What's New 2009
See how to get a big refund this year!
Interesting Information
Home Sales
Cars
Energy Improvement
Long Term Capital Gains
Education
Individual Retirement Plans
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Some changes for the 2009 tax year don't require any action on your part...they will automatically be added depending on your tax situation.
However, you might be interested in knowing the following facts.
The Difference between "Refundable" Credit and "Non-Refundable" Credit
A refundable credit is given to you in its entirety, even if the amount of the credit exceeds your tax liability. For instance, even if the taxes you owed came to zero, you would still receive a "refundable" credit
A non-refundable credit lowers your income tax liability, but does not refund you any leftover money once your income tax liability is zero. A non-refundable credit also does not lower self-employment tax, or the penalty tax on early retirement distributions.
Earned Income Credit Expanded
The amount of credit available to low-income earners has been expanded. If you have three or more qualifying children, you are allowed a refundable credit of 45% ($5,371!!!) of the first $12,750 of your earned income. Of course, your overall income must meet the guidelines for qualification.
Go to IRS.gov "It's easier than ever to find out if you qualify for EITC" and then click on the "EITC Assistant" to see if you qualify.
Unemployment Compensation Partially Tax-Free
If you were one of the many who received unemployment checks in 2009, you will be able to exclude the first $2,400 from your federal income.
Making Work Pay Credit
One of the key points of President Obama's early stimulus plan was "an extra $800 in working couple's pockets." New withholding tables were sent to employers, and workers started receiving more take-home pay because less federal tax was withheld.
Social Security recipients also received an extra $250 in 2009 as part of this program.
However, some people will have to give that money back at tax time, because the revised tables didn't account for people with more than one job, social security recipients who were still working, married couples who both work full time, people who are dependents on someone else's tax return, and people who do not have valid social security numbers.
To see if you are one of the unlucky ones who will be "paying back" during tax time, go to IRS.gov "Making Work Pay Tax Credit" and click on the "IRS withholding calculator."
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FIRST-TIME HOMEBUYERS who purchased their homes in 2008, 2009, or 2010 have some major refundable credit dollars possibly coming their way. Here are the details you need to know.
Eligibility Requirements:
| Purchase Date | Income Level | Credit Amount/Stipulations |
|---|---|---|
| 4/8/08 to 12/31/08 | MFJ: phase out begins at $150,000 modified adjusted gross income; all others phase out begins at $75,000 MAGI |
10% of purchase price or $7500 (whichever is less) to couples and single owners; $3750 each to co- owners. Credit treated as an interest-free loan paid back over 15 yrs. **Exceptions to repayment: go to link, page 2 http://www.irs.gov/ newsroom/article/0,,id=186831,00.html |
| 1/1/09 to 11/6/09 | MFJ: phase out begins at $150,000 modified adjusted gross income; all others phase out begins at $75,000 MAGI |
10% of purchase price or $8000 (whichever is less) to couples and single owners; $4000 each to co- owners. Payback of credit is unnecessary unless home ceases to be principal residence within 36 months of purchase. |
| 11/7/09 to 6/30/09 | MFJ: phase out begins at $225,000 modified adjusted gross income; all others phase out begins at $125,000 MAGI |
10% of purchase price or $8000 (whichever is less; if home costs more than $800,000, credit is denied) to couples and single owners; $4000 each to co-owners. Payback of credit is unnecessary unless home ceases to be principal residence within 36 months of purchase. |
LONG-TIME HOMEOWNERS BUYING A NEW PRINCIPAL RESIDENCE
The November 6, 2009 legislation extended credits to long-time homeowners who were buying a new home.
Eligibility Requirements:
Amount of the Credit
This refundable credit is the lower of 10% of the purchase price or $6500. If the home costs more than $800,000, however, the credit is denied.
SPECIFIC SCENARIOS
The IRS.gov has set up helpful question and answer dialogs on their website. The following links will help to answer questions about more specific situations.
