What Everyone Should Know About The New Rules For 2009 Tax Filing
By:
Jeff Parrack
The U.S. tax code runs to some 17,000 pages that, at an average 300 words per page, total about 5 million words. But memorizing them all won't do you any good, even if you could, because every year there are changes both big and small. Some of the changes come from Congress, some from the IRS, but they all carry the force of federal law, and this is an area that the federal government in particular considers very serious business.
There is constant tension in the relationship between the taxpayer and the federal and state governments. The tax agencies want to maximize collections, while tax filers seek to minimize what they pay. If you want to be on top of the game, year after year, you need to get up to speed early in the year about the changes you will be seeing on the forms you use. Some changes affect many, some changes affect but a few, but for you to be sure about your own status you need to read up on all of them.
There are more changes that the ones listed below, so the first thing that "everyone should know" is that you will need to invest a little time investigating all the changes that may possibly affect you. The following, however, are among those changes most likely to affect the average user of form 1040 who itemizes deductions.
- First-time homebuyer credit: You might qualify for this credit if you bought your first house between April 9, 2008 and January 1, 2009. Eligible taxpayers will receive as much as $7,500 from the federal government, an interest-free loan that has to be repaid in 15 years ($500 annually). There are eligibility requirements, of course, so get all the information on this one before you start counting the money.
- "Recovery Rebate" credit: Even if you didn't qualify for an "economic stimulus" check in 2008, you may still have a way to get some money. Initial payment disbursements were based on income from 2007, and you may have missed the cut if your income was too low or too high. Your 2008 income can now be used as the basis for collecting this credit, and the IRS will help you find out if you qualify for it.
- Required minimum IRA distributions: Once retirees with tax-deferred retirement funds, like 401(k)s or IRAs, reach 70 and a half years of age, they have to take out certain minimum amounts. These amounts are taxable on withdrawal, so this requirement is a way for the IRS to collect some taxes from retirees. The required distributions are suspended for 2009 because of the economic turmoil, which doesn't help with 2008 taxes but is an important element for planning 2009's taxes.
- AMT exemption increase: The Alternative Minimum Tax (AMT) was designed to ensure that taxpayers with high income paid "their fair share" of taxes. Because this rule now affects more and more middle-income filers, the "bailout bill" raised the exemption amount for 2008 in a bid to protect some taxpayers from the AMT for at least another year. The new 2008 amounts are $33,750 for individuals and $45,000 for married (filing jointly). Because there is a lengthy, complex calculation for the AMT, you need only worry about it if you are single with $100,000 or more in income, or married making over $175,000. Naturally, these are just guidelines, so if your income is in the ballpark for the AMT, consult your tax preparer or bone up on those calculations yourself.
- Higher contribution limits for IRAs: If their income falls within a certain range, taxpayers can opt to put money into both traditional and Roth IRAs. When income rises too high, these contributions must be reduced. For 2008 all of the limits have been increased, meaning taxpayers in the upper income levels may be able to fund their IRAs with more contributions. Again, this may take some more research or the input of a professional tax preparer or CPA.
- Tax relief for disaster areas: If you were affected by the tornadoes, severe storms and/or flooding that occurred in certain Midwest states between May 19 and August 1, 2008, you may qualify for specific new tax breaks. Restrictions on loss deductions and charitable contributions have been changed, and there is also tax relief for those who provided housing to disaster victims. The IRS website has a list of counties and states and counties that qualify for this particular relief.
- Standard mileage rates revised: For business use of your vehicle, the standard mileage deduction is 50.5 cents per mile for the first half of 2008, and 58.5 cents per mile for the remainder. The rates have also changed for miles that were accrued for medical or charitable reasons.
- Kiddie taxes: Investment income rules for children have changed, and now include students from 18 to 24 years of age who do not file. Dependent children whose investment income is $1,800 or more will now be taxed at their parents' tax rates. This is another way in which the IRS attempts to stop taxpayers from "shifting" investments to their children to evade income tax liability.
- Capital gains taxes reduced: Even taxpayers with lower incomes will benefit from the reduction of the lowest capital gains rate. The 5% rate – for married taxpayers earning less than $65,100 and single filers under $32,500 – is now a nice, round 0%.
For a complete list of 2008 filing changes, consult your preparer. If you are preparing your own taxes and are good at it, you should be able to get up to speed in an afternoon of reading and research. Again, you must determine for yourself if it makes more sense to pay for professional assistance or do the work yourself, investing time and effort that will cost you at least indirectly. If you are filing complicated returns, it will probably be best to get some help. Decide carefully! About Author: 1040 Extension.com has designed and developed Internet Tax Forms and Services that provide accuracy and convenience at an affordable price. For all your tax extension needs, visit us online today.
