Accountant shares impact of tax code changes, effect of Measures 66 & 67

Find out about changes in the tax law for the 2009 tax year – and exactly who will actually pay …

Licensed Tax Consultant Elaine Elsea helps people attending the Midway Business Association meeting find out how changes in the tax code can help them – and harm them – when they’re filing for Year 2009.

Story and photos by David F. Ashton
Members and guests of outer East Portland’s Midway Business Association (MBA) has just gotten helpful advice from a licensed tax consultant. At the same meeting, they learned why this financial professional is concerned that the passage of Oregon Ballot Measures 66 & 67 might impede recession recovery in the state.

After introductions and announcements, the president of MBA, Bill Dayton, owner of Pizza Baron, introduced Licensed Tax Consultant Elaine Elsea, of Portland Tax Company, to the group on February 12.

“There are a number of changes of which you should be aware,” Elsea began, “because of tax law changes for the 2009 tax year.”

‘Making Work Pay’ Credit
During 2009, the Internal Revenue Service (IRS) withholding table amounts were reduced to allow more dollars to be available to working individuals, Elsea said. “When people file their 2009 returns, there will be a credit in the amount of $400 for Single or $800 for Married Filing Joint. This was to help stimulate the economy.”

With many tax laws, she said, there is the good and bad side. “In this case, the bad side is for people who have withholdings taken out of their pensions, social security, or unemployment checks. These individuals will not be eligible for the credit even though their withholdings were decreased unless they have earned income. Generally speaking, earned income is described as wages or self employment income. This credit will be calculated on a new form Schedule M.”

Economic Recovery Payment
Some individuals may have received $250 from a government agency such as social security, SSI, railroad retirement, or VA benefits. If so, they will have to reduce the ‘Making Work Pay Credit’ if they are eligible to take the credit.

Elsea says the federal tax code now permits lower deductions for business transportation

Mileage rates reduced for 2009
“Apparently, the federal government expected the price of vehicle fuel and repairs to go down,” Elsea quipped as she pointed out these rate changes:

Business use mileage rate is 55 cents; they reduced it to 50 cents per mile for 2010;
Medical and moving rate is 24 cents; it has been reduced to 16.5 cents for 2010;
Charitable mileage rate is 14 cents and remains unchanged.

Unemployment
Unemployment will not be subject to tax on the first $2,400 received during 2009, Elsea said. “This is applied to each person receiving benefits. For those who elected to have withholdings on this income, this will also help adjust for the lowered withholding amounts mentioned above under the ‘Making Work Pay Credit’.”

‘Hope Credit’ for post-secondary education
This credit is not new. It has been extended to the first 4 years of attendance rather than the first 2 years. It has also increased to a maximum credit of $2,500 ($3,600 if the student attended school in the Midwest Disaster Area).

Qualified motor vehicle taxes
For qualifying purchases after February 16, 2009, the tax paid on the purchase can be deducted as an itemized deduction or added to the standard deduction using “Schedule L”. “For Oregonians, since we do not have a sales tax, we are allowed a deduction for registration and license fees.”

First Time Home Buyers Credit
This credit has been extended to long-time homeowners who have lived in their personal residence for 5 out of 8 years prior to the purchase date of the new home. This newer part of the credit is limited to $6,500 rather than the $8,000 allowed to first-timers.

“Because of the huge number of fraudulent returns filed with these credits claimed in the past,” Elsea pointed out, “the IRS is requiring the returns with either of these credits be sent in by paper – instead of being electronically filed with the settlement statement attached. IRS may also ask for additional proof of purchase information, and payments made on the home. Even so, it’s still a great credit!”

Converting traditional IRA to a Roth IRA
“If you’ve been thinking about doing a conversion, 2010 could be your year,” stated Elsea.

With the removal of modified AGI limitations, removing the filing status requirements, and not having to include the income until 2011…Wow! You can even split the income over 2011 and 2012 to lighten the tax burden. The only drawback I can see is that we are not sure what the tax laws will be in the year 2011 and forward. But even so, I still think it may be a good opportunity.”

Saying that she’s concerned about the impacts of the impending ballot measures, Elsea outlines the true costs of Ballot Measures 66 and 67.

Accountant comments on Ballot Measures 66 and 67
“I mention these Ballot Measures because I believe that an informed vote is better than an uninformed vote,” Elsea told the group. She went on, outlining these specifics:

Measure 66
If passed, it adds two new tax brackets to the Oregon Income Tax code. Income over $125,000 will be taxed at 10.8%; and over $250,000 will be taxed at 11% for three tax years – then drop to 9.9% These two income brackets cannot be adjusted (unlike the lower income brackets of $0 to $125,000 which can be increased by a cost-of-living adjustment in current law).

The federal tax subtraction of $5,850 will be reduced ratably to zero, based on federal adjusted gross income of $145,000 or, if filing MFJ, $290,000.

The unemployment subtracted from the federal adjusted gross income of $2400 will be allowed to adjust Oregon income.

Measure 67
If passed, this measure increases C Corporations’ tax rate to 7.9% for net taxable income over $250,000. The will decrease to 7.6% in 2013 for taxable net income over $10 million.

“A minimum tax of $150 to $100,000 will be established for the privilege of carrying on or doing business within Oregon,” Elsea stated. “This applies to C Corporations. All S Corporations, Partnerships, and some LLCs will be subject to a flat fee of $150.”

Business registrations filed with the Secretary of State will double, as will notary applications. There will also be a 33.33% increase to UCC filings.

Additionally, attendees brought up the fact that corporations’ taxes – under Measure 67 – will be based on the gross revenue, not net profit. They also expressed concern that additional taxes would be retroactive, to the beginning of year 2009.

“During a time when money is so tight, increasing taxes just doesn’t make sense,” opined Elsea. “Talk to your tax professional who knows Oregon tax laws, and ask how this will affect you or your company.”

The information in this article is based on the informed opinion of the speaker, and is specifically not presented as legal advice by either Ms. Elsea or East Portland News. You can reach Elsea by e-mail at portlandtax@comcast.net.

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