Tax Season — April 15 Is Closer Than You Think
Even though April 15 may seem far away, consider getting started now on your taxes.
In addition to the usual complexities, millions of Americans will discover new twists and potholes on the road to preparing their returns this year. Congress has created new and expanded deductions, credits and other breaks that could benefit many people — if they leave enough time to master the fine print.
«There have been many important changes in the tax laws,» says Sidney Kess, a New York tax lawyer and accountant. «So it’s dangerous to rely on what you did on your return last year. Although it might work out, you could miss some important new points.»
Here are a few major changes and other tricky issues to watch out for, as well as advice from tax professionals:
Charitable Giving: A new law allows many people to give money this year to charities offering relief to victims of the Haitian earthquake and deduct their contributions on their tax returns for 2009. This means «an immediate tax benefit» for many generous donors, says Internal Revenue Service Commissioner Doug Shulman.
But there are important restrictions. The IRS says the new law only applies to cash contributions made to these charities after Jan. 11, 2010 and before March 1, 2010. Also, the gifts «must be made specifically» for relief of victims in areas affected by the Haitian earthquake.
You can’t deduct donations if you claim the standard deduction. But you have a choice of deducting this year’s gifts on either your 2009 or 2010 return. Thus, if you are claiming the standard deduction for 2009 but expect to itemize on your 2010 return, wait to claim these Haiti-related donations.
Keep a record, such as a canceled check or a receipt showing the name of the charity and the date and amount of the contribution. What if you made a donation by text message? A telephone bill will be fine as long as it shows the name of the donee organization and the date and amount of the gift, the IRS says.
Standard Deduction: For 2009, the basic standard deduction is $11,400 for married couples filing jointly, up from $10,900 for 2008. For most singles, the 2009 deduction is $5,700, up from $5,450, according to CCH, a provider of tax, accounting and other business information. There are higher amounts for the blind and people who are age 65 or older.
Many people who pick the basic standard deduction may be eligible to increase it to reflect state and local real-estate taxes paid last year (up to $500, or $1,000 if married filing jointly). They may also be able to increase it to reflect a net disaster loss, and state or local sales or excise taxes on the purchase of a new motor vehicle. See the IRS’s new Schedule L.
Car Purchases: Many taxpayers are eligible to deduct some or all of the state or local sales or excise taxes paid on the purchase of new cars, light trucks, motor homes or motorcycles during 2009. But there are limits. For example, this deduction is limited to the tax paid on up to $49,500 of the purchase price of each qualifying new vehicle. Also, the new vehicles must have been purchased after Feb. 16, 2009 and before Jan. 1, 2010. Leases don’t count.
Taxpayers can take this deduction regardless of whether they itemize their deductions. But there are income limits, so many upper-income taxpayers won’t be eligible for the full deduction, or any at all.
Home Purchases: Lawmakers have extended and expanded a tax credit of as much as $8,000 for some home buyers. It’s known as the «first-time homebuyer credit,» but many other buyers are now eligible as well. There are several versions of the credit depending on the purchase date of the home; it may benefit many people who bought last year as well as some who purchase a home this year. For purchases made this year, you must buy or enter into a binding contract to buy a principal residence on or before April 30 and close on the home by June 30. And for 2010 purchases, you can claim the credit on either your 2009 or 2010 return, the IRS says. The rules are highly complex, so check the IRS Web site, http://www.irs.gov/, (and pay attention to new documentation requirements), buy tax-preparation software or hire a tax expert.
Warning: The IRS is doing «increased compliance checks» following reports that ineligible people were claiming this credit.
Capital-Loss Carryovers: Many investors lost large amounts of money in the financial markets during 2008 and have hefty tax-loss carryovers that can be used on their returns for 2009. Don’t forget to check to see if you have any loss carryovers.
The basic rules remain the same: Capital losses can be used to soak up capital gains on a dollar-for-dollar basis. If losses exceed gains, you can deduct up to $3,000 a year ($1,500 if married and filing separately) from your wages and other ordinary income. Additional losses are carried over into future years.
Mileage: The IRS’s standard mileage rate for business use of a car, van, pickup or panel truck during 2009 is 55 cents a mile. It’s 24 cents a mile for using your vehicle for medical reasons or as part of a deductible move. And it’s 14 cents a mile for using your vehicle to provide services to charitable organizations.
For more information, including breaks for college costs and tax credits for qualifying energy-saving home improvements, go to the IRS Web site and search for Publication 17, «Your Federal Income Tax (For Individuals).» Look for the section «What’s New for 2009.» Also, type «Fact Sheets 2010» in the search box.