Basic Information
Homes Bought in 2008
Scenarios
Expanded Credit
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Sales Tax Write Off
If you buy or have bought a new (you're the first owner of the vehicle) car, light truck or motorcycle (gross weight no more than 8500 lbs) between February 17, 2009 and December 31, 2009, you may be eligible to deduct the sales tax amount from your 2009 income. You can take this deduction, even if you don't itemize (and do the long form), on the first $49,500 of the purchase price.
If you live in a state that does not have sales tax, you can deduct other fees that are assessed and based on the purchase price of the car.
Income limitations are in place for this deduction. Phase-outs of eligibility begin if a married-filing-jointly couple's modified adjusted gross income exceeds $250,000, and if individual filers have a MAGI of over $125,000.
For more information, visit IRS.gov "Car Sales and Excise Tax Deduction: Questions and Answers".
Car Credits for Hybrid and Electric Cars
The non-refundable credits for hybrid and electric cars have been in place since 2007. Expanded definitions, however, of qualified vehicles have meant that more people can make use of this credit.
Hybrid Cars
The credit is available as long as the specific manufacturer has not sold its IRS-allotted number of credit-eligible vehicles. To know whether or not your car might qualify,
look it up first at IRS.gov "2010 Model Year Hybrid Vehicles (as of 10-30-09)", then call your dealer to see if your sale was one of the qualified sales.
Electric and Plug-In Vehicles
Qualified plug-in electric motor vehicles, including low-speed vehicles (some golf carts even!) are eligible for a non-refundable credit that ranges from $2500 to $15000, depending on the gross weight rating of the vehicle.
The amount of your credit is determined by an assessment made by the manufacturer on your particular vehicle. You would bring that assessment to your tax appointment so that we could file the proper paperwork for the credit.
Go to IRS.gov "Plug-In Electric Vehicle Credit (IRC 30 and IRC 30D)" for a lists the electric-car manufacturers. You can click onto any of the individual companies to see what each make and model would garner for a credit.
These vehicles must be registered, have a VIN, and a special "Low-Speed" license plate issued by your state's Registry of Motor Vehicles. To register in Massachusetts click on Mass.gov "How to Register a Low Speed Vehicle" to see the procedure involved.
Originally, you had to buy this vehicle by December 31, 2009, but the ruling was revised in July of 2009 to include plug-in vehicles purchased between February 17, 2009 and December 31, 2011.
(Although the credit tops off at $2500 for vehicles purchased after 2009.)
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Residential Energy Property Credit
An expanded residential energy credit has given homeowners, who in 2009 and 2010 make their principal residences more energy efficient, a sizable tax credit. If you have improved your home in any of the following areas, you will be eligible to take 30% of the cost (including installation labor costs) as a non-refundable tax credit (the tax credit is capped at $1500).
The manufacturer will provide you with the paperwork necessary to verify that you have, indeed, installed energy improvements that qualify for the credit. Please bring this paperwork to your tax appointment so that all the necessary information is available.
Residential Energy Efficient Property Credit
An even higher credit is available to the homeowners that decide to "go green" and invest in an alternative energy source. If, after Jan 1, 2009, you install a solar electric system, a solar water heater, a geothermal heat pump, and wind turbine, or a fuel cell, you will be allowed to take 30% of your cost...with no "cap amount" of the non-refundable credit.
For instance, if you spent $40,000 on a new solar panel system, you would be able to write off $12,000 of your tax liability.
Once again, your proof of eligibility lies with the manufacturer. They will issue you a "tax credit certification statement" along with your purchase so that you can qualify for the credit.
For more in-depth information about the energy credits, visit IRS.gov "Energy Incentives for Individuals in the American Recovery and Reinvestment Act".
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The lowered tax rate for long-term capital gains is still in effect. Since January 1, 2008, people in the 10% or 15% tax brackets have not had to pay federal taxes on their long- term (assets held more than a year) capital gains.
