Change is in the tax air
As you gather income-tax records this year, don’t waste time.
Professionals and people who file their own returns have a mountain of changes to factor into their forms, from rewards to purchasing new homes to writing off interest on new vehicles.
“There have been eight new tax laws in the last 14 months,” said Orville Petersen, a CPA with Chadwick Steinkirchner Davis and Co., 225 N. Fifth St., suite 401.
Each of the three seminars he attended has answered — and opened — new questions, he said.
In addition to many of the already familiar changes intended to reward spending on new vehicles or homes, people who lost their jobs will get a bit of a break.
The first $2,400 of unemployment compensation is tax-free. With a 10 percent unemployment rate, the change will affect about 10 percent of taxpayers, Petersen said.
“It helps people who have been impacted the worst” by the economic downturn.
One change that affects all taxpayers is the increase in the personal exemption, up to $3,650 each for the taxpayer and dependents. That’s up $150 from 2008.
Another change affects the standard deduction, which now is $11,400 for married couples filing jointly, $5,700 for individuals and $8,350 for heads of household. It’s bigger for taxpayers who are blind or 65 or over.
Taxpayers can claim a larger standard deduction if they paid state or local real estate taxes; bought a new car and paid sales or excise taxes and met the income limits; or were a victim of a federally declared disaster.
Taxpayers who pursue the larger standard deduction on any of those items must file a new form, Schedule L. Otherwise, you can just enter the standard deduction on Form 1040.
Deductions for state or local real estate taxes, sales or excise taxes on new car purchases or net disaster losses also are available to people who itemize.
In addition to the $8,000 tax credit for first-time home buyers that was introduced last year, there are tax credits for education, and one for making a home more energy-efficient has been reinstated.
Taxpayers receiving the benefit of the Making Work Pay credit under the stimulus bill that Congress passed last year might have to pay a portion back if they are a married couple and both spouses work, or if one taxpayer has more than one job. Low- or moderate-income workers might have some money due to them, and they’ll need a new form, Schedule M, to claim the credit.
Students can claim an expanded credit for college education.
The new American opportunity credit provides a maximum annual credit of $2,500 per student for each of the first four years of college. To be eligible, taxpayers would have to pay $4,000 or more in tuition, fees and course materials. The credit phases out at higher incomes.
There also a lifetime learning credit that might be available to students in their fifth or sixth year of college or in graduate school.
Taxpayers who complete their taxes and learn they owe the IRS money or want a bigger refund might be able to contribute to an individual retirement account until April 15 and take a deduction on 2009 taxes.
Taxpayers covered by a plan from their employer might be able to deduct a contribution of $5,000 — $6,000 for filers who are at least 50 — if the modified adjusted gross income for an individual is less than $65,000, or $109,000 for joint filers.
Whatever else, Peterson said, the key is early preparation.
“Rule 1,” he said, “would be get the stuff together as quickly as you can, because there’s a lot of stuff to deal with this year.”