Paul Ferraresi

The Recovery and Reinvestment Act of 2009 has a variety of tax savings that may benefit you.

Most people spend and concentrate mainly on their homes and autos. Here are a few tax incentives in each area that may save you tax dollars.

If you have a house or a car, going green will be easier.

• Green Homes - Clients who install solar panels or make other energy efficiency improvements to their homes will receive substantial write-offs for their efforts. A credit of up to 30% is available for expenses incurred in 2009 and 2010. You could even install solar panels to heat your pool and it will count. In the past, the benefit was only a 10% credit.

The maximum credit has been raised from $500 to $1,500, combined over two years, with specific limits for different types of improvements. For example, furnaces are limited to $150. A previous limit of $200 for windows has been lifted, but the specifications for windows to qualify have become stricter.

For certain green home improvements, there are no longer any dollar caps. For example, that $1500 cap does not apply to geothermal heat pumps, solar water heaters and solar panels. Wind energy systems and certain fuel cells are also exempt from the cap. You can claim the full 30% of the purchase price for these, and they can be expensed. To see exactly which home improvements qualify, go to:
www.energystar.gov/index.cfm?c=products.pr_tax_credits.

• Green Cars - The government hopes more people will start driving clean, plug-in cars. Hybrid electric cars now qualify for a tax credit that starts at $2500 and phases out after the manufacturers sell 200,000 vehicles. The credit is calculated according to the power of the vehicle. If the car has a battery with at least five kilowatt-hours of capacity, your credit is increased by $417. For every kilowatt-hour thereafter, up to 16, you add an additional $417. It could be worth as much as $7500.

The fables told to gullible voters and the uninformed by President Obama that the rich got a tax holiday under George W. Bush is bunk.
Let’s take a look at the numbers. The share of the tax burden paid by the top 20% of households by income distribution actually increased. Those with average pretax incomes of $248, 400 increased significantly between 2000, Bill Clinton’s last year as President, and 2006 the last year in which data is available.
The Obama administration is set to increase taxes on the upper income people even more. He is trying to sell it as a retribution for the big breaks they allegedly got from Bush at the expense of the poorer folks. (Poor folks do not pay taxes)
The top 20% of households paid a record 86.3% of all taxes in 2006 versus 81.2% under Clinton. Hmmm to be “fair” the top 20% should only pay 20% and so forth…not almost 90%.
If the Democrats raise the tax burden they kill the golden goose. The bottom 20% of income earners saw their share of income taxes drop from minus 1.6% to minus 2.8% in 2006 (these numbers are negative because many in the lower quintile pay no income taxes, but, get money from child and other tax credits.)
If people claim the 5.1% increase in taxes for high earners was due to an increase in their incomes…well, that is wrong. The top 20% saw pretax income rise from 54.8% of the total in 2000 to 55.7% in 2006. A 0.9 percentage point increase. The top 10% share of income increased from 40.6% to 41.6% mainly due to a large number of low income tax payers being removed from the tax rolls.
For over one hundred years every time tax rates increase the tax revenue into Washington decreases. Every time tax rates decrease tax revenue increases. If you want less of something then simply tax it more. Duh!
Like the guy who went into the doctor and said…when I raise my arm it hurts..what should I do? Don’t do that! If they want more tax money in don’t raise taxes! Don’t do that.

What do investors expect the dividend tax rate to be in 2011? This will be the year after the Bush tax cuts expire.

Recent surveys show that tax rates will rise dramatically. Here is why: Democrats are likely to maintain their majority in both Houses of Congress. In addition, the Dems will probably pick up seats in the Senate. Even if the GOP wins the White House, a Republican President will probably be dealing with a Democratic Congress. On the other hand the more likely scenario is an all-Democratic government (look out for what you pray for … here it comes).

Under current law the dividend and cap gains tax rate would return from the present 15% tax rate to the old 39.6%. All the Democratic candidates have said they would repeal the Bush tax cuts immediately. In addition, Rep. Charles Rangel (D-N.Y.) chairman of the tax-writing Ways and Means Committee is vowing to repeal the AMT. He is proposing a surtax on high income individuals plus moving the top rate (including dividends and cap gains) from the present 35% to 44.2%.

[Side Bar: I have written countless times in this blog that taxes will be going up in the future. You should have restructured your contributions to the time-bombs, (i.e. 401K and IRA) and even been pulling money out of your qualified plans at the present low rates.]

Even if the GOP and Dems settle on a dividend and cap gains rate of “only” 28% that is a doubling of the present tax rate.

Conversely, a Republican President will probably be faced with a majority Democratic Congress and be forced to make major concessions to get tax legislation passed. Yup – higher taxes!

What does this mean for you?

• Investors in the stock market are always looking ahead – Have the markets been dropping lately as investors, prepare for more taxes?
• Future stock market returns will be moderate at best.
• Investment into start up businesses will halt curbing job creation due to higher cap gain taxes.
• Businesses will have to lay off people as corporate tax rates also go up in order to maintain their basic profits.
• Jobs will move overseas to a more friendly tax environment.
• Investors will place monies overseas further weakening the U.S. economy and the U.S. dollar.
• Less take home money for you with increased taxes and rising inflation.

