2010: Top Ten Tax Tips
It's Tax Time!!
Yes, it's almost that time of year again! Sharpen your pencils and gather your receipts! Here are some tips to help you get the most on your return! Good Luck!
1. Homeownership = Tax Benefits
Your home is one huge tax deduction! Don't overlook the huge perks that owning a home offers when tax time rolls around. Don't forget that you can deduct mortgage interest, property taxes, points paid at time of purchase, and any medically necessary home improvements. You can get more information by visiting the IRS.gov Financial Resources - Real Estate.
2. First Time Buyer
The American Recovery and Reinvestment Act of 2009 updated The Housing and Economic Recovery Act of 2008 for the first time buyer credit. The First - Time Homebuyers Tax Credit is applicable to buyers purchasing a primary home until April 30th, 2010. This tax credit will decrease your tax bill (increase your refund) dollar for dollar. The credit was increased from $7,500 in 2008 to $8,000 for homes purchased by December 1, 2009. The good news is that the Worker, Homeownership and Business Assistance Act of 2009 extended that to include buyers who have a binding contract to purchase their first home May 1, 2010 to be eligible for this credit this year as well. It is similar to a no-interest loan and must be repaid in 15 equal, annual installments beginning with the 2010 tax year. You get more information on this at the First-Time Homebuyer Credit page through the IRS.
3. It Pays to Go to School
Education is expensive! There are tax laws for students which can really help! Make sure you are utilizing every deduction that you are eligible for! If you are going to school, the tuition and fees deduction will cover up to $4,000. If you are not attending school, don't forget about your spouse or dependents! The good thing about this deduction is that you don't have to itemize to qualify! Be sure to check out the IRS site for facts on the Tuition and Fees Deduction available to qualifying tax payers enrolled in school.
4. Teacher, Teacher!
Not only are there deductions for students, but if you are a teacher, there is a deduction for you as well! Eligible educators (teachers, instructors, counselors, principals, and school aides) employed at least 900 hours during the school year in grades K - 12 can deduct up to $250 each for expenses such as books, supplies, software, etc. used in the classroom. To find out more and see if you qualify check here for the educator expense deduction.
5. Earned Income Credit
If you didn't earn a whole lot during 2009, you may be eligible for the Earned Income Tax Credit. Congress initially the legislation for this tax credit in 1975 to offset the burden of Social Security taxes and to provide an incentive to work. The great thing about this tax credit is that it is refundable. What that means is that, if you qualify, if the Earned Income Tax Credit exceeds the amount of taxes owed it will result in a refund. Sometimes even if you didn't have federal taxes withheld, you could still receive a refund based on this credit. This is at the Federal level, but you will want to check to see if your state is one of the 22 that currently offer their residents a similar credit. To see if you qualify go to the EITC Home Page.
6. Child and Dependant Care
If you have a child and pay for child care you can use these expenses to help reduce your tax bill. The IRS allows you to recoup up to 35% of these expenses (up to $6,000 for two individuals) through the Child and Dependent Care Credit. You can use this link to see if you are eligible for the Child and Dependent Care Credit and get more specific information.
7. Jury Duty Income
Did you report for jury duty during 2009? Jury duty pay is taxable income. Some employers continue to pay their employees while they are serving on jury duty and the jury duty pay goes to the employer, not the employee. In this situation the employee still has to report the entire amount of the jury duty pay as taxable income, but they can claim the amount given to the employer as an adjustment to their income. In doing this, you won't be taxed for money that you didn't actually receive even though you reported it. Check out the IRS site for Jury Duty Pay Given to Employer.
8. Offshore Credit Card Crackdown
It might be tempting to put your hard earned cash in an offshore tax haven and use a bank credit card to access it, but you need to be aware that this is Tax-Evasion and the IRS is cracking down on this all too common scheme. For facts on these identified tax schemes, you can visit the IRS web page on Abusive Offshore Tax Avoidance Schemes.
9. First-Job Moving Expense Deduction
If a change in your job or business location required you to move, or you moved to start a new job or business, you may be able to deduct your moving expenses. Moving expenses in general are not deductible, but in some instances they are when job related. If you meet the requirements, you can deduct the cost to move to the new area plus .20¢ per mile and parking fees and tolls.
There are two tests to qualify for this deduction. The first test is the Distance Test. To qualify under the distance test you must have had to move at least 50 miles farther from your old home than your old home was from your old job location. For example, it is 60 miles distance from your old home to your new job location. From your old home to your old job location was 25 miles. 60 - 25 = 35, therefore, you would not qualify. But if your old home to your new job is 80 miles and you subtract the 25 from your old home to your old job location, you get a difference of 55 miles so you would qualify for the distance test for this deduction.
The second test is the the time test for employees or self employed. Basically you must work full time (determined by whatever is full time for your type of work) for at least 39 weeks during the first 12 months living in the general area of your new job location. There are allowances for strikes, layoffs, natural disasters, illness, etc. You can check the IRS Moving Expense page or for more details regarding the two tests you can go to Publication 521 (2009), Moving Expenses.
10. Retirment Savings
If you are enrolled in a 401K, have a Roth account or an IRA, you need to make sure you are claiming them. Different plans offer different tax benefits and there are deadlines and limits. To find out what these are and to see what credit you can get for the contributions you made to your retirement. You can find the information you need at the IRS web page on Retirement Savings Contributions.
**Although most of the links are up and running, the IRS is currently updating a lot of their tip pages and some will not be available until January 4, 2010.