Not the Same Old Tax Return - New Rules for This Years Tax Season
03/01/2010 - Few things induce more anxiety this time of year than the looming April 15 tax return file deadline. As you begin the process this year, keep in mind that changes to the tax rules could affect your tax liability and possibly make you eligible for new tax reduction opportunities. More details can be found at the Internal Revenue Service website (www.irs.gov) or by talking to your tax advisor. Here are some of the more prominent changes that could affect your final 2009 tax bill:
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Homebuyer Tax Credit -- This has been one of the most highly publicized changes of the past year. First-time homebuyers—i.e. those who have not owned a principal residence for the three years prior to purchase—may be eligible for up to an $8,000 tax credit. (A credit is a dollar-for-dollar reduction of your tax bill). Generally, the purchase must have been completed in 2009 to qualify for the tax credit on your 2009 return. However, the credit will continue to be available for new home purchases under written contract by April 30, 2010 and closed by June 30, 2010. A special election exists to claim the 2010 purchase on your 2009 tax return. A similar credit of up to $6,500 is available for existing homeowners who purchased a replacement home. This credit applies only for purchases made after November 6, 2009 and by the above deadlines. To qualify, existing homeowners must have owned and used the same home as their principal residence for five consecutive years in the eight-year period prior to the purchase of a new home. Note that income and other limits apply to qualify for both credits. If your tax liability is less than the amount of the credit, you still qualify to receive the entire credit in the form of a refund.
Tax Credit for Post-Secondary Education -- A tax credit of up to $2,500 per student attending a four-year college is available (for taxpayers who meet income and other requirements). If the credit is more than your income tax liability in 2009 and 2010, 40 percent of it can be returned as a refund. To learn more about the American Opportunity Tax Credit, visit www.irs.gov.
Making Work Pay Tax Credit -- Many employees saw a slight reduction in the amount of tax withholding from their paychecks earlier in the year, an adjustment made due to the Making Work Pay Tax Credit. The credit amount is 6.2 percent of the taxpayer's earned income up to a maximum of $400 for a single tax filer and $800 for married couples filing a joint return. The credit must be claimed on your tax return. If the credit has not already been reflected in your paycheck or if you are self-employed and have not accounted for the credit, you will adjust the amount of your tax liability as you complete your 2009 tax return. Income limits apply to qualify for the credit.
Sales Tax Deduction for the Purchase of New Vehicles -- If you purchased a new car, motor home, light truck or motorcycle between February 16, 2009 and December 31, 2009, the sales or excise tax amount you paid can be deducted from your income even if you do not itemize deductions (a deduction reduces your taxable income and, as a result, the amount of tax you pay).
Energy Tax Credits -- Various credits tied to making homes more energy efficient are available. These include a tax credit valued at 30 percent of the amount paid for qualified solar water heating equipment, solar electric equipment, small wind energy property, or geothermal heat pumps installed in your U.S. residence. A similar credit with maximum credit limits exists for the installation of qualified fuel cell property in your principal residence. Also, 30 percent of the cost, up to an aggregate of $1,500, is provided for energy-saving home improvements such as qualified windows, outside doors, insulation, roofing, high-efficiency furnaces, water heaters, heat pumps, biomass fuel stoves, air circulating fans, and central air conditioners that are placed in your U.S. principal residence in 2009 and 2010.
Other pointers as April 15 approaches
As you prepare for the tax filing deadline, here are a few things you can do today to help make the process easier:
• Gather your records – if you haven't already, you should be receiving statements from banks, investment firms and mortgage companies with tax information. Keep it filed in one safe place. Make sure you receive W-2s or 1099s (reporting income received) from employers or firms you may have contracted with.
• Determine your most efficient way to complete a return – there are numerous software programs available, many of which are accessible online, to complete the job. Or make sure you have your accountant or tax preparer in place and ready to deliver a timely return.
• Take more time if you need it, but let the IRS know – you can receive an automatic six-month extension by filing form 4868 with the IRS by the April 15 deadline to avoid interest and potential penalties. You must make payment for any tax that may be due by April 15.
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