Change is in the tax air

QUICKREAD

Standard deduction:

• You may be able to claim a higher standard deduction if you are 65 or older, blind, paid state or local real estate taxes or sales or excise taxes on a new vehicle, or were a victim of a federally declared disaster.

Alternative minimum tax exemption:

• $70,950 for a married couple filing a joint return, and qualifying widows and widowers.

• $35,475 for a married person filing separately.

• $46,700 for singles and heads of household.

Home buyer credit:

• Up to $8,000 for first-time homebuyers for purchases made through April 30, 2010.

• Up to $6,500 for long-time homeowners for purchases made between Nov. 7, 2009 and April 30, 2010.

• To qualify, the home must be used as a primary residence. The credit begins phasing out for married couples filing jointly with modified adjusted gross incomes above $225,000 and for individuals with incomes above $125,000.

Energy efficiency credit:

• 30 percent of the cost of installing energy-efficient windows or doors, air conditioners or furnaces, or other energy-saving improvements, up to a maximum $1,500.

American Opportunity Credit:

• Up to $2,500 to cover college tuition, fees and required course materials.

• To qualify, the student may not have completed four years of college. There are also income limits.

Earned Income Tax Credit:

The maximum earned income tax credit was raised to:

• $5,657 for people with three or more qualifying children.

• $5,028 for people with two children.

• $3,043 for those with one child.

• $457 for people with no children.

Retirement:

• If you’re covered by a retirement plan at work, the maximum modified adjusted gross income you can have and still take a deduction for IRA contributions rose to $65,000 — $109,000 if married filing jointly. The maximum deduction is $5,000, $6,000 if you were 50 or older by the end of 2009.

Long-term capital gains taxes:

• 0 percent if taxed in the 10 percent to 15 percent brackets.

• 15 percent maximum for taxpayers in higher brackets.

Mileage deductions:

• 55 cents for each mile driven for business.

• 24 cents for each mile driven for medical reasons or part of a deductible move.

• 14 cents for each mile driven as part of charity work.

— By The Associated Press



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.”


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