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Check Out These Tax Tips Before Filing Your Federal Income Tax Return

income_tax_forms.jpgMarch 2010

Tax time has rolled around again. Wouldn’t you like to save all you can? Some of the many changes to the federal tax code in 2009 might help you save on your taxes. Various tax deductions and tax credits are new, extended, or expanded. This month’s report takes a brief look at some of those tax deductions and credits.

Tax Deductions/Credits Available if You File Form 1040, 1040A, or 1040EZ

No matter which 1040 form you file, make sure you consider these deductions and credits.

 

 

 

Making Work Pay credit. This new credit is part of the economy recovery legislation. It’s available if you have earned income from work. It equals 6.2% of annual earned income with a maximum amount of $400 for a single person, $800 if married and filing jointly. The credit is reduced if your modified adjusted gross income (AGI) is more than $75,000 ($150,000 if married filing jointly), or you received a $250 economic recovery payment during 2009. To benefit from the credit, even if your federal income tax withholding was reduced during 2009 because of the credit, you must complete and file Schedule M (use the provided worksheet if filing Form 1040EZ). Understanding how this credit works is a little tricky, so be sure to read more about it on the IRS website or ask your tax advisor.

Unemployment benefits. Unemployment benefits up to $2,400 per recipient are not taxable. Amounts over $2,400 are taxable.

Earned Income Tax Credit (EITC). The EITC is a federal income tax credit for low to moderate income working individuals and families. The tax credit is refundable which means if the amount of the credit is more than amount of tax owed, it results in a tax refund. For 2009, changes were made that make more filers eligible. To find out if you are eligible, use the EITC Assistant.

Tax Deductions/Credits Available if You File Form 1040 or 1040A

If you file Form 1040 or 1040A check out these deductions and credits.

If you or a dependent child are pursuing a college education or other postsecondary education, you may qualify for either of the following credits. Note that you cannot take both an education credit and the tuition and fee deduction for the same student. Figure your taxes both ways and choose the form that gives you the lower tax.

Education credits. There are two tax credits for higher (postsecondary) education: American Opportunity Credit and lifetime learning credit. To claim the credit, you must fill out Form 8863.

  • American Opportunity Credit. The maximum credit per student is $2,500. The credit is available for the first 4 years of postsecondary education, the student must be enrolled at least half time for at least one academic period during the tax year, and pursuing an undergraduate degree or other recognized education credential.

  • Lifetime learning credit. The maximum credit is $2,000 per tax return. The credit is available for all years of postsecondary education and for courses to acquire or improve job skills. The student does not need to be pursuing a degree or other recognized educational credential.

Check out these credits and deductions

  • Making Work Pay Credit
  • Education credits
  • Extra Standard Deduction
  • First-time Homebuyer Credit
  • Energy Efficiency Credits

Tuition and fees deduction. This deduction can reduce the amount of your income subject to tax by up to $4,000. The deduction is for tuition and fees required for enrollment or attendance at a postsecondary educational institution. To take the deduction, you must fill out Form 8917.

Educator expenses. If you were an eligible educator in 2009, you can deduct up to $250 of qualified expenses you paid in 2009. An eligible educator is a kindergarten through grade 12 teacher, instructor, counselor, principal or aide who worked in a school for at least 900 hours during a school year. Qualified expenses include books, supplies, equipment, and other materials used in the classroom.

Extra Standard Deduction. Even if you don’t itemize on Schedule A, there are still some deductions you can take. To take the following deductions, you must fill out Schedule L. Itemizing may be better for you than taking these deductions. So figure your taxes both ways to decide.

  • State or local real estate taxes you paid in 2009, up to $500 ($1,000 if married filing jointly). These taxes must be state or local real estate taxes that would be deductible on Schedule A if you itemized.

  • State or local sales or excise taxes paid after February 16, 2009 for the purchase of a new motor vehicle. The amount is limited to the tax on the first $49,500 of the purchase price. These taxes must be state or local sales or excise taxes that would be deductible on Schedule A if you itemized.

  • A net disaster loss you reported on Form 4684. This deduction is available only on Form 1040.

Tax Deductions/Credits Available Only if You File Form 1040

To take these deductions or credits you will need to File Form 1040. Itemizing your deductions will be necessary to claim taxes and charitable contributions.

First-time homebuyer credit. Even though this is called the “first-time” homebuyer credit, those who currently own or have previously owned a home and are buying a replacement home may also qualify. To claim the credit, you must fill out Form 5405 and attach documentation showing the purchase of a home between the applicable dates. The tax credit for first-time homebuyers is worth 10% of the purchase price up to $8,000. The tax credit for long-term homeowners is worth 10% of the purchase price up to $6,500. To qualify for the credit, the long-term homeowner must have bought the home after November 6 2009 and previously lived in the same principal residence for any five-consecutive year period during the eight-year period that ended on the date the replacement home was purchased. If you are claiming the homebuyer credit, you will have to mail your return. The IRS is not able to handle the required documentation electronically. For more detailed information check out these IRS articles:

Energy efficiency tax credits. If you made any improvements to your home that improved its energy efficiency then you may be eligible for a tax credit. There are two different credits. To claim either credit you must fill out Form 5695.

  • Nonbusiness Energy Property Credit. This credit is for 30% of the costs paid in 2009 of qualified improvements or equipment. The maximum credit is $1,500. Qualified improvements include replacing windows, doors, and roofing, installing insulation and/or air sealing products. Qualified equipment includes central air conditioning, air-source heat pumps, natural gas, propane, or oil furnaces, electric heat pump water heater, natural gas, propane, or oil water heaters, natural gas, propane, or oil hot water boilers, and stoves that use biomass fuel. The replacement product or equipment must meet specific energy requirements in order to qualify for the credit.

  • Residential Energy Efficient Property Credit. This credit is for 30% of the costs paid in 2009 for qualified solar energy systems such as solar water heater or solar electricity, geothermal heat pump, small wind energy systems, and fuel cells. There is only a limit on the credit for fuel cells. The equipment must meet specific energy requirements in order to qualify for the credit.

Taxes you paid. If you itemize your deductions, you can deduct certain state and local taxes that you paid.

  • You can deduct state and local income taxes that you paid or you can deduct state and local general sales tax. If you choose to deduct sales tax, you can use either your actual expenses or the state and local sales tax tables.

  • You can also deduct state and local real estate taxes. These taxes are deductible only if they are based on the assessed value of the real property.

  • State or local sales or excise taxes paid after February 16, 2009 for the purchase of a new motor vehicle. The amount is limited to the tax on the first $49,500 of the purchase price. If you choose to deduct sales tax (instead of income tax), then you cannot deduct the taxes on a new motor vehicle.

Haiti relief. If you made a contribution to Haiti relief between January 12, 2010 and February 28, 2010, you may deduct the contribution on your 2009 tax return. The contribution must have been made to a qualified charitable organization and meet all other requirements for charitable contribution deductions. To deduct your contribution, you must itemize your deductions on Schedule A.

For More Information

There are other deductions and credits that might apply to your situation. The IRS has lots of information on their site to help you.

Tax Information Guide from Consumer Reports


Prepared by Remar Sutton and Associates and licensed to Educators Credit Union. Copyright 2010. All rights reserved.