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January 2009

RE: 2009

by Andrew D. Schwartz, CPA

Good riddance to an extremely crappy financial year.  During 2008, real estate values plummeted, credit markets froze, and stock markets around the globe tanked.  Plus, we taxpayers are now borrowing in excess of a trillion dollars to bail out some of the most prestigious names in corporate America due to the greed and/or mismanagement of these icons.

Hello 2009.  Hopefully this year won't be nearly as financially crappy as 2008. Here are some steps you can take to get your personal finances back on track:

  • REset your retirement savings:  Most people find it easier to max out their retirement contributions by budgeting a set amount each month.  Instruct your employer to withhold $1,375 per month for your 401(k) or 403(b) plan to ensure that you hit the max of $16,500 in 2009.  Are you self-employed?  If so, you can sock away up to $49,000 next year into a SEP, Keogh or Solo 401(k), which equals $4,083 per month.  And if you'll be 50 or older by December 31st, the limit jumps to $22,000 for 401(k) and 403(b) salary deferrals, and $54,500 for Solo 401(k)'s.

  • REbuild your investment portfolio:  Warren Buffet said it best by stating, "A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful."  While many individual stocks might never recover, the broader indices have shown that when given enough time, they rebound to match and then beat previous highs.  The stock market came back following the Great Depression, 1987 Crash, and September 11th Sell-off.  Could the current level of the Dow be seen as one of the best investment opportunities in recent history?

  • REfinance your home mortgage:  My wife and I just locked in a thirty-year fixed-rate mortgage at 4.875% with no points.  According to our mortgage guy, Bob Cahill of Bank of America, there are a variety of low-rate mortgage products currently available to people looking to purchase a new home or refinance an existing mortgage (as long as the home value exceeds the outstanding mortgage balance.)

  • REduce your personal debt: Over time, people and businesses seemed to have forgotten that any money borrowed needs to be repaid.  Remember, leverage equals risk.  Make 2009 a year to pay down some of your personal debt.  Perhaps you can delay the purchase of a new car, scale down your awesome vacation, or settle for a 37 inch flat screen TV.

  • REvise your savings and debt reduction goals: Take a few minutes to set new savings goals including how much you’d like to put away towards your retirement, a child’s education, and the down payment on a home, and also to reset how much you plan to pay down your student loans, personal debt, and home mortgage.  Download our (Microsoft Excel) debt/savings calculator to help you crunch the numbers.

  • REbalance your investment portfolio:  During 2008, all sectors of the stock market got hammered.  Your bond funds and money market funds, however, probably did okay.  By rebalancing your portfolio to it's original or updated asset allocation, you move money from the sectors that performed the best into sectors that underperformed.  

  • REcalculate how much your retirement savings will be worth when you retire: With the Dow off 40 percent from its high of $14,000, now's a good time to take a look at how much buying power you can expect to have upon retiring by utilizing our unique on-line retirement calculator.

  • REvisit your life and disability insurance needs: As you move through your career, your life and disability insurance needs change. Give some thought to how much of these insurances you need versus how much you currently get through your employer’s benefit package and how much coverage you've already purchased for your personal policies. 

  • REsolve errors on your credit report:  Each year, you’re entitled to three free credit reports, so there’s no excuse to not look at this important financial report annually, especially since errors are not uncommon.  Order your free report at

Questions about financial planning steps you should take for 2009? Please check out our Directory of Financial Advisors to find a professional familiar with the financial planning issues that affect you and your colleagues.  Do-It-Yourselfers should check out the tools available at



by Andrew D. Schwartz, CPA

The IRS announced that the standard mileage rate will drop to 55 cents per business mile driven, effective January 1, 2009.  That is a decrease of approximately 6% from the 58.5 cents allowed as of December 31, 2008. 

When you use your car for business, driving between job sites is deductible.  So is driving between your home and a temporary job site, job interviews, and conferences.  Commuting between your home and a regular place of business generally isn't tax deductible.

There are two ways for you to calculate your automobile expenses.  You can either multiply the total business miles driven during the year with the applicable rate of $.55, or you can base your deduction on the percentage of miles your car was driven for business multiplied by actual costs incurred.  Allowable costs include gas, insurance, repairs, parking at home, and either your lease payments, or if you own your car, a factor for depreciation.

Generally, unless you drive your car relatively few miles each year, with most of those miles being allowable business miles, you're better off basing your deduction on the standard mileage rate.

Other Deductible Miles

Any mileage driven in connection with a qualified move is deductible at a rate of 24 cents per mile effective January 1, 2009, down from 27 cents per mile for the second half of last year, and should be reported on a Form 3903, Moving Expenses.  Medical mileage is deductible at the same rates, and should be reported with all other medical expenses on the Schedule A.

The standard mileage rate for using your automobile in connection with a charitable activity did not increase and remains at 14 cents per mile.  Make sure to report these miles with other charitable contributions as an itemized deduction of the Schedule A. 



by Andrew D. Schwartz, CPA

The FICA debate rages on, and the IRS keeps losing.   Even so, the IRS appears to be in no hurry to return any FICA taxes to medical residents and their residency programs.

We originally wrote about medical residents being exempt from FICA taxes back in our February, 2001 newsletter.  Since the basic rules have not changed since then, here is what we wrote back in 2001:

There is some ambiguity in the tax laws as they apply to medical residents being classified as employees or students.  The rule in question deals with people who are employed by colleges, universities, and organizations (such as teaching hospitals) affiliated with colleges and universities. According to IRS code section 3121(b)(10), employees of universities and their affiliated entities need to be classified as either "student employees" or "career employees".

