Market Digest

The latest state and tax law changes, fluctuating economic conditions, and your own personal financial situation can all be reviewed most effectively by an Enrolled Agent (EA) to help you plan an effective tax strategy.

EAs are tax professionals licensed by the federal government to represent taxpayers and assist them with tax planning and the preparation of tax returns.

“Whatever your personal tax situation, mid-year is traditionally a good time to sit with a qualified professional and discuss what your options are for the rest of the tax year and beyond,” says David A. Shaw, EA, President of the California Society of Enrolled Agents. “This year, however, with widespread changes brought about by the American Recovery & Reinvestment Act and other critical economic factors, it’s de rigueur in many cases to seek competent professional guidance.”

Among the mid-year factors to consider in 2009, Mr. Shaw specifically recommends looking at:

Adjusted Withholding – It should be standard operating procedure to review your withholding if you paid too much or too little in the previous year, but this year The Recovery & Reinvestment Act created a new credit called the Making Work Pay credit. This refundable credit reduces withholding for many workers, but if you have more than one job or you and your spouse both work, you especially need to look at your withholding amounts.

Note that in California, the personal income tax was increased as part of the State budget. If employers do not use the revised tables issued by the Franchise Tax Board, employees could be under-withheld.

Unemployment Compensation – California unemployment figures are the highest in recent memory, and if you spend all or part of the year collecting unemployment benefits, you need to be aware that unemployment compensation, severance pay, and payments for accrued unused vacation/sick days are all taxable. There is a temporary exclusion in 2009 for the first $2,400 of unemployment compensation received during the year, but you may be surprised by a hefty tax bill at year’s end if you weren’t expecting to play taxes on unemployment compensation above that amount.

Net Operating Losses – The Recovery Act allows small businesses who meet certain guidelines to “carry back” 2008 net operating losses (NOLs) for three, four or five years. Enrolled Agents can advise small businessowners of what the guidelines are and give additional information that can impact the bottom line.

Retirement Planning - IRAs, 401(k)s, and other pension plans remain an effective way to prepare for retirement, but many taxpayers don’t use them or don’t understand them. A good retirement program is one of the best tax strategies you can have, and planning for your post-workforce life is more important now than ever.

Life Changes – In 2009 did you enter into a marriage (or end one) or celebrate a birth or adoption? Did you buy or sell a home, or lose a home through foreclosure or short sale? Any of these events could severely impact your tax situation, and should be reviewed by an Enrolled Agent. Eligible first-time homebuyers may even qualify for a new credit of up to $8,000, which may be claimed on either 2008 or 2009 returns. And if you have started to worry about the cost of higher education for your children (and you should be), there are tax-deferred savings plans available to help you sleep better at night.

Members of the California Society of Enrolled Agents are required to fulfill 20% more education than required by the IRS and to adhere to a strict code of ethics. Taxpayers in California who seek professional assistance with tax planning can locate Enrolled Agents in their area online at www.csea.org.