Two-thirds of the people who file their income tax returns do so electronically. But whether you do so by using the Internet or the mailbox, now is the time to get your papers in order.
LSU AgCenter family economist Jeanette Tucker says you should know about several tax law changes that could affect your 2009 income tax return.
American Recovery and Reinvestment Act
The recovery law provides tax incentives for first-time homebuyers, people who purchased new cars, those that made their homes more energy-efficient, parents and students paying for college, and people who received unemployment compensation.
IRA deduction expanded
You may be able to take an IRA deduction if you were covered by a retirement plan and your 2009 modified adjusted gross income is less than $65,000 or $109,000 if you are married filing a joint return.
Standard deduction increased for most taxpayers
The 2009 basic standard deductions all increased. They are:
–$11,400 for married couples filing a joint return and qualifying widows and widowers
–$5,700 for singles and married individuals filing separate returns
–$8,350 for heads of household
Taxpayers can now claim an additional standard deduction based on the state or local sales or excise taxes paid on the purchase of most new motor vehicles purchased after Feb. 16, 2009. You can also increase your standard deduction by the state or local real estate taxes paid during the year or net disaster losses suffered from a federally declared disaster.
2009 standard mileage rates
The standard mileage rates changed for 2009.
–The standard mileage rates for business use of a vehicle: 55 cents per mile
–The standard mileage rates for the cost of operating a vehicle for medical reasons or a deductible move: 24 cents per mile
–The standard mileage rate for using a car to provide services to charitable organizations remains at 14 cents per mile.
Kiddie Tax change
The amount of taxable investment income a child can have without it being subject to tax at the parent's rate has increased to $1,900 for 2009.
For more information about these changes you can visit irs.gov.
Tax credits
You might be eligible for a valuable tax credit. A tax credit is a dollar-for-dollar reduction of taxes owed. Some credits are even refundable, which means you might receive a refund rather than owe any taxes at all. The IRS composed a list of five popular tax credits you should consider before filing your 2009 Federal Income Tax Return:
#1 The Earned Income Tax Credit is a refundable credit for certain people who work and have earned income from wages, self-employment or farming. Income, age and the number of qualifying children determine the amount of the credit. EITC reduces the amount of tax you owe and may also give you a refund.
#2 The Child and Dependent Care Credit is for expenses paid for the care of your qualifying children under age 13 or for a disabled spouse or dependent to enable you to work or look for work.
#3 The Child Tax Credit is for people who have a qualifying child. The maximum amount of the credit is $1,000 for each qualifying child. This credit can be claimed in addition to the credit for child and dependent care expenses.
#4 The Retirement Savings Contributions Credit, also known as the Saver’s Credit, is designed to help low- and moderate-income workers save for retirement. You may qualify if your income is below a certain limit and you contribute to an IRA or workplace retirement plan, such as a 401(k) plan. The Saver’s Credit is available in addition to any other tax savings that apply.
#5 The Health Coverage Tax Credit pays up to 80 percent of the health insurance premiums for eligible Trade Adjustment Assistance recipients and Pension Benefit Guaranty Corporation payees. You can complete IRS Form 8885, Health Coverage Tax Credit to claim the credit on your tax return.
There are other credits available to eligible taxpayers. Since many qualifications and limitations apply to the various tax credits, taxpayers should carefully check their tax form instructions, the listed publications and additional information available at IRS.gov. IRS forms and publications are also available by calling 800-TAX-FORM (800-829-3676).
Basic tax preparation and planning
Before filing your return, gather tax records, review and organize them. If you prepare your own tax return, study this year’s forms and instructions, and begin your preparations. If you do not complete your own returns, deliver your tax records to a qualified tax preparer.
Tucker says some taxpayers will qualify for free tax preparation assistance. “This assistance is available in most communities for those with low to middle incomes and for the elderly,” she said.
The IRS has Volunteer Income Tax Assistance (VITA) sites set up in communities across the country. AARP also provides tax preparation assistance for older taxpayers through their Tax Aide program. VITA sites provide fast electronic tax filing, and some can help taxpayers open bank accounts. To find the VITA location nearest you, call the IRS at 800-829-1040.
The IRS encourages taxpayers to file electronically. E-file offers faster refunds, greater accuracy and no paper return to mail.
Expecting a refund?
Tax refunds can be sizable for some families. Tucker says by carefully planning ahead, a tax refund can help you get out of debt or help you make more money.
“A good use of a refund would be to put it toward repaying debts such as credit card balances,” she said.
Those with no outstanding debts should consider investments. Another good option is to invest in yourself by taking professional improvement classes or job training classes. This could lead to a raise, promotion or a better job.
Learn more about Personal Finance at the LSU AgCenter.
Tobie Blanchard
The LSU AgCenter is one of 11 institutions of higher education in the Louisiana State University System. Headquartered in Baton Rouge, it provides educational services in every parish and conducts research that contributes to the economic development of the state. The LSU AgCenter does not grant degrees nor benefit from tuition increases. The LSU AgCenter plays an integral role in supporting agricultural industries, enhancing the environment, and improving the quality of life through its 4-H youth, family and community programs.