If it seems like tax laws are changing every time you time around, it's not your imagination. Over the past eight years, changes to the Tax Code have been made at a rate of more than one a day. According to the office of the National Taxpayer Advocate, there were 500 changes in 2008 alone, many of them related to the 2009 tax year.
Trying to make sense of it all can be overwhelming. To help you out, here's a rundown of 13 changes that may impact your 2009 taxes:
1. Making Work Pay Credit. In order to put a little more cash in consumers' pockets last year, the government reduced the amount it withheld from workers' paychecks. Most W-2 earners have already felt the effect of the Making Work Pay Credit, which totals 6.2% of earned income. The credit, which cannot exceed $400 ($800 if married filing jointly), should have been paid out as reduced federal withholding over the year. If you're self-employed and haven't already adjusted for the credit, you calculate the credit on your 2009 federal income tax form. The unemployed and pensioners don't qualify for the credit, unless they receive earned income. You also don't qualify for the credit if your modified adjusted gross income (AGI) is $95,000 or more ($190,000 if married filing jointly), you are a nonresident alien, or you can be claimed as a dependent on someone else's return.
2. Economic Recovery Credit. Retirees and/or disabled persons were eligible to receive a one-time payment of $250 during 2009; eligible government retirees (generally, those receiving a government pension or annuity) qualify for a similar payment. Any amounts received as part of the Making Work Pay Credit should be reduced by any economic recovery payments or credit for government retirees. For example, if you're working and receiving Social Security, your Making Work Pay Credit would only be $150: $400 less the $250 economic recovery payment.
3. Unemployment Compensation Partially Exempt. The current unemployment rate has more than doubled since the recession began in December 2007. To offer some relief, taxpayers who received unemployment compensation for 2009 may exempt up to $2,400 of that compensation for federal income tax purposes. Amounts over $2,400 are still taxable.
4. COBRA Subsidy Not Taxable. Plenty of unemployed workers found themselves facing some seriously steep COBRA health care coverage premiums last year. To help them afford the health care coverage, the government offered to subsidize 65% of their payments. Luckily for those who needed to take advantage of that perk, the subsidy is not taxable for federal income tax purposes.
5. AMT Relief. There is yet another one-year "patch" to shield middle class taxpayers from the AMT (Alternative Minimum Tax). The AMT, which disallows tax preference items such as deductions for medical expenses and state and local property taxes, was initially targeted toward high-income taxpayers but has increasingly affected middle class taxpayers because of relatively low exemptions. For 2009, the exemption amount is bumped up a few hundred dollars to $70,950 for married couples and $46,700 for individual taxpayers.
6. Child Tax Credit Income Limit Lowered. As the cost of raising children has increased, families are looking for ways to cut costs. The child tax credit, which is in addition to the personal exemption for children, has allowed many families to put more money back in their pockets, since it is a dollar for dollar reduction in the amount of tax due. If you don't owe any tax, you may still qualify for a refund if you meet other criteria. For 2009, the income threshold for the child tax credit has been temporarily lowered to $3,000 (the income threshold for 2008 was $8,500). This means that, so as long as you have one or more qualifying children and earned income of more than $3,000, you may be entitled to a refund.
7. Increase in Earned Income Tax Credit (EITC). The EITC is a refundable credit aimed at providing relief from payroll taxes for low wage earners. For 2009, the EITC has increased for people with three or more children and for many married couples filing jointly. The maximum amount of income you can earn and still qualify for the credit has also increased.
8. "Kiddie Tax" Tweaked. The so-called "kiddie tax" is the tax that applies to investment income reportable by children. Generally, if a child is under the age of 18, or under the age of 23 and a full-time student, the parents have the option to report the income on their own return or on the child's return (at the child's tax rate) so long as the income is under a certain amount. For 2009, the amount of taxable investment income a child can have without it being subject to tax at the parent's rate has increased to $1,900.
9. American Opportunity Tax Credit.The Hope Scholarship tax credit has been temporarily expanded and now applies to the first four years of college; the increased credit is now referred to as the American Opportunity Tax Credit. The credit provides 100% credit for the first $2,000 and 25% for the next $2,000 on qualified expenses such as tuition and books; it's also 40% refundable, meaning even taxpayers who have no tax liability can receive up to $1,000.
10. Personal Casualty and Theft Loss Floors Increased. The "floor" for personal casualty or theft loss has been increased. Under the old rules, a taxpayer could only deduct personal casualty and theft losses if the yearly total of those losses exceeded 10% of his or her AGI after subtracting a $100 floor per event. The floor for each casualty and theft loss for 2009 has increased from $100 to $500. Additionally, for 2009, the 10% of AGI limit for losses in federal disaster areas has been eliminated; you can find a list of federal disaster declarations for 2009, including those for Hurricane Ike and Hurricane Gustav, on FEMA's Web site.
11. Sales Tax Deductions for New Car Buyers. Taxpayers can deduct state and local sales taxes paid on the purchase of a new car, light vehicle, recreational vehicle, or motorcycle on their federal income tax; leased vehicles do not qualify. In states without a sales tax, certain other taxes or fees may be deductible. There's a $49,500 limit on the cost of the vehicle and income restrictions apply (upper limits of $125,000 for individual taxpayers and $250,000 for married taxpayers). The deduction is available for qualifying purchases made after February 16, 2009, through the end of the year: best of all, you don't have to itemize to take advantage of the deduction.
12. Temporary Credit for Home Buyers. The temporary, refundable first-time home buyer credit has been increased to $8,000 for sales of homes made after December 31, 2008, and before May 1, 2010. The requirement that the credit be paid back over 15 years has been removed; however, if you sell the home within three years (some exceptions for hardship and divorce apply), the credit must be paid back. Income limits apply. A reduced credit up to $6,500 is available for homeowners who have lived in their homes at least 5 consecutive years out of the 8 years before buying and moving into a new principal residence; this new credit is for homes purchased after November 6, 2009.
13. Expansion of Residential Energy Credits. The residential energy property tax credit has been increased from 10% to 30%, with a cap of $1,500, total, for 2009 and 2010. Qualifying modifications include energy efficient insulation, exterior windows (including skylights) and doors, central air conditioners and some water heaters or furnaces.
0 comments:
Post a Comment