Contents

Important Message about IRA Conversion Opportunities

Expect Estate Tax Legislation

2009 Tax Changes for Individuals

Year End Tax Planning Seminar

Join SC&H Tax and Advisory Services, LLC for a year end income and estate tax planning seminar covering the dramatic changes in tax law.

2009 will be a unique year for tax planning strategies, so mark your calendar for this special event!

November 4, 2009
7:30am – 9:30am

Loyola College Graduate Center
Timonium Campus
2034 Greenspring Drive
Timonium, MD 21093

Chick here to register.

Welcome

Every new administration brings changes. With the election of Barack Obama last November, we all expected to see a number of tax law changes and so far, that’s exactly what we have seen. This issue of SC&H Perspectives discusses only a few of the developments we’ve seen and hints at more to come. To the extent the topics below might apply to you, we encourage you to contact SC&H in order to ensure that we help you plan effectively for their implementation.

As always, feel free to give any of us a call with questions. We are happy to help.

Regards,

Greg Horning
President, SC&H Financial Advisors, Inc.
(410) 403-1512
GHorning@SCandH.com

Important Message about IRA Conversion Opportunities

Beginning January 1, 2010, the income limit that currently prevents higher-income taxpayers from contributing to, or converting, IRAs to Roth IRAs will disappear. This represents a significant opportunity for many of our clients. At SC&H, we have developed a process to assist you in the evaluation of your Roth conversion opportunities. We strongly encourage all of our clients to discuss the advantages and disadvantages of a conversion with your SC&H tax advisor.

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Expect Estate Tax Legislation

The main focus of estate planning is to create the most effective structure in which to pass along your estate to your heirs - while at the same time minimizing the associated tax bill. There is some confusion, however, as to exactly what the estate tax entails and who it affects.

The estate tax is a levy on the transfer of assets to your heirs upon your death and is based on the fair market value of the assets you held, less various exemptions and deductions. Contrary to popular belief, joint accounts and accounts payable on death are included in your gross estate when calculating the estate tax. Joint titling of assets merely helps to avoid the probate process, but those assets remain subject to the estate tax.

In the Economic Growth and Tax Relief Reconciliation Act of 2001, President George W. Bush fulfilled his promise to reduce taxes by granting numerous tax cuts and credits - the estate tax being a primary target. The legislation called for a steady increase in the one-time exemption and a corresponding decline in the highest effective tax rate, beginning in 2002 and running through 2009. We now find ourselves in 2009 with a maximum estate tax exemption of $3.5 million and a tax rate of 45%. While many states have decoupled from the federal estate tax system, thus potentially subjecting taxpayers to state-level estate taxes, the current federal exemption and tax rate is a welcome relief.

As it stands now, the estate tax is set to be completely repealed for one year in 2010. In 2011, the provisions of the 2001 Act will sunset and the estate tax will revert back to the rates and exemptions that were in effect in 2001. Given the current state of the economy, few believe this will actually happen and we expect Congress to act on revisions to estate tax laws this Fall. At SC&H, we continue to monitor the various proposals as they are debated in Washington.

With the constantly changing estate tax landscape, it is prudent to take the time to meet with your financial advisor to evaluate your estate planning needs in order to preserve your hard-earned assets for your loved ones.

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2009 Tax Changes for Individuals

The American Recovery and Reinvestment Tax Act of 2009, signed earlier this year, provides individuals with a number of tax savings opportunities. A few of them are highlighted below.

• AMT: The Alternative Minimum Tax (AMT) was created to ensure that very wealthy individuals pay their fair share of federal taxes. Over time, the AMT has encroached on middle-income taxpayers, largely because it was not indexed for inflation. The 2009 Recovery Act increases the AMT exemption amounts and allows taxpayers to take most personal credits to reduce AMT liability for 2009. The exemption amounts for 2009 are $70,950 for married individuals filing jointly, $46,700 for unmarried individuals, and $35,475 for married individuals filing separately.

• Tuition and Related Expenses: For 2009 and 2010, the Hope Scholarship Credit has been replaced by the American Opportunity Credit. The Credit is available to a broader range of individuals (including those who owe no tax), adds required course materials to the list of eligible expenses, and can be claimed for four years of post-secondary education. In addition, distributions from qualified tuition programs (529 Plans) can be used for some computer equipment and Internet-access costs paid or incurred during 2009 and 2010.

• Unemployment Compensation: Normally, unemployment benefits are fully taxable. However, the first $2,400 of benefits received in 2009 is tax-free. For a married couple, this exclusion applies to each spouse separately.

• New Car Deduction: You may be able to deduct the state and local sales tax or excise tax paid on the purchase of a new car, light truck, motor home or motorcycle. This deduction is limited to the sales tax on the purchase price of a new vehicle (up to $49,500) purchased between February 17, 2009 and December 31, 2009. This above-the-line deduction applies both to itemizers and non-itemizers, but is subject to income limitations.

• Making Work Pay Credit: Wage earners have seen an increase in their take-home pay in 2009. This is part of the Making Work Pay Credit, which calls for a credit against income tax in an amount equal to the lesser of 6.2 percent of the individual's earned income or $400 ($800 for married couples filing jointly). Note that income limitations apply. That extra cash in your pocket today might mean you will have to pay it back when you file in April, so it’s prudent to be sure that your withholding is sufficient for 2009.

• Residential Energy Property Credit: The residential energy credit went away in 2008, but is back for 2009 and 2010. You may qualify for a tax credit of up to $1,500 for installing energy-efficient windows, doors, furnaces, and other items in your home.

• Homebuyer Tax Credit: This credit gives first-time homebuyers a tax credit equal to 10 percent of the purchase price of a home up to $8,000 ($4,000 for married individuals filing separately). The credit applies to a home purchased from April 9, 2008 through November 30, 2009. You cannot claim the credit until you finalize the purchase of your home.

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