We are just around the start of another tax season! and it seems quite evident that as the economy picks up, taxes will go higher and many of the targeted tax deductions and credits will phase out. Alternative minimum tax and Estate tax will be there to affect us all.
To make you conversant with the tax changes so that you can take benefits of these on your tax returns, I have listed some of the tax deductions and credits that may apply to you. Do not miss out on these credits and deductions as they may not last long….
Higher Section 179 equipment expensing limit allowing small businesses to write off as much as $250,000 of new or used equipment purchased this year. In addition, brand new equipment, software, and leasehold improvements can qualify for a 50{eb914d8c00d6b744d02a9a8064b0bfd5c559be7136358887c29ad495da2b8d17} first-year bonus depreciation deduction if purchased and placed in service before the end of 2009.
Sec 529 Plan expanded the Qualified Tuition Expense which now includes the cost to purchase computer technology equipment and Internet access if it is used by the student enrolled at eligible educational institution.
Retirement Savings Limits for 2009 401(k)- You can contribute up to $16,500 ($22,000 for 50 and older). Roth or Traditional IRA- You can contribute $5,000 to an IRA ($6,000 for 50 and older). Simple- You can contribute up to $11,500 ($14,000 for 50 and older). . Income limitations may apply.
Forgiveness of Debt Generally debt cancellation is tax free if it is debt forgiven on primary residence unless cash from such debt was used for non-home acquisition debt. If the debt was used for personal property or the debt is forgiven on your rental or investment property than this could be taxable income to you unless the debt is discharged in bankruptcy or insolvency exclusion exception applies.
Gain on sale of primary residence Much known Sec 121 exclusion which allowed exclusion of gain upto $250K($500K if married filing joint) has changed. Depending on whether the home was used exclusively as a primary residence or partly as primary residence and partly as investment or rental property, the exclusion of gain could be affected and part of the gain could be subject to tax.
Hence, New rules should be considered when selling your home so that the timing of the sale can be planned in a manner to get maximum benefit from this change.
Unemployment Benefits The first $2,400 of benefits in 2009 is now exempt from federal income taxes. You will pay tax only on benefits received in excess of this amount.
Sales Tax Deduction for New Vehicle Purchase Sales tax on new vehicle purchases on or after February 17, 2009 and before January 1, 2010 is deductible as an itemized deduction or as additional standard deduction on your 2009 tax return. The deduction is limited to the lower of the sales tax paid or the sales tax that would have been paid on a vehicle costing $49,500. Deduction phases out for taxpayers with adjusted gross incomes of $125,000 and $250,000 for married couples filing jointly.
Net Operating Loss for Small Business The Worker, Homeownership, and Business Assistance Act of 2009 provides an election for small business to carry back net operating losses (NOLs) from 2008 or 2009 for up to five years, thereby increasing the carryback period for such NOLs from the general two-year carryback period.
First time Home Buyer Credit for home purchases made after January 1, 2009 and before December 1, 2009(extended to before April 30, 2010) , a first-time home buyer can receive a refundable tax credit equal to 10{eb914d8c00d6b744d02a9a8064b0bfd5c559be7136358887c29ad495da2b8d17} of the purchase price of the home with a cap of $8,000 ($4000 for married taxpayers filing separately). Income limitations apply.
Qualified Repeat Home Buyer Credit The Worker, Homeownership, and Business Assistance Act of 2009 has extended the tax credit of up to $6,500 for qualified repeat home buyers (Buyers who have owned and resided in their primary home for at least 5 years in the preceding 8 years). Income limitations apply.
Hope credit now termed as the American Opportunity Tax Credit has been increased to $2,500 a year and applies to four years of college (not just the first two) and 40{eb914d8c00d6b744d02a9a8064b0bfd5c559be7136358887c29ad495da2b8d17} of the credit is refundable. Income limitations apply.
Nonbusiness Energy Property Credit available to a homeowner investment in eligible energy-saving improvements. Tax credits are available at 30{eb914d8c00d6b744d02a9a8064b0bfd5c559be7136358887c29ad495da2b8d17} of the cost, up to $1,500, in 2009 & 2010 (for existing homes only). The cost of certain high-efficiency heating and air conditioning systems, water heaters and stoves that burn biomass all qualify, along with labor costs for installing these items. In addition, the cost of energy-efficient windows and skylights, energy-efficient doors, qualifying insulation and certain roofs also qualify for the credit, though the cost of installing these items does not count.
Residential Energy Efficient Property Credit available on investment in alternative energy equipment. Tax credits are available at 30{eb914d8c00d6b744d02a9a8064b0bfd5c559be7136358887c29ad495da2b8d17} of the cost, with no upper limit through 2016 (for existing homes & new construction) for the amount spent on qualifying property such as solar electric systems, solar hot water heaters, geothermal heat pumps, wind turbines, and fuel cell property. Generally, labor costs are included when calculating this credit.
Work Pay Credit $400 refundable tax credit for individuals ($800 for married filing joint) limited to 6.2{eb914d8c00d6b744d02a9a8064b0bfd5c559be7136358887c29ad495da2b8d17} of earned income for 2009 and 2010. Income Limitation apply.
FBAR Reporting If you own or have authority over a foreign financial account, including a bank account, brokerage account, mutual fund, unit trust, or other types of financial accounts with balance over $10,000, then you may be required to report the account yearly to the Internal Revenue Service. Account holders who do not comply with the FBAR reporting requirements may be subject to civil penalties, criminal penalties, or both.