Important Tax Law Changes for 2009

It is hard to believe that often-dreaded time of the year is approaching: tax time. As March rolls by and April 15 inches closer, no doubt the anxiety starts to build for some. So many things to remember to do: gather our pay stubs or W-2 forms, find 1099s from stock transactions or dividend income, collect mortgage interest and property tax payment summaries, and calculate cost basis on security transactions, if applicable.

As you work on these items to complete 2008 taxes, it’s also a good time to look ahead to the tax law changes for 2009. This will help you prepare for the following tax season and take advantage of some tax-saving methods to improve your overall financial plan.

Employee contribution limits

The 2009 401(k) employee contribution has increased from $15,500 in 2008 to $16,500 for 2009. These limits apply to everyone younger than 50. Those who are age 50 and older can make “catch-up” contributions of another $5,500.

IRA contribution limits

The 2009 IRA/Roth IRA contribution limits remain $5,000, with an additional $1,000 catch-up contribution for those 50 and older for a total of $6,000. Keep in mind that you have until April 15, 2009, to make your 2008 IRA contribution if you have not already done so. Also, total maximum contributions to SIMPLE IRAs have increased to $11,500 ($14,000 for age 50 and older) and SEP IRA maximum contributions have increased to $49,000 for 2009.

Annual gift-tax exclusion

The annual gift-tax exclusion amount rose to $13,000 in 2009, up from $12,000. That means that you can give as much as $13,000 this year to anyone you wish, or to as many people as you wish, without having to worry about taxes or having to file any IRS forms. This is a popular estate-planning technique that older relatives could use to help others out during these tough economic times.

In addition, you may gift an unlimited amount by paying directly for someone else’s tuition or medical expenses. So this is another way for a well-to-do parent or grandparent to remove money from their estate and help a child or grandchild and owe no taxes in the process.

Minimum IRA distributions suspended

A new law was recently passed that allows taxpayers age 70 and older to skip their required IRA distribution for 2009. This law currently only pertains to 2009. Tell your parents or grandparents about this important new law.

I am often asked about the recommended method to complete tax returns. Unless you are a hands-on person who is comfortable with both numbers and computer software, my opinion is that you should outsource the preparation of your tax return to a professional. In most cases I would recommend a CPA (certified public accountant) instead of another type of tax preparer.

If you are comfortable doing your own tax return, then I have found the software packages such as Tax Cut and Turbo Tax to be quite efficient. Just remember, April 15 is right around the corner.

James R. Miller, CFP, is senior vice president of Tilson Financial Group, an independent financial planning firm in Chapel Hill.

Categories: Finance, Money