January 2010 Archives
Starting the New Year
The beginning of a new year offers the hope of a new beginning that many people mark by making resolutions. A majority of those resolutions either involve exercise and weight loss, or improved financial practices. So, how are you doing with those resolutions? If improving your finances was one of your goals, take a few minutes and visit the America Saves Week website and enroll as a saver. This program is FREE and provides you with many tools to help you make the changes to improve your finances. This is the fourth year that the Consumer Federation of America will celebrate America Saves Week--the last week of February. You'll be glad you joined!
And WHY are you getting a federal income tax refund?
Understanding your individual tax situation as well as current tax laws can go a long way to assure you pay ONLY the federal income taxes you owe. Don't fall prey to the idea that getting a refund is a windfall. In many situations that refund is NOT a windfall, but simply a return of YOUR hard earned money that you OVERPAID to the government payday after payday through over withholding.
Think about it. Do you overpay any other bill or do you pay the water, electric, garbage and other vendors just for the services you use. It should be no different with your federal taxes. You should just pay what you owe.
How do you do that? Www.irs.gov website has 2010 form W-4 forms that you can download, complete and file with your employer. By reducing what you pay in withholding, you will increase the size of your paycheck (and you don't even have to ask your boss for a raise!) Plan to use this increase to start building your emergency fund or to pay down credit debt.
2009 Federal Income Tax Changes
Terms to Know
Nonrefundable Credit-- is a dollar for dollar reduction of tax liability. Nonrefundable credits an only reduce the tax liability to zero.
Refundable Credit-- is added to the federal income tax withheld and any estimated tax payments. If the total is more than the total tax due, the excess is refunded to the taxpayer.
· Making Work Pay Tax Credit refundable credit of up to $400 for working individuals and $800 for Married Filing jointly. Credit is calculated at a rate of 6.2% of earned income and reported on Schedule M.
· American Opportunity Tax Credit (Expanded Hope Credit) for tax years 2009 and 2010, this credit modified the existing Hope Credit open to a broader range of taxpayers including those with higher incomes and those who don't owe taxes. Maximum amount of the credit is $2,500 per student in the first four years of post-secondary education and 40% of the credit may be refundable.
· Unemployment Compensation--$2,400 of unemployment compensation received in 2009 is excludable from gross income.
· First Time Homebuyer Credit-- This one is a little deceiving--The IRS definition of first-time homebuyer is people who did not own any other main home during the three year period ending on the date of purchase. Originally this credit was for folks who purchased a home between December 31, 2008 and December 1, 2009 and was a credit of 10% of the purchase price up to a credit of $8,000. November 6, 2009 tax law changes have not only extended the purchase deadline (now close by June 30. 2010) but has broadened to include people who have owned and lived in the same home in five of the last eight years and have purchased a home after November 6, 2009. The maximum credit for those families is $6,500.
· Sale of Main Home--Unless you used your primary residence for nonqualified use (NOT your primary residence) after 2008 you need not report the gain on the sale of your home unless it exceeds $250,000 for single filers of $500,000 for married filing jointly filers.
· Standard Deduction vs. Itemized Deduction While many expenses can be "written off" of your taxes such as your property taxes, charitable contributions and mortgage interest, for many households these amounts do not add up in excess of the Standard Deduction. In other words, taking the Standard Deduction is more advantageous than itemizing. For 2009 here are the Standard Deduction amounts based on the IRS definitions of filing status.
· Married Filing Jointly or Qualifying Widow(er) - $11,400
· Head of Household--$8,350
· Single or Married Filing Separately $5,700
· Personal/Dependent Exemption--each household member generally = $3,650. Again you must meet the IRS definition of dependent.
· New Vehicle Purchase Sales Tax Deduction--New vehicles purchased on February 18, 2009 or later and valued at $49,500 or less. Sales tax paid can be deducted even by folks using the Standard deduction.
· Qualified Higher Education Expense--now includes purchase of computer technology, equipment and internet access.
· Earned Income Tax Credit--eligible families with 3 or more children may be eligible for the maximum credit of $5,657.
· Nonbusiness Energy Property Credit-- Tax credit of 30% up to maximum credit of $1,500 for energy efficient home improvements.
· Residential energy efficient property credit-- solar, geothermal and wind technologies. 30% of purchase as credit.