30-Jan-2009
By now you should be getting your W-2's and 1099's for whatever income you've earned in 2008. And, as usual, at this time of the year, you'll probably be getting your records together for that rite of spring known as "PAYING YOUR TAXES!" As always, however, Congress changes the tax laws during the year (they have to do something in between elections).
Herewith are highlights of the new federal tax law changes:
FOR 2008 FEDERAL TAX RETURNS:
"Rebate Credits"
The Economic Stimulus Act of 2008 gave many people tax rebates in 2008, based on information they reported on their 2007 tax returns, such as the amount of their 2007 income; their filing status; and the number of their dependents. Most people should have gotten their rebates by now either by check or direct deposit.
However, if you didn't receive the maximum tax rebate to which you were entitled, you may be able to claim a credit for the difference on your 2008 return.(Make sure you don't miss out on this one-it's money in your pocket.)
"IRA Contribution Limits"
For 2008, you can now contribute up to $5,000.00 in your IRA. If you were age 50 or more during 2008, you can contribute an additional (catch up)$1,000.00. You must make all IRA contributions, however, not later than April 15, 2009.
"New Real Estate Tax Deduction for Non-Itemizers"
In the past, if you didn't itemize and you owned real estate, you couldn't take a deduction for real estate taxes. However, for 2008, now you can add up to $500.00 ($1,000.00 for joint filers) of your real estate taxes to your standard deduction.
"Zero Percent Tax Rate"
Yep -- you read that correctly --- Zero Percent Tax Rate. It means no tax on long term capital gains and dividends for the years 2008-2010. Your income (after subtracting your long term capital gains) cannot be greater than $32, 550 ($65,100 for joint filers) ($43,650 for head of the household).
"Special credit for First Time Home Buyers"
If you buy a house between April 9, 2008 and June 30, 2008, you may be entitled to a credit of 10% of the purchase price. There are of course certain conditions:
The home has to be your principal residence.
You've got to be a first time home buyer - i.e. you haven't owned a home in the last 3 years.
Your credit is limited to $7,500.00. If you're married and you file separately, each of you is entitled to a credit of $3,750.00.
If your income is more than $75,000.00 ($150,000.00 for joint filers), the credit will be reduced or even eliminated.
You have to pay the credit back to the U.S. Treasury. But you will have 15 years to do it (beginning 2 years after your date of purchase.)
"New Standard Mileage Rates"
Business Mileage Jan.1- June 30 = 50.5 cents a mile.
Business Mileage July 1- Dec.31 = 58.5 cents a mile.
Charitable Volunteer Work --14 cents per mile.
Medical Treatment and moving Jan.1 - June 30 -19 cents a mile.
Medical Treatment and moving June 30 -Dec.31 - 27 cents a mile.
"Disaster Relief"
If you suffered property damage from federally declared disasters, you can deduct your losses for 2008 without limit.
If you volunteered to help out for disaster relief, you can deduct a higher mileage rate.
"Child Tax Credit"
The earned income threshold for the refundable portion of the child tax credit has been decreased to $8,500.00.
"New Business Property"
Congress increased the maximum Section 179 write-offs for new business property to $250,000.
It also restored bonus depreciation, which allows a write off of 50% of the remaining cost of eligible property.
"Kiddie Tax"
Congress has expanded the so called kiddie tax age limit to 18 (23 if you're a student). If you're part of that group, your investment income will be taxed at your parent's tax rate (instead of a lower rate), unless you're older than 17, are listed as a dependent by your parent, and your earned income is greater than half your support -- in that case you're exempt. Got that? No? Didn't think so. In plain English, it means, Congress decided to make the kids pay for some of the tax breaks it's giving the grown-ups.
"Tax Breaks for Widows/widowers)"
In the past, many people could sell their homes and pocket the gains up to $250,000.00 ($500,000.00 for joint filers) tax free. But both spouses had to be alive to take full advantage of this break. The problem was: if one spouse died, often the survivor would sell the house not long after but maybe not in the same year that the one spouse died. So Congress decided the humane thing to do was to allow the eligible widow(er)the full $500,000.00 home sale, provided she(he)sold the house within 2 years after the death of her(his)spouse.
"Phaseout of the Phaseouts"
Ok - I admit that sounds like legalese -- but, hey, that's what it is. If you've been a high income earner (lucky you), you may have noticed that the higher your income, the less of your itemized deductions and personal exemptions you could claim - i.e. as your income rose, your itemized deductions and personal exemptions got phased out. (Don't confuse this with the Alternative Minimum Tax -- this is another tax altogether, sometimes called the "Stealth Tax.") Congress decided maybe this isn't so fair. So Congres decided to phase out the phaseouts, 1/3 at a time. In 2008, one of these phaseouts will occur. Bottom line: you'll be able to claim more of your itemized deductions and personal exemptions in 2008.
Congress also made changes in the tax laws that will affect the 2009 tax year. I'll clue you in to those in my next newsletter.