Employees classified as student employees are exempt from paying social security and Medicare taxes on money earned while employed at the school. This rule was most likely put in place to help students better afford their tuition and living expenses while enrolled in either an undergraduate or graduate program. (Social security and Medicare taxes are currently withheld at a rate of 7.65% of your gross salary.)

In the court case dating back to before 2001, the University of Minnesota was not withholding social security taxes from their medical residents claiming, instead, that the residents should be treated as student employees. The IRS assessed the university more than $8 million in unpaid Social Security taxes. The university took the IRS to court and won both the court case and the subsequent appeal, opening the door for medical residents to be classified as student employees instead of career employees, and in theory, allowing the residents to receive refunds of social security and Medicare taxes withheld from their pay.

Recent Activity In The Courts:

According to CPElite, Inc, a provider of continuing education for tax preparers, on page 10 of their Elite Quarterly publication for the Winter, 2008, the IRS recently lost a FICA case against the Center for Family Medicine and University of South Dakota School of Medicine Residency Corporation.  The courts sided with the residency program because of the following facts and circumstances:

  • The residency programs were responsible for interviewing and hiring the residents via the match program.

  • The contract was written between the incoming residents and the residency programs.

  • The residency programs required each resident to complete specific rotations, and the physicians who supervised the residents were members of the program's faculty.

  • The residency programs had the primary authority to discipline the residents, and ultimately, determined the residents' ability to advance.

Prior to this case being decided, the IRS had asked the courts for a summary judgment to dismiss this case.  Check out the CENTER FOR FAMILY MEDICINE, a South Dakota Corporation, and the UNIVERSITY OF SOUTH DAKOTA SCHOOL OF MEDICINE RESIDENCY CORPORATION, a South Dakota Corporation, Plaintiffs, vs. UNITED STATES OF AMERICA Defendant.

For their main argument in the summary judgment, the IRS referred to a  "Bright Line Rule" which states that medical residents never qualify for the "student exemption", and therefore, are never exempt from the FICA tax.  The court ruled against the IRS, and held that "the determination of whether plaintiffs’ medical residents are 'students' requires a case-by-case inquiry into the relationship between plaintiffs and their medical residents."

In another case involving the Mount Sinai Medical Center of Florida, Inc., the Court of Appeal for the 11th circuit held that the district court erred in ruling that medical residents enrolled in graduate medical education programs are precluded, as a matter of law, from seeking to rely on the student exemption to FICA taxation, and issued the district court to "VACATE the summary judgment and REMAND for further proceedings consistent with this opinion."

Let's Work Together:

Let's work together to keep current on this hugely valuable tax break.  We've set up a new Message Board just for this topic.  Please remember to  post whatever you hear or read regarding this FICA issue on our new forum.

To borrow the campaign slogan from current Massachusetts Governor Deval Patrick, "Together We Can."




Income Taxes

Saving and Investing




  • 4th quarter 2008 estimates due 1/15/09
  • Expect to receive W-2s and 1099s by January 31, 2009
  • Review your withholding for 2009, and, if necessary, file a new W-4 Form with your employer to adjust your withholding
  • Prepare a W-2 for your Nanny by January 31st
  • Establish a savings and debt reduction goals for the year
  • Try to increase your monthly contributions to your 401(k) or 403(b) plans.  The maximum annual contribution for 2009 is $16,500.  Anyone 50 or older can contribute an extra $5,500
  • Automatically transfer $416.66 per month from your checking account into a Roth or Traditional IRA, and $1,083.33 per month into a 529 Account and/or $166.67 per month into an Education Savings Account for each of your children


2008 & 2009 TAX FACTS

  • For 2008, the standard deduction for a single individual is $5,450 and for a married couple is $10,900. A person will benefit by itemizing once allowable deductions exceed the applicable standard deduction. Itemized deductions include state and local income taxes (or sales taxes), real estate taxes, mortgage interest, charitable contributions, and unreimbursed employee business expenses.
  • For 2008, the personal exemption is $3,500. Individuals will claim a personal deduction for themselves, their spouse, and their dependents. 
  • The maximum earnings subject to social security taxes is $106,800 for 2009, up from $102,000 for 2008.
  • The standard mileage rate is $.55 per business mile as of January 1, 2009, down from $.585 per mile as of December 31, 2008.
  • The maximum annual contribution into a 401(k) plan or a 403(b) plan is $16,500 in 2009.  And if you'll be 50 or older by December 31st, you can contribute an extra $5,500 into your 401(k) or 403(b) account this year.
  • The maximum annual contribution to your IRA is $5,000 for 2008 and 2009.  And if you turn 50 by December 31st, you can contribute an extra $1,000 that year.  You have until April 15, 2009 to make your 2008 IRA contributions. 


You're Invited to Attend Our Complimentary Presentation on:

Tax and Basic Financial Planning Issues Applicable to Young Healthcare Professionals

Here is a list of cities where the presentation will be held:

Boston - 1/22/09

For more information, click on the name of the city.


This Month's Topics

Re: 2009

Standard Mileage Rate Drops to 55 Cents Per Mile In 2009

Medical Resident FICA Issue Update

The FICA Refund for Medical Residents 

2008 & 2009 Tax Facts

Tax and Financial Planning Calendar for January 2009


Browse our index of previous months' newsletter topics

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For more information, go to our January 2009 Newsletter or our February 2001 Newsletter or read through the IRS' Chief Counsel Advice Memorandum on this issue.

Let's work together to keep current on this hugely valuable tax break.  Please post whatever you read or hear regarding this FICA issue on our new Message Board we set up just for this topic.

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