Presently Congress is working on a stimulus package to “give back” to us some of our own money (And also give some of our tax money back to people that have NOT paid taxes – Hmmm!)

Don’t they get it? The Dems want to raise taxes, but, they are full throttle to give back money via stimulus package. Isn’t the return of our tax money the same as a tax cut? Let the people keep more of their money. Most people know how to spend their own money better than Congress does!!!

And you said you wanted change? WATCH OUT … for Happy Days are NOT here again (Where are Richie, Ralph and Fonzi  ?)

What do investors expect the dividend tax rate to be in 2011? This will be the year after the Bush tax cuts expire.

Recent surveys show that tax rates will rise dramatically. Here is why: Democrats are likely to maintain their majority in both Houses of Congress. In addition, the Dems will probably pick up seats in the Senate. Even if the GOP wins the White House, a Republican President will probably be dealing with a Democratic Congress. On the other hand the more likely scenario is an all-Democratic government (look out for what you pray for … here it comes).

Under current law the dividend and cap gains tax rate would return from the present 15% tax rate to the old 39.6%. All the Democratic candidates have said they would repeal the Bush tax cuts immediately. In addition, Rep. Charles Rangel (D-N.Y.) chairman of the tax-writing Ways and Means Committee is vowing to repeal the AMT. He is proposing a surtax on high income individuals plus moving the top rate (including dividends and cap gains) from the present 35% to 44.2%.

[Side Bar: I have written countless times in this blog that taxes will be going up in the future. You should have restructured your contributions to the time-bombs, (i.e. 401K and IRA) and even been pulling money out of your qualified plans at the present low rates.]

Even if the GOP and Dems settle on a dividend and cap gains rate of “only” 28% that is a doubling of the present tax rate.

Conversely, a Republican President will probably be faced with a majority Democratic Congress and be forced to make major concessions to get tax legislation passed. Yup – higher taxes!

What does this mean for you?

• Investors in the stock market are always looking ahead – Have the markets been dropping lately as investors, prepare for more taxes?
• Future stock market returns will be moderate at best.
• Investment into start up businesses will halt curbing job creation due to higher cap gain taxes.
• Businesses will have to lay off people as corporate tax rates also go up in order to maintain their basic profits.
• Jobs will move overseas to a more friendly tax environment.
• Investors will place monies overseas further weakening the U.S. economy and the U.S. dollar.
• Less take home money for you with increased taxes and rising inflation.

Presently Congress is working on a stimulus package to “give back” to us some of our own money (And also give some of our tax money back to people that have NOT paid taxes – Hmmm!)

Don’t they get it? The Dems want to raise taxes, but, they are full throttle to give back money via stimulus package. Isn’t the return of our tax money the same as a tax cut? Let the people keep more of their money. Most people know how to spend their own money better than Congress does!!!

And you said you wanted change? WATCH OUT … for Happy Days are NOT here again (Where are Richie, Ralph and Fonzi ? )

I continue to write about the need for Long-Term Care Insurance. Here are some tidbits on the tax deductibility of the premiums and tax status of benefits.

The most efficient route for paying premiums and receiving tax free benefits is if you have your own private company. Under this scenario the premiums are tax deductible and the benefits to the recipient are tax free. You can put all the “bells and whistles” on the policy and not worry about skimping. Ah, you say … I do not have my own company. For decades I have begged my client to set up some type of business. No, you don’t need a huge business just a basic home based type. It does not matter what you do … a hobby, consulting, etc, just so long as it generates income. There are thousands of home businesses, cheap to start up, and, provide good money. In addition to buying Long-Term Care insurance through this business, you can take deductions that a “working stiff” cannot, set up a method to fund your child’s college education on a tax deductible basis and more!

I hear you … “Paul, I am more concerned about my parents and their needs for LTCi”. Well, if they have an annuity, or are considering buying one, either qualified or non qualified, then, there is relief on the way (please contact us for questions on the best annuities).

Here is some great news for annuity holders, those considering buying an annuity that will take place in less than 2 years.

A tremendous opportunity

On August 17, 2006, President Bush signed the Pension Act of 2006 into law. Specific provisions of the Act will help usher in new and exciting opportunities for annuities and long-term care planning. These provisions provide tax advantages for annuities used to fund LTC and LTC insurance costs. With many in the marketplace, many annuities are uniquely positioned to help you benefit from the Pension Protection Act.

Pension Protection Act points of Interest:

• Cash value withdrawals from non-qualified annuities used to pay for LTC expenses, of HIPAA tax-qualified LTC insurance, will no longer be considered taxable income, regardless of cost basis. (Note: the above provision takes effect January 1, 2010 and does not affect claims or withdrawals prior to December 31, 2009.)
• Qualified LTC insurance, under section 7702B of HIPAA, can now be added to annuity contracts. The law even allows for qualified LTCi to be offered to annuities issued in the past.

What this means for Annuity Holders:

• All existing and new annuity holders will benefit. An amendment will need to be filed for and offered to existing contracts, making them tax-qualified by January 1, 2010.

Benefits to Annuity policy holders:

• Any LTC claims paid from the base policy will not be taxable.

The Pension Protection Act’s focus on tax benefits for asset-based LTC solutions verifies their stature in the financial services community, and offers a tremendous opportunity for you to make a difference in your financial future.