New year means new credits, deductions and other tax tweaks
By CAROLE FELDMAN
WASHINGTON -- More forms to file. New and expanded credits and deductions.
When taxpayers sit down to file their 2009 returns, they will find plenty new -- some the result of adjusting for inflation, and others changes passed by Congress last year to try to bring the country out of recession.
"Depending on their individual situation, there could be good news and there could be bad news," said Amy McAnarney, executive director of the Tax Institute at H&R Block.
Some things affect all taxpayers. The personal exemption, for example, has increased, to $3,650 each for the taxpayer and dependents, up $150 from 2008.
And tax brackets have been adjusted upward by about 5 percent since 2008, said Greg Rosica, tax partner at Ernst & Young and a contributing author to the "Ernst & Young Tax Guide 2010." That means you might not jump to a higher tax bracket if you earned more.
Others revisions are more likely to affect low- and moderate-income workers. Income limits for the earned income tax credit have been raised and there's a new category -- families with three or more children. The Internal Revenue Service says one in six taxpayers claim the credit.
Still other changes affect those at higher income levels. The exemption for the alternative minimum tax has been increased once again, this time to $70,950 for joint returns and $46,700 for individuals. If your income is higher than these amounts, you could be subject to the AMT tax.
These changes are among those that happen every year, to keep taxes in line with inflation. But there are a host of other revisions, new for 2009, that will make filing your tax return this year a little more complicated.
For one thing, the standard deduction for taxpayers who don't itemize has become a little less standard.
The standard deduction itself has increased, to $11,400 for married couples filing jointly, $5,700 for individuals and $8,350 for heads of household. As before, it is even bigger if you are blind or 65 or over.
But new this year, you can take more of a standard deduction if you paid state or local real estate taxes, bought a new car and paid sales or excise taxes and met the income limits, or were a victim of a federally declared disaster.
If you choose to increase your standard deduction by one or more of these items, you'll have to file a new form Schedule L. Otherwise, you can just enter the standard deduction on Form 1040.
The three deductions -- for state or local real estate taxes, sales or excise taxes on new car purchases or net disaster losses -- also can be taken by people who itemize.
There are expanded tax credits for home purchases and education. And a tax credit for making your home more energy efficient has been reinstated.
Tax experts caution people to be careful that they're claiming every deduction and credit to which they're entitled. A credit reduces the amount of tax you owe; a deduction reduces the income on which taxes are assessed.
You're likely already receiving the benefit of the Making Work Pay credit under the stimulus bill that Congress passed last year. However, you may have to pay a portion back if you're a married couple and both spouses work, or if you have more than one job. If you're a low- or moderate-income worker, you might have some money due to you. A new form, Schedule M, will have to be filed to claim the credit.
"Each year carries with it changes in the tax law. It's important that people understand what has changed in their personal situation," Rosica said.
Did you get married or have a baby? Did you buy or sell stock? Did you inherit money, property or other goods?
Jeff Schnepper, MSN Money tax expert, recommends that people sit down with a tax professional at least once every three years to review their life changes and financial situation.
"First of all, it's deductible," he said. "Second of all, if you're not a professional, you don't know the minutiae. You don't know all the things you can do right and you don't know all the things you're about to do wrong."
Experts point to common mistakes that people make, which could delay a refund.
According to the Ernst & Young tax guide, some of these errors are mathematical. Others involve omission -- like failing to include your Social Security number or those of your dependents. Make sure you pick the correct filing status -- head of household or surviving spouse versus single, for example. And don't forget to sign your return.
Last year, the IRS received more than 141 million tax returns. Of those, about 70 percent were filed electronically. More than 110 million filers were due refunds, averaging $2,753 each.