Beginning with the Economic Stimulus Act of 2008, several major — and popular — tax provisions were either extended or created in three different bills last year that will affect return prep here in 2009. There were actually five bills enacted last year, but the Stimulus Act, the Housing Act and the Emergency Economic Stabilization Act (also known as the bailout, in early October) provided the bulk what’s going on tax returns right now. Some of the more popular deductions and credits to consider include:
- Sales tax deduction: Those who itemize can choose to deduct state income tax or local sales tax
- Tuition and fees deduction: Up to $4,000 can be deducted for qualified tuition and fees
- Educator deduction: Up to $250 of out-of-pocket expenses can be deducted for full time educators
- Additional standard deduction for real estate/property expenses: up to $1,000 can be deducted.
- Extension through 2009 of tax free distributions from individual retirement plans for charitable purposes (up to $100,000)
- First time homebuyer credit: $7,500 refundable credit that works as an interest free loan for homes purchased between April 9, 2008 – June 30, 2009 — must be repaid interest free beginning two years after purchase at $500 per year.
NOTE: The new law enacted last week provides for a first time homebuyer credit as well. Important to look into how they both work as the new law provides for homes purchased AFTER Jan. 1, 2009.
Plus many more. … Bottom line is this: Based on your situation, take advantage of every deduction or credit (new or old) to lower your tax bill — legally, of course. As always, www.irs.gov is the place to visit for complete details.