I am often asked if there is anything new in tax law this year. Usually my reply is that there is nothing significant – just the usual indexing of the amounts to inflation. But not for 2009! I can’t remember a year since the big tax reform act of 1986 that there have been so many changes to deal with. I’ll outline a few of these changes below.
When is a standard deduction no longer standard? Answer – when you use New form Schedule L to adjust your standard deduction to claim allowable state and local real estate taxes paid and/or state or local sales or excise taxes paid on new vehicles purchased after February 16, 2009. This new Schedule L is used for those who do not have enough to itemize their deductions and file the form Schedule A. Note that it can also be used even if you are filing the short form 1040A – which by the way ain’t so short any more!
When is it a good time to have earned income? Answer – when you can file new form Schedule M, Making Work Pay Credit to compensate for the reduced withholding of income taxes from your paycheck. This one is a biggie! It’s worth up to $400.00 for each spouse, so don’t miss it! Self-Employed taxpayers also will benefit, assuming that they have a net profit from their business activities.
When is a first time home buyer not a first time home buyer? Answer, when you use modified form 5405 to claim the existing home buyer credit. The first time home buyer credit is still available and for those who are eligible is worth $8,000.00 as a tax credit. The existing home buyer credit is for those who have lived in their current home for 5 out of the last 8 years (both spouses must meet this requirement if married) and for those who are eligible is worth $6,500.00 as a tax credit.
When is it a good year to make energy improvements to our home? Answer – 2009 and 2010. The old energy saver tax credit expired at the end of 2007 and was not available for 2008, but is back and is bigger and better for ’09 and ’10. Form 5695 is used to claim these credits. But be cautious! Not all energy savings items qualify! They must meet stringent Energystar requirements and you have to have the certificates from the manufacturers to prove it! The best source of information on this is the website www.energystar.gov. Then scroll down to the lower left side and click on the “1040 Tax Credits for Energy Efficiency” icon. Then review each catagory and make absolutely certain that what you purchased qualifies before you attempt to claim this credit.
When is it a good time to draw unemployment compensation? Answer, in a year when the IRS allows you to omit the first $2,400.00 per recipient of unempoyment income from taxes! This is a real break for those who drew unemployment compensation.
When does the Kiddie Tax apply to Adults? Answer – when you have a dependent child with investment income above $1,900.00 – if the child is younger than 24 years old. The cut off for this onerous tax used to be age 14, but now it can possibly apply to your dependents through age 23. See form 8615 to work through this masterpiece if you think that this may apply to you.
When is it a good time to have that third child? Answer – when the IRS expands the Earned Income Credit for those with three children and also allows higher income limits – see Schedule EIC for this credit.
When is it a good time to pay college tuition? Answer, when the IRS expands the education credits! The old Hope Credit has been improved and is now known as the “American Opportunity Credit”. The credit for college costs is increased to $2,500 for 2009 and 2010, covering 100 percent of the first $2,000 of tuition and related expenses per year and 25 percent of the next $2,000. The credit is available for all four years of college, up from only two years, and also covers the cost of books. There are income limits, so be sure to review the modified Form 8863 for the details. The bill also allows tax-free distributions from Section 529 College Savings Plans to cover computer purchases.
There are even more changes, some of which will benefit only small businesses – too lengthy to go into on this blog, so call me for more information if you need to!