What's New in Federal Tax Law for 2009 Filing....

What's New in Federal Tax Law for 2009 Filing….
Making Work Pay Credit
To give the economy an immediate boost in 2009, Congress had the IRS modify its withholding tables to increase take-home pay for many workers.
The Making Work Pay Credit provides up to $400 per worker, but you got it a little bit at a time in your paycheck throughout the year instead of all at once at tax time.
Your Making Work Pay Credit may be less than $400 if:
• Your income is more than $95,000 ($190,000 if married filing jointly).
• You received a $250 economic recovery payment in 2009.
• You're receiving a $250 government retiree credit
• Your earned income is less than $6,452 ($12,904 if married filing jointly).
If your credit will be less than $400, you need to adjust your withholding to avoid owing back some of what you got in your paycheck.
Economic Recovery Payment
The 2009 economic recovery payments (ERPs) of $250 were sent out automatically to recipients of:
• Social Security
• Supplemental Security Income (SSI)
• Veteran's disability
• Railroad retirement
You don't need to include your ERP in your income, but it will reduce any government retiree credit or making work pay credit you'd otherwise receive.
Government Retiree Credit
Retired government workers can receive a $250 credit on their 2009 tax returns. That's a total of $500 for a married couple if you're both government retirees.
If you received an economic recovery payment, you won't receive a government retiree credit, too.
First-Time Homebuyer Credit
You can get a credit of up to 10% of the purchase price of your main home.
Effective November 6, 2009, Congress extended and modified the homebuyer credit. If you purchased a home after November 6, different rules apply.
If you purchased a home before November 7, 2009, here are the rules:
• Your purchase is eligible for a credit if neither you nor your spouse owned a home in the 3-year period before you bought this house.
• You can claim a credit up to $8,000 ($4,000 for married filing separately).
• If your adjusted gross income is more than $75,000 ($150,000 for joint returns), your credit will be reduced or you won't qualify for it at all.
If you purchased a home after November 6, 2009, here are the rules:
• If neither you (nor your spouse, if married) owned a home in the 3-year period before you bought this house, you can claim a credit up to $8,000 ($4,000 for married filing separately).
• If you (and your spouse, if married) owned and lived in the same home for 5 consecutive years in the 8-year period before you bought this house, you can claim a credit up to $6,500 ($3,250 if married filing separately).
• You can claim a credit for a 2010 purchase on your 2009 or 2010 return.
• If your adjusted gross income is more than $125,000 ($225,000 for joint returns) your credit will be reduced or you won't qualify for it at all.
• Special rules apply to members of the military.
• You can't claim the credit if:
• You bought the home after June 30, 2010.
• You bought the home after April 30, 2010 (unless you had a binding contract before May 1, 2010).
• The purchase price is more than $800,000.
• Someone can claim you as a dependent.
• You (and your spouse, if married) were under age 18 on the purchase date.
Unlike the credit for 2008 home purchases, the credit for 2009 and 2010 home purchases doesn't have to be repaid as long as you continue to use the home as your main home for 36 months.
You'll need to send the IRS a copy of your HUD closing statement when you file your return.
Hope Credit
Hope Credit rules include:
• A maximum credit of $2,500, compared to $1,800 last year.
• Good for all 4 years of undergraduate education, not just the first 2 years.
• Income limits raised to $90,000 ($180,000 for joint filers).
• Can be used for books, supplies and materials even if not purchased from the school.
• 40% of the credit can be added to your refund.
• The credit's now called the American Opportunity Credit.
New Vehicle Sales Tax Deduction
If you bought a new vehicle in 2009, you might be able to deduct your sales and other purchase taxes even if you don't itemize your deductions.
New vehicle sales tax deduction rules include:
• You must have purchased the vehicle after February 16, 2009 and before January 1, 2010.
• Your credit will be reduced or eliminated if your income is higher than $125,000 ($250,000 for joint returns).
• If you paid more than $49,500 for a new vehicle, any tax on the purchase price above $49,500 isn't deductible.
• You can deduct your vehicle sales tax using the new deduction, or (if it qualified and if you itemize) as part of the general sales tax deduction, but not both. We'll show you which one to use.
• Cars, trucks, and motorcycles qualify as long as the vehicle doesn't weigh more than 8,500 pounds. Motor homes also qualify, but not RVs.
Tax-Free Unemployment Benefits
Tax-free unemployment benefits include:
• The first $2,400 you receive in unemployment benefits is tax-free in 2009. This is a new tax break. Previously, it was all taxable.
• If both you and your spouse received unemployment in 2009, you'll each get your own $2,400 tax exemption.
• Some states already have a tax break for unemployment benefits. Others will tax these benefits even though they're now tax-free for federal purposes. Our federal and state programs will make sure you get all the tax breaks you're allowed.
Residential Energy Credits
You can take a credit for energy-efficient home improvements in 2009.
Residential energy credit rules include:
• The credit is 30% of qualifying expenses. Check the manufacturer's certification to see if the item you purchased qualifies.
• The credit's limited to $1,500, which is higher than it's been in the past.
• You can claim a larger credit for alternative energy investments (Ex: solar, geothermal, and wind equipment) in 2009 than in 2008.
Earned Income Credit
Earned Income Credit rule changes include:
• A larger credit for families with 3 or more qualifying children.
• A larger credit for married couples.
Refundable Child Tax Credit
Some low-income families will receive a larger refund. You can now take this credit if your earned income is as low as $3,000 (formerly $8,500).
Dependent Exemption
Dependent rule changes include:
• Your qualifying child must be younger than you, unless the child's disabled.
• If a child's parent can claim a child, you can't claim that child unless your adjusted gross income's higher than that of the parent.
Homeowners' Sale Gain Exclusion
The home sale gain exclusion rules will be stricter for people who move into a vacation home or rental property after 2008 in order to sell it later on and exclude the gain.
Standard Mileage Rates
The standard mileage rates for driving in 2009 are lower than the rates in effect at the end of 2008 because the price of gas is lower.
Standard mileage rates include:
• Business mileage — 55 cents per mile
• Charitable volunteer work — 14 cents per mile
• Medical treatment and moving — 24 cents per mile
Tax Law Changes Affecting Tax Returns in 2010 and Beyond
Roth IRAs
In 2010, rules will change for Roth IRAs.
New Roth IRA rules will include:
• No income cap on conversions from an existing IRA to a Roth IRA
• Conversion taxes can be spread over 2011 and 2012
Credit Card and Stock Basis Reporting
In 2011, rules will change for credit card and stock basis reporting.
New rules for credit card and stock basis reporting include:
• Banks and other merchant payment processors will have to report a merchant's credit card transactions to the IRS after they hit $20,000 for the year.
• Merchants who refuse to provide a tax ID for this reporting will be subject to 28% back-up withholding on their receipts.
• Brokers will have to report the tax basis of stocks, bonds and mutual funds you sold.
More to Come?