted by the 2009 Recovery Act Available for eligible taxpayers in 2009 & 2010 Refundable credit equal to lesser of: –6.2% of taxpayer’s earned income –$400 per individual ($800 married couples) Begins phase out at $75,000 ($150,000 for MFJ) in modified adjusted gross income

19. First-Time Homebuyer Credit Extended until April 30 th, 2010 (or until June 30 th, 2010 if binding contract agreed to before May 1 st, 2010) First-Time Homebuyers - Tax credit up to lesser of $8,000 or 10% of purchase price Long-Time Residents – Tax credit up to lesser of $6,500 or 10% of purchase price

20. First-Time Homebuyer Credit Credit phased out when MAGI falls between the following income levels (completely phased out at highest level) –Single - $75,000 - $95,000 –Married filing Joint - $150,000 - $170,000 No credit for purchases exceeding $800,000 – no phase out available here No credit for purchases exceeding $800,000 – no phase out available here Refundable, but also can be Recaptured

21. Standard Deduction 2009 Applicable Standard Deduction: –Single - $5,700 –HOH - $8,350 –Joint (or surviving spouse) - $11,400 Real Estate Taxes: –Single – up to $500 –Joint – up to $1,000 Vehicle Sales Taxes – can also include sales tax paid on qualified motor vehicle

22. Unemployment Compensation Federal Law – Can exclude up to $2,400 of unemployment compensation benefits received during 2009 from taxable income Virginia Law – Can exclude all unemploy- ment compensation benefits received during 2009 year from taxable income

23. COBRA Subsidy Provides a 65% subsidy for COBRA continuation premiums for up to 9 months Applies to workers who have been involuntarily terminated between Sept. 1, 2008 and Dec. 31, 2009 Taxable income for year cannot exceed $125,000 (single) or $250,000 (joint) Subsidy is non-taxable

24. Job Hunting Expenses Expenses incurred searching for new employment in same trade or business are deductible as miscellaneous itemized deductions subject to 2% limitation Examples: –Employment Agency Fees –Resume Preparation Services –Travel & Transportation Fees (Unreimbursed) –Employment Counseling

25. Looking forward: 2010 Elective deferrals contribution limits will remain the same as 2009 IRA contributions will remain the same as 2009 Expiring adjustments, credits, and deductions

26. Proposed Congressional Legislation Health Care? Estate Tax? Another Stimulus Measure? Jobs Bill?

27. Virginia Update Tax Relief for Military Spouses Virginia Sales Tax Holidays Certain Virginia Deductions and Tax Credits Looking Forward: 2010 & Beyond

28. Tax Relief for Spouses of Military Personnel Federal legislation signed on November 11, 2009 - Military Spouses Relief Act Effective – Taxable Year 2009 Spouses do not automatically become Virginia residents Spouses may be eligible for refund of employer withholding

29. Virginia Sales Tax Holidays May 24-30, 2010 – Hurricane Preparedness Equipment August 6-8, 2010 – School Supplies, Clothing & Footwear October 8-11, 2010 – Energy Star Qualified Products

30. Virginia Deduction for Income from Dealer Disposition of Real Property For 2009, qualifying individuals and corporations can defer payment of a portion of VA income tax incurred from the sale of real property provided: –The sale occurs on or after 1/1/09 –Property sold is real estate –Taxpayer reports entire gain as income on the federal return

31. Virginia Livable Home Credit Credit for supplies purchased and other items needed to retrofit existing residences with accessibility and/or visitability features Also applies to supplies needed to incorporate features into new construction Limited to $1,000/taxable year for 2009 For 2010, maximum amount is $2,000

32. Federal and State Salary Subtraction Only individuals earning less than $15,000 in wages are entitled to subtraction Effective For: Employees of state-supported universities, colleges, and community colleges and other state and federal agencies Not Effective For: Employees of Local Government, U.S. Postal Service, Army, Navy, Air Force, Marines, and National Guard

33. Land Preservation Tax Credit For 2009 and 2010, amount of credit that can be claimed has been reduced to $50,000 per taxpayer Carryover period for unused credits is extended 2 years for affected taxpayers

34. College Savings Plans Effective 2009, allowable deduction for contributions will increase to $4,000 per plan or account There are currently no restrictions on deduction amounts for individuals who are 70 or older

35. Household Employers Household employers may now elect to file and pay household Virginia employment taxes annually

36. Virginia Tax Department Services e-Subscriptions –Customized e-mails on a variety of state tax topics Live Chat –Available weekdays from 7a.m. to 9 p.m. and 8 a.m. to 1 p.m. on Saturdays

37. Looking Forward Increase in the filing threshold in Virginia Filing Status2010 & 20112012 & Beyond Single or MFS$11,650$11,950 MFJ$23,300$23,900

38. Summary 2009 Federal Updates Looking Forward: 2010 Federal Changes 2009 Virginia Updates Looking Forward: 2010 Virginia Changes

39. Questions Julie Emanuele –Phone: 804-433-1084 –Email: jemanuele@theroselinegroup.com jemanuele@theroselinegroup.com Brad Hungate –Phone: 804-545-7458 –Email: bhungate@theroselinegroup.com bhungate@theroselinegroup.com Kevin Klein –Phone: 804-545-7459 –Email: kklein@theroselinegroup.com kklein@theroselinegroup.com www.theroselinegroup.com