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This Week in the iNews:

▲ LUNCH & LEARN SERIES– FINANCIAL PLANNING IN TODAYS ENVIRONMENT

▲ PROPOSED FY 2010 BUDGET

▲ REASONS WHY YOU MAY WANT OR NEED A BUSINESS VALUATION IN 2009 5 OF 9

▲ LUNCH & LEARN SERIES – MARK YOUR CALENDARS

Please join us on Thursday, March 19, 2009 for the second installment of our 2009 Lunch & Learn Series Program – Financial Planning in Today’s Environment from a CPA’s Perspective. Each program will begin at noon and end around 1:00 p.m. Lunch and parking will be provided.

Please contact Michelle Ripley at mripley@pmcpa.com or at 616.774.9004 for your reservation for any of the programs.

Seating is limited. Don’t miss out!

▲Proposed FY 2010 Budget - Would Make New Tax Breaks Permanent, Limit Itemized Deductions for High Income Filers and Increase IRS Enforcement

President Obama released his administration's "Budget Overview for Fiscal Year (FY) 2010 of the United States Government" on February 26. The proposals within his budget amount to $3.5 trillion in expenditures over the government's next fiscal year. Administration officials emphasized that the preliminary budget release was intended to be only an overview and that further details, including additional items, will be forthcoming in the Spring.

Within any budget proposal from an administration, taxes play an important role, both as a funding mechanism and as an efficient means of distributing benefits. President Obama's 2010 budget overview is no different. This year, however, the introductory section of the "President's 2010 Budget Overview" warns, "There are no quick and easy fixes to the recession plaguing our economy."

The administration will not increase revenue in 2009 and 2010, according to a senior Treasury official at a background briefing at the Treasury immediately after

the overview was released. He emphasized that there would be no accelerated repeal of the "Bush tax cuts" at this time while the economy remains fragile. The administration has "an explicit policy of increasing demand in light of the deepening recession." According to the official, "We want to do things that will stimulate the economy and spur economic demand."

Proposed Tax Changes

Tax recommendations contained in the budget outline include:

Reduced Itemized Deduction for High-Income Individuals. The President's 2010 budget overview proposes to cut back the amount of tax benefits allowed to high-income individuals who itemize deductions. To create a $630-billion reserve fund to bolster health care reform, the 2010 budget would limit itemized deductions for those with high income to the same after-tax benefit as those individuals in the 28-percent bracket. The budget proposes "reducing the itemized deduction rate for families with incomes over $250,000 to 28 percent."

Making Work Pay Tax Credit. For 2009 and 2010, the American Recovery and Reinvestment Act (the 2009 Recovery Act) gives wage earners (and the self-employed) an annual refundable income tax credit of up to $800 ($400 for single filers) to offset payroll taxes on the first $6,450 of wages, with an adjusted gross income phase out starting at $150,000 ($75,000 for single filers). the President's 2010 budget would make this credit permanent.

Enhanced Child Credit. For 2009 and 2010, the 2009 Recovery Act gives many low-income families a higher child credit by reducing the earnings threshold for the refundable portion of the child credit to $3,000. The president's 2010 budget would make this enhanced refundable credit permanent.

American Opportunity Tax Credit. For 2009 and 2010, the 2009 Recovery Act added a new $2,500 American Opportunity Tax Credit applicable to all four years of college, eclipsing in benefits both the existing HOPE and Lifetime Learning credits for these students and their families. The president's 2010 budget would make this credit permanent.

Mandatory Automatic Enrollment in Retirement Savings Plans. The president's budget "lays the groundwork for the future establishment of...automatic workplace pensions." All employees would be automatically enrolled in their employers' retirement plans, with an election to opt out. Employers not offering a retirement plan will be required to enroll their employees in a direct-deposit IRA account compatible with direct-deposit payroll systems.

Tax Provisions Not Enhanced or Extended

Several tax breaks initiated in the 2009 Recovery Act were highlighted in the President's 2010 budget outline but not proposed to be changed in any way at this time. This group of tax provisions includes:

$250 Recovery Payment to Retired and Disabled Individuals. While the 2010 budget overview touts the benefits of the $250 recovery payments for 2009 under the 2009 Recovery Act, it does not extend these benefits. However, it does state that the $250 will be disbursed "through temporarily increasing Social Security Income and Veterans benefits." Prior speculation had been that these payments would be made by issuing a single check to qualifying individuals.

Unemployment Insurance Benefits. The 2010 budget calls for a $25 weekly increase in UI benefits. No mention is made, however, of the exclusion of UI benefits from taxable income for years after 2009.

Production Tax Credit. The 2010 budget overview praises the 2009 Recovery Act for allowing long-range planning in developing renewable energy by extending the production tax credit (PTC) to 2012 for wind

and to 2013 for other renewable energy sources. However, the 2010 budget proposes no further extensions.

Weatherizing Homes. The 2010 budget "would build on the $5 billion provided in the 2009 Recovery Act for weatherizing assistance" to low-income homeowners. No increase in or extension of the 2009 Recovery Act $1,500 residential energy efficient property credit for 2009 or 2010 was proposed.

Affordable COBRA Coverage. For the period September 1, 2008, through December 31, 2009, the 2009 Recovery Act provides a credit for unemployed workers to offset up to 35 percent of their premiums for COBRA medical benefits coverage. The 2010 budget overview does not propose enhancing or extending this benefit.

More to Come

The senior Treasury official who briefed the press immediately after the budget overview was released emphasized that the president's budget was unique in that it was the result of an accelerated and expedited process. As a result, he acknowledged that there is considerable detail that the administration cannot put forth right now, but certain details are evident. He stated that there will be the traditional "Blue Book" ("General Explanations of the Administration's Fiscal Year 2010 Revenue Proposals") released in late March or early April with the normal amount of detail.

International Tax Enforcement. The senior official remarked that the Obama administration does not want "location to work against job creation," a clear reference to the president's statement before Congress on February 24 to "balance our tax code by finally ending the tax breaks for corporations that ship our jobs overseas." He stated that details with respect to international tax enforcement will be announced in coming months. There will be a major increase in the IRS's budget for international tax enforcement, the official emphasized.

▲ NEED A BUSINESS VALUATION IN 2009 – 5 OF 9

Reason 5 of 9 – Subchapter S Conversions

If you’re planning to convert from “C” to “S” or “LLC” corporate status, you should have a valuation done as of the conversion date to determine the tax calculation for the IRS. If your company is sold prior to the ten year holding period, there is a tax due on the built-in gain of value from the date of conversion.

If you are planning for or find yourself in this type of situation, please contact Les Prangley, CPA, CVA to see if a business valuation is needed or required at 616.774.9004 or lprangley@pmcpa.com.

See next week for Reason 6 of 9!