Wednesday, February 25, 2009

Changes Abound on New Tax Forms





For many taxpayers, the good old standard deduction is looking better than ever.


Thanks to tax-law changes, millions of people who claim the standard deduction are eligible for additional breaks on their 2008 tax return. For the first time, they can claim an additional amount for state and local real-estate taxes. They can also claim an additional standard-deduction amount to reflect casualty losses from federally declared disasters.
[tax report] Alamy

A9X9BB Tax buttons on calculator

There are other significant changes on 2008 tax returns. Many people may be eligible for a new first-time home-buyer tax credit. Additionally, the IRA maximum deduction amount for 2008 rose. So did the amounts of income exempt from the alternative minimum tax, or AMT.

"If you just proceed thinking that what you did last year is what you have to do this year, you're going to miss out on a lot of important new developments," says William E. Massey, senior tax analyst for the tax & accounting business of Thomson Reuters in New York.

Another change affects millions of people who use their car for work. Usually, the Internal Revenue Service issues only one standard business-mileage rate for the entire year. But for 2008, the IRS issued two rates -- one for the first six months and a different one for the second six months -- to reflect a surge in gasoline prices. The IRS also issued two separate rates for those who use their car or other vehicles for medical or moving purposes.

The change that has probably triggered the greatest confusion is the "recovery rebate credit." It's designed to help millions of people who didn't get the full economic-stimulus payment last year but now may be eligible for some or all of it because of a change in circumstances, such as lower income in 2008. Many people simply don't understand it. IRS officials say that about 15% of all returns filed so far this year had mistakes involving this credit. For more details, see the IRS Web site (www.irs.gov).

Here is a guided tour of major changes on federal returns for 2008 -- and advice from experts on how to benefit from them.

Standard deduction. Nearly two-thirds of all federal income-tax returns take the standard deduction each year, instead of itemizing deductions such as charitable donations. The basic standard deduction is $10,900 for joint filers and $5,450 for most singles. There are higher amounts for those who are 65 or older, or blind.

For 2008, taxpayers can claim an additional standard deduction amount for net losses in places declared to be a federal disaster area. They also can claim an additional amount -- up to $500 for most people or as much as $1,000 for married couples filing jointly -- for real-estate taxes paid. If you're not sure whether to take the standard deduction or itemize, crunch the numbers both ways.


Home-buyer credit. This new credit for first-time home buyers could help many taxpayers, but it's complex. In general, you're considered a "first-time home buyer" if you buy your main home in the U.S. after April 8, 2008, and before Dec. 1, 2009, and if you (and your spouse, if you're married) didn't own any other main home during the three-year period ending on the date of purchase, according to the IRS's new Form 5405.

The maximum amount of the credit depends on when you bought the home, says IRS spokesman Eric Smith. Generally, the maximum credit is $7,500, or $8,000 if you buy the home in 2009 (or half that amount if married filing separately), or 10% of the home's purchase price, whichever is smaller.

For homes purchased in 2008, the credit operates "much like an interest-free loan," the IRS says. You generally have to repay it over a 15-year period. But for homes purchased this year, you don't have to repay the credit if the home remains your main home for 36 months after the purchase date, says the IRS's Mr. Smith. If you bought the home this year and qualify for the credit, you can claim it either on your 2008 return this year or on your 2009 return to be filed next year, he says.
[Tax Facts]

You can't claim it if your adjusted gross income, with certain modifications, is $95,000 or more, or $170,000 or more if you're married and filing jointly. You also can't claim it if you bought it from "a related person," such as your spouse or parents. For more details, see the new Form 5405 and the accompanying instructions.

IRA contributions. The maximum deductible IRA contribution amount was generally $5,000 for people under 50 in 2008, up from $4,000 in 2007, says Jackie Perlman of H&R Block. The maximum amount is $6,000 for those who were 50 or older by the end of last year. For more details, see IRS Publication 590.

Alternative minimum tax. Congress took steps last year to prevent tens of millions of people from being caught by the AMT, a parallel tax system originally designed to prevent a small number of high-income Americans from escaping federal income taxes completely. This AMT "patch" included raising the AMT income-exemption amounts for 2008 to $46,200 for most singles, or $69,950 for married couples filing jointly or a qualifying widow.

Mileage rates. If you use your car for work, you have a choice on how to deduct the cost. You can use your actual expenses or rely on the IRS's optional standard mileage rates. The business mileage rate was 50.5 cents a mile for the first half of 2008 and 58.5 cents in the second half. This applies also to the use of vans, pickups or panel trucks.

The IRS rates for medical and moving purposes were 19 cents for the first half of 2008 and 27 cents in the second half. For 2009, the IRS rates are 55 cents for business mileage and 24 cents for medical or moving purposes.

There's a separate rate for using your vehicle for charitable purposes: 14 cents a mile for 2008 and 2009. That rate is set by law, not by the IRS.
* * *

New tax withholding tables will mean more take-home pay for many workers.

The IRS said Saturday that it has issued new withholding tables to reflect the "Making Work Pay" credit signed into law recently by President Barack Obama as part of the stimulus package. The new tables are on the IRS Web site.

"For most taxpayers, the additional credit will automatically start showing up in their paychecks this spring," said IRS Commissioner Doug Shulman.

No comments:

Don't mess with Accounting .

Don't mess with Accounting .
Kathy gone wild !

Need Next Day Delivery ?

Need Next Day Delivery ?
We'll get your Order shipped right away .