Tax Articles

New Tax Changes for 2009—and More on the Way

Intuit ProConnection Really Simple
You can bring these articles to your desktop as soon as they are published.


Already a ProConnection subscriber?
Update your profile and personalize your ProConnection experience.
Update your profile

Not a subscriber yet?
Sign up now for free and start receiving customized newsletters directly to your inbox.
Sign up now

This article is being shared in the midst of 2009 as most preparers are working on 2008 returns. But when you discuss clients’ 2008 returns with them, you will also want to point out any 2009 changes that will affect their tax plans. So here’s a quick look at the changes already on the books for 2009.

And big changes are coming. In addition to the significant tax elements in the new economic stimulus bill, Congress is likely to enact additional tax legislation before the year is out.

If that’s not enough, there are a number of new changes already on the books—changes from prior tax laws that take effect for the first time in 2009. We have prepared a letter that you can send to clients alerting them to these “old” changes. Here is a quick rundown at some of the key changes for 2009.

Qualifying Child. For purposes of the dependency exemption and other child-related provisions, the following changes to the definition of a qualifying child apply for years starting in 2009.

• A qualifying child must be younger than the taxpayer.
• A child cannot be a qualifying child if he or she files a joint return, unless the return is filed only as a claim for refund.
• If the parents of a child can claim the child as a qualifying child but no parent actually claims the child, no one else can claim the child as a qualifying child unless that person's adjusted gross income (AGI) is higher than the highest AGI of any parent of the child.
• A taxpayer’s child is a qualifying child for purposes of the child tax credit only if the taxpayer can and does claim an exemption for the child [IRC Sec. 152(c); Sec. 24(a)].

Personal Casualty and Theft Loss Limit. Generally, a personal casualty or theft loss must exceed $500 to be allowed for 2009. This is in addition to the 10% of AGI limit that generally applies to the net loss [IRC Sec. 165(h)].

Required Minimum Distributions. The requirement that certain taxpayers age 70 ½ and over received minimum distributions from their individual retirement accounts and qualified retirement plans is waived for 2009 (see January issue).

Qualified Bicycle Commuting Reimbursements. Starting in 2009, the mix of tax-free transportation benefits that an employer can provide employees includes qualified bicycle commuting reimbursements. A qualified bicycle commuting reimbursement fringe benefit is any employer reimbursement during the 15-month period beginning with the first day of the calendar year for reasonable expenses incurred by an employee during the year for the purchase and repair of a bicycle, bicycle improvements, and bicycle storage, provided that the bicycle is regularly used for travel between the employee's residence and place of employment.

The maximum amount that can be excluded from income for the calendar year is equal to $20 multiplied by the number of months that an employee uses a bicycle for a substantial portion of travel between the employee's residence and place of employment [IRC Sec. 132(f)].

Home Sale Exclusion. For sales after December 31, 2008, gain from the sale of a principal residence is ineligible for the $250,000/$500,000 home sale exclusion to the extent allocable to periods of “nonqualified use.” A period of nonqualified use means any period (not including any period before January 1, 2009) during which the property is not used by the taxpayer or the taxpayer's spouse or former spouse as a principal residence.

For purposes of determining periods of nonqualified use, (1) any period after the last date the property is used as the principal residence of the taxpayer or spouse (regardless of use during that period), and (2) any period (not to exceed two years) that the taxpayer is temporarily absent by reason of a change in place of employment, health, or unforeseen circumstances, is ignored [IRC Sec. 121(b)(4)].

Tax Returns. For tax returns due after December 31, 2008, the minimum penalty for a failure to file a tax return within 60 days of the due date (including extensions) is the lesser of (1) $135 ($100 in 2008) or 100% of the amount of tax required to be shown on the return [IRC Sec. 6651(a)]. For S corporation and partnership returns filed after 2008, the penalty for failure to file is increased by $4 per month per shareholder to $89 a month per shareholder [IRC Sec. 6699(b); Sec. 6651(a)].

Expired tax breaks. A number of tax breaks expired at the end of 2008. For example, the bonus first-year depreciation allowance for equipment and machinery generally is not available for property placed in service after 2008. And the temporary increase in the alternative minimum tax exemption has expired, with the exemption is scheduled to drop to $33,750 for unmarried individuals and $45,000 for marrieds filing jointly. However many, if not all, of these tax breaks are likely to be extended again by Congress.

Reach Out to Clients

So you can reach out to clients or prospects on this issue, we’ve prepared a brief introduction and invitation that you can print to letter head or paste into an email to your clients.

The introduction is in the form of Microsoft Word document. Download to your computer to save and modify as appropriate.

Dear Client

[Word, 28 KB]

Terence M. Myers, J.D. and Dorinda D. DeScherer, J.D. are nationally renowned writers on tax topics for such publications as Accountants Tax Weekly, Tax Return Preparer's Letter, Nonprofit Tax and Financial Strategies, and Executive's Tax and Management Report. For many years Myers was Managing Editor and DeScherer Assistant Managing Editor for many Prentice Hall tax newsletters. Myers and DeScherer have published books and other publications with Harcourt Professional Publishing, Aspen Publishers, Prentice Hall, and the AICPA.

Last Updated: 02/23/2009