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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