How can you tell if YOU'RE in one of these tax brackets? Look at line #43 of your 1040 return from last year, "taxable income" (line #27 of your 1040A, line #6 of your 1040EZ).
| If your filing status is... | And your taxable income is... | Your tax bracket is... |
|---|---|---|
| Married filing jointly | $0 - $16,700 | 10% |
| Married filing jointly | $16,701-$67,900 | 15% |
| Single | $0 - $8,350 | 10% |
| Single | $8,351 - $33,950 | 15% |
| Head/Household | $0 - $11,950 | 10% |
| Head/Household | $11,951- $45,500 | 15% |
| Married Filing Separately | $0 - $8,350 | 10% |
| Married Filing Separately | $8,351- $33,950 | 15% |
Now that you know your tax bracket (if your taxable income is MORE than what is listed here, then you are in the 25-35% bracket), you can go to the chart below to see what your rate for LONG-TERM (assets held more than a year) capital gains tax would be.
| Tax Bracket | 2007 | 2008 | 2009 | 2010 | 2011* |
|---|---|---|---|---|---|
| 10% | 5% | 0% | 0% | 0% | 15% |
| 15% | 5% | 0% | 0% | 0% | 15% |
| 25%-35% | 15% | 15% | 15% | 15% | 15% |
* The capital gains rate will revert to pre-2003 levels unless Congress extends the lower rates.
For a more in-depth explanation of capital assets and capital gains, go to IRS.gov "IRS Publication 544", and select "capital assets."
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The Hope Credit
Previously, the Hope Credit (up to an $1800 non-refundable tax credit) was available for only the first two years of college. However, starting with January 1, 2009, the credit was expanded to include all four years of college, the maximum of the credit was increased to $2500 per eligible student, and 40% of the credit was re-characterized as "refundable." Also, the definition of "qualifying expenses" has been expanded to include course materials (such as books and lab supplies).
Income levels apply. The credit begins phasing out when the adjusted gross income exceeds $80,000 for individuals and $160,000 for couples.
For a more in-depth explanation, go to IRS.gov "American Opportunity Credit: Questions and Answers".
"529" Plans
Previously, distributions from tax-free college savings plans (also known as 529 plans) were only allowed for tuition, books, and course fees. For 2009 and 2010, qualifying expenses will include distributions to pay for computers, internet access, and software needed for class.
More information go to IRS.gov "529 Plans: Questions and Answers".
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While some contribution limits have remained constant for 2009, others have changed. Below is a table listing all the various types of voluntary retirement plans, and the contribution limits for 2009.
| Type of Voluntary Plan | Contribution Limit for Taxpayers under 50 |
Contribution Limit for Taxpayers over 50 |
|---|---|---|
| Regular IRA | The lesser of taxable compensation or $5000 |
The lesser of taxable compensation or $6000 |
| Roth IRA | The lesser of taxable compensation or $5000 |
The lesser of taxable compensation or $5000 |
| Simple IRA | The lesser of taxable compensation or $11,500 | The lesser of taxable compensation or $14,000 |
| 401K | The lesser of taxable compensation or $16,500 | The lesser of taxable compensation or $22,000 |
Roth IRA Rollovers
In 2010, the income cap for rollovers from a regular IRA to a ROTH IRA will be removed. Financial planners will no doubt be pushing their clients to take advantage of this window of opportunity, and to convert their traditional IRAs into ROTHs.
If you find yourself in such a situation, see if a conversion makes sense for your situation.
Go to the ROTH IRA Calculator and plug in your information. The calculation will tell you whether or not you would actually end up with more money if you converted.
If such do-it-yourself methods are not for you, ask your financial consultant to run an analysis. Remember that converting to a ROTH IRA carries some heavy-duty tax consequences in the year of conversion. Make sure that all aspects of the process are explained to you.
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