1. Payroll Tax
California workers pay a mandatory contribution to the State Disability Insurance (SDI) program for disability insurance coverage. The contribution is paid through a payroll deduction. The SDI withholding rate has been changed. The new SDI rate for 2009 is 1.1%. It was 0.8% in 2008.
2. Standard Business Mileage Rate
The 2009 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes has been changed. Beginning 1/1/09, the standard mileage rates for the use of a car will be 55.0¢ per mile for business miles driven. The new rate for business miles compares to a rate of 50.5¢ per mile for 1/1/08-6/30/08, 58.5¢ for 7/1/08-12/31/08.
3. 50% Bonus Depreciation and $250,000 Sec 179 Deduction in 2008
Taxpayers are permitted to claim 50% first-year bonus depreciation of qualifying property placed in service in 2008. If luxury autos are acquired and placed in service in 2008, the regular first year depreciation limit is increased by $8,000. The maximum regular IRC §179 expense deduction is $250,000 in 2008 only.
4. In 2009, Partnership Extensions for 5 Months, Not 6
The automatic extension period for partnerships or LLC filing Form 1065 and estates and trusts filing Form 1041 has been changed up to 5 months, not 6. The one-month reduction in extension time is effective for returns with original due dates on or after 1/1/09. For taxable years beginning on or after 1/1/09, California State’s LLC fee is due on the 15th day of the 6th month of the current taxable year – 6/15/09, for the 2009 year.
5. Federal Standard Deduction Increased by Real Estate Taxes and Net Disaster Losses
Your federal standard deduction is increased by real estate taxes you paid equal to the lesser of the amount paid or $500 ($1,000 married filing joint), and a net disaster loss attributable to a federally declared disaster.
6. Tax Free Capital Gains
For tax year 2008-2010, taxpayers will enjoy tax free capital gains and qualified dividends. Taxpayers who can take advantage of this opportunity are those whose taxable income amount – minus qualifying capital gains and dividends – is less than the upper threshold for the 15% marginal tax bracket ($32,550 for singles and MFS, $43,650 for HOH, $65,100 for MFJ).
7. IRA Deduction Expanded and Rollovers to Roth IRAs
You and your spouse, if filing jointly, each may be able to deduct up to $5,000 ($6,000 if age 50 or older) for the traditional IRA contributions. You can rollover distributions from an eligible retirement plan to a Roth IRA. The rollover is not tax-free, but no penalty beginning in 2008.
8. Limit on Exclusion of Gain on Sale of Main Home
Generally, gain from the sale of your main home is no longer excludable from income if it is allocable to periods after 2008 where neither you nor spouse used the property as a main home. This nonqualified use does not include any portion of the 5-year qualifying period which is after the last date the property is used as the principal residence of the taxpayer or spouse. This exception allow the taxpayer up to a 3 year period in which to sell the principal residence after moving out of it and still meet the 2-out-of-5 year requirement. On or after 12/31/07, the IRC §121 $500,000 exclusion for married taxpayers to gain realized from the sale or exchange of a principal residence by a surviving spouse is extended within 2 years of the spouse’s death. But California State has different provisions.
9. First-time Homebuyer Credit
If you bought a main home during 4/9/08 - 6/30/09, and did not own a main home during the prior 3 years, you may be able to take this credit. The credit is equal to 10% of the purchase price up to a credit of $7,500. Although it is called a credit, it is a loan that the taxpayer must repay ratably over a 15-year period in the form of recapture.
10. Recovery Rebate Credit
This credit is figured like last year’s Economic Stimulus Payment(ESP), except that the amounts are based on tax year 2008 instead of tax year 2007. Any ESP you received is not taxable for federal income tax purposes but reduces your Recovery Rebate Credit.
11. “Kiddies” Get Older in 2008
Beginning in 2008, kiddy tax applies to a dependent child who has attained age 18 (age 23 a full-time student). Form 8615 is required to figure the kiddy tax for a child with investment income of more than $1,800.
12. The Mortgage Forgiveness Debt Relief
A taxpayer may exclude from income up to $2 million of qualified principal residence acquisition indebtedness for discharges incurred during 1/1/07-12/31/12. But the basis of a taxpayer’s residence is reduced by the excluded amount. California State has different provisions.
13. Annual Gift Tax Exclusion Increase to $13,000 in 2009
Annual exclusion amount increases to $13,000 per each beneficiary in 2009. And the applicable estate exclusion amount increased to $3.5 million in 2009.
14. Federally Insured Deposits (FDIC)
The basic amount of FDIC insurance is increased to $250,000 effective during 10/3/08 – 12/31/09. After that, the amount will revert to $100,000.