Tax Tips and News




HOMEBUYER TAX CREDIT—Not Just for First ‐ Time Home Buyers Anymore

New legislation has extended and expanded the first‐time homebuyer credit allowed by previous Acts. Under the new law, an eligible taxpayer must buy, or enter into a binding contract to buy a principal residence on or before April 30, 2010 and close on the home by June 30, 2010.

For qualifying purchases in 2010, taxpayers have the option of claiming the credit on either their 2009 or 2010 return.

Long‐time homeowners who buy a replacement principal residence may also claim a homebuyer credit of up to $6,500 (up to $3,250 for married individual filing separately). They must have lived in the same principal residence for any five consecutive year period during the eight‐year period that ended on the date the replacement home is purchased.

People with higher incomes can now qualify for the credit. The new law raises the income limits for homes purchased after November 6, 2009. The credit phases out for individual taxpayers with modified adjusted gross income between $125,000 and $145,000 or between $225,000 and $245,000 for joint filers.

Several new restrictions apply to homes purchased after November 6, 2009. Purchaser's must attach a settlement statement to their return. There are no credits available if the purchase price exceeds $800,000, and a dependent is not eligible for the credit.

First‐time homebuyers who purchased a home after December 31, 2008 and before December 1, 2009 can continue to claim a first‐time homebuyer credit. The credit is 10% of the home’s purchase price, up to $8,000 ($4,000 for married filing separately). The credit also does not have to be repaid provided the home remains their main home for 36 months after the purchase date.


Three Key Decision Factors for IRA Conversions

It’s an overall belief that most investors should consider including a Roth IRA as part of their overall retirement savings plan. If you have already started saving in another retirement account, converting to a Roth IRA may help you minimize taxes and maximize your retirement savings. The decision to convert should be made with thoughtful consideration and a consultation with Kruger & Clary before you make a final decision.

Consider these three key factors to help you make your decision:
  • Taxes - If you anticipate a higher tax rate in retirement or plan to leave your savings to your heirs, you may want to consider a Roth conversion. You may pay lower taxes now with a conversion than if you wait to pay taxes in retirement.
  • Time - Generally, if you have 10 years or more before you begin to take withdrawals, a conversion is likely to benefit you. Some investors with a shorter time horizon may also benefit based on other considerations.
  • Cost - Can you cover the cost of the taxes you'll need to pay with cash or other non-retirement savings? If not, it might not be advantageous to convert.

The rules are changing in January 2010

Before January, single investors and married investors filing jointly with modified adjusted gross incomes greater than or equal to $100,000 (as well as married investors filing separately) were ineligible for a Roth conversion. In 2010, the conversion income limit will be removed. Every investor will be able to convert to a Roth IRA (the annual contribution income restrictions will still apply). Investors who convert in 2010 have the option to spread their tax liability by including half of the conversion in their 2011 tax return and half in their 2012 tax return. In subsequent years, they will have to pay all taxes the year they convert


The Importance of Buy - Sell Agreements

Any business with two or more partners or shareholders should create a buy-sell agreement. Despite their name, buy-sell agreements are probably better titled buyout agreements, as they establish the terms and conditions of a future sale between owners. A buy-sell agreement specifies events that would trigger the buyout of one owner's portion of the business, such as an owner's death, disability, retirement or bankruptcy. A buy-sell agreement also details the method of establishing a purchase price, terms of payment, types of allowable (and prohibited) ownership transfers and many other crucial items.

Why are these agreements so important? Because without a buy-sell agreement in place, a change in ownership could be devastating to a business. If one owner files for bankruptcy, the business could get tied up in bankruptcy court. If an owner dies suddenly, the remaining partners could wind up with an unsuitable replacement partner (such as the deceased owner's relative). Or if an owner wishes to retire, disputes may arise between owners as to a fair purchase price and ideal timeline for such a buyout. Addressing these types of scenarios before they happen will help you avoid unnecessary headaches and legal issues and ensure a smooth transition of ownership.

There are two common types of buy-sell agreements, both which are activated by a partner's death or disability and typically use insurance to fund the purchase of ownership interests. In a cross purchase plan, each business owner buys a life insurance policy on the other owners. That way, if an owner dies, the surviving owners will use the life insurance proceeds to purchase the deceased owner's share of the business. In a stock redemption plan, the business agrees to purchase an owner's shares upon their death with the proceeds from the life insurance policy that the company owns on the shareholder's life. Whatever buy-sell agreement you choose, be sure that it adequately covers a wide range of events, not just death or disability.

A good buy-sell agreement will help ensure continuity of your business and most importantly, give you as a business owner peace of mind. If you would like to learn more about creating the right type of buy-sell agreement for your business, contact Kruger & Clary today.


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