Tax Tips is published by American Business Support, Inc. (ABS) to help keep you informed on Federal & State income tax related matters. Due to space limitation of this publication, only highlights of the tax code are covered. It is important, therefore, that you contact us for more details before using information on this web site in making tax related decisions or preparing your tax returns. We can be reached at (507) 288-2506 or ambussup@aol.com.
Moving Expenses:
There is a newer expanded refundable tax credit of 10% of purchase price up to $8000 that does not have to be repaid and is available if you purchase a home after 12/31/08 and sign purchase agreement by 4/30/2010 and close on the home before 6/30/2010. This credit can be applied to either your 2008, 2009 or 2010 Federal tax return -- it is your choice. Taxpayers are eligible for the credit if they did not own (including spouses) a main home anytime during the 3 years prior to the date of purchase. Vacation homes and rental properties are not eligible. There are many other rules that must be followed to receive this credit, therefore, you should call ABS for more details.
As of 11/6/09 there is also a long time homeowners refundable creditof 10% or purchase price up to $6500 that does not have to be repaid. The taxpayer(s) must have lived in the principal residence 5 consecutive years during an 8 year period ending on the date of purchase. The repeat home buyer tax credit applies to houses sold after November 6, 2009 and on or before April 30, 2010. In cases where a binding sales contract is signed by April 30, 2010, a home purchase completed by June 30, 2010 will qualify. There are many other rules that must be followed to receive this credit, therefore, you should call ABS for more details.
Minimum Required Distribution (RMD): Generally taxpayers starting at the age of 70 1/2 must take yearly minimum distributions (RMD) from their retirement accounts or face a 50% penalty. For tax year 2009 this requirement has been waived.
New Vehicle Sales/Excise Tax Deduction: Buy a new car, light truck, motor home or motorcycle and deduct state, local sales and excise tax for tax year 2009. There is no limit on the number of vehicles purchased or the number of purchases, however, each vehicle is limited to the tax up to $49500. Purchase has to be made after 2/16/2009 and before 1/ 1/2010 and there is phase out for higher income taxpayers. This deduction is available regardless of whether or not you itemize deductions.
Electric Vehicle Tax Credits: You can choose one of the following two credits for each vehicle: 1) For low-speed; or 2 or 3 wheel scooters purchased after 2/17/2009 and before 1/ 1/2012 the credit amount is 10% of the vehicle cost up to $2500. For low speed vehicles the battery must be at least 4 kilowatt hours and for 2 or 3 wheel the battery must be at least 2.5 kilowatt hours. 2) For vehicles that have 4 wheels and use a rechargeable traction battery with at least 4 kilowatt hours capacity the minimum credit is $2500 and tops out at $7500 to $15000 depending on vehicle weight and battery capacity. For both credits off-road use vehicles (E.G. golf carts) no not qualify.
Residential Energy Property Credit (Section 1121): This credit is for improvements to existing non-business property and amounts to 30% of the cost of all qualifying improvements up to $1500. The improvements must be placed in service in 2009 & 2010. This includes insulation, energy efficient exterior windows and energy efficient heating/air conditioning systems. Homeowners can generally rely on manufacturers' certifications to claim this credit.
Residential Energy Efficient Property Credit (Section 1122): This credit is 30% of the cost of quaiified residential alternative energy equipment such as solar hot water heaters, geothermal heat pumps and wind turbines. There are other requirements that must be met to get this nonrefundable credit.
Unemployment Benefits Tax Free: The first $2400 of unemployment benefits received in 2009 will be free from Federal income taxes for many unemployed workers. This amount applies to each spouse separately.
Higher Education Expense Credit: The American Opportunity Tax Credit replaces the existing Hope Credit for tax years 2009 & 2010 making it available to higher incomes or because 40% is refundable to tax taxpayers owing no tax. It increases the credit to a maximum of $2500 (it was $1800) for all post-secondary education years vs just the 1st two years. Tuition, related fees, books & other required course materials generally qualify.
Higher Education 529 Plans: For 2009 & 2010 the definition of qualified expenses include computer technology and equipment; or internet access and related services.
Making Work Pay Credit: For 2009 & 2010 this is a refundable tax credit up to the lessor of 6.2% of earned income or $400 for working individuals ($800 for married filing joint taxpayers). The taxpayer will receive advanced benefit of this credit through reduce withholding from their employers beginning on or before 4/ 1/09. For those taxpayers with wages but no withholding the credit is taken on the 2009 tax return. The credit starts to be phased out for higher income taxpayers. Taxpayers with multiple jobs, married filing joint taxpayers with both spouses working, workers who can be claimed as dependents by other taxpayers should review their withholding to avoid reduced refunds or owing tax when filing their Federal tax return.
Economic Recovery Payment: A one time payment of $250 will be made in 2009 to retirees, disabled individuals/vets, social security recipients & railroad retirees:. This will reduce any Making Work Pay Credit that taxpayer receives.
Students & Summer Jobs: Generally students will be hired as an employee and receive a W-2 by January 31 of the following year. Employees must file form W-4 with their employer indicating the number of exemptions & other information. If tips are received on the job this must also be included in taxable income. If the student baby sits, mows lawns, etc., net earnings (income less expenses) must be reported as self-employment. If these earnings are $400 or more they will also be subject to self-employment tax for Social Security and Medicare benefits. Finally, in a few cases the student will be working as an independent contractor (IC) vs an employee for a business and the net earnings (income less expenses) must be reported as self-employment and subject to self-employment tax if they are $400 or more.
Newly Married: To avoid your tax return being rejected because the name on your tax return is different than recorded with the Social Security Administration (SSA) file form SS-5 by calling (800) 772-1213, or downloading from SSA web site wwwsocialsecurity.gov. Notify the IRS of your new name and address by filing form 8822 (see our web site for blank forms www.1040.com/tx). Your employer can give you a new W-4 to return with your new name and paying particular attention to the number of exemptions you are claiming. Finally, notify the US Postal Service if your new address.
Child & Dependent Care Credit: This tax credit can be up to 35% of qualifying expenses depending on your income. Up to $3000 of unreimbursed expenses paid per tax year for one qualifying individual or $6000 for two or more qualifying individuals. If your childcare provided in or outside your home you generally get some tax benefit. The cost of day camp can count where as overnight camps do not qualify. Other rules must be met to qualify.
