NOTE: since this blog was posted in 2009 some of these items may be out of date and there are recent changes to the tax code as well. Please visit our Tax Tips section that has an updated list for 2010 or use our Ask A Tax Question form and we will be able to answer your questions as quickly as possible. Thank you for stopping by FiscalTax.com!
So far, this year lawmakers have passed over one-hundred tax law changes in order to benefit millions of individual taxpayers like you. With so many changes to the tax law, you're probably eligible for new benefits that were unavailable last year. That could mean significant savings on this year's tax return, but only if you know what the new benefits are and how to properly claim them on your tax return.
To help you claim all the tax savings you deserve we've compiled this list of 40 tax breaks.
New Tax Breaks
- The Biggest Tax Break Hoosiers Have Gotten - EVER - in October congress passed the Heartland Disaster Tax Relief Act of 2008 extending significant tax releif to residents of Indiana counties impacted by last year's severe flooding. Check out our Disaster Tax Relief Online Calculator to see how big your tax break might be.
- Economic Stimulus Payment and Recovery Rebate Credit - phase 1 of this credit was released as the famous tax rebate checks last year, but if you didn't get it or had a life changing event in 2008 you might be able to get an additional refundable credit on your tax return this year.
- Mortgage Debt Forgiveness Relief Act - for homeowners that experienced foreclosure on their primary home, Uncle Sam is allowing them to exclude the cancelled debt as taxable income.
- Housing Assistance Tax Act - tax payers that pay real estate taxes could possibly be eligible to increase their standard deduction amount by $500 ($1,000 if married filing jointly).
- Additional Child Tax Credit - this is a refundable credit and the formula for calculating it has changed which could mean up to $533 more per child in a potential refund.
- First Time Homebuyers Credit - tax payers who bought a new home for the first time after 2008 may qualify for a refundable credit of up to $7,500.
- Capital Gains Tax Reduction - for tax years beginning after 2007 the 5% minimum tax rate on qualified dividends and net capital gain is reduced to 0%
- Tax Breaks for Emergency Responders - members of qualified emergency response organizations will not have to include certain forms of income from state or local government in their gross income
- Increased Property Tax Deduction for Non-Itemizers - in 2008 Congress authorized up to a $500 additional standard deduction for non-itemizers and this has been extended through 2009
- Reduction of Phase Outs for Personal Exemptions and Itemized Deductions - the phase outs for exemptions and itemized deductions for certain high income tax payers was reduced by 1/3
Extended Tax Breaks
- Tax-free charitable donations from IRAs - tax payers 70.5 or older can direct up to a $100,000 tax free donation to a charitable organization from a traditional or Roth IRA
- Educator Expense Deduction- the popular above-the-line tax deduction of up to $250 for out of pocket expenses has been extended for another 2 years
- Qualified Tuition Deduction - Congress extended for another 2 years this deduction that allows students to directly deduct up to $4,000 of qualified tuition and fees paid to a college or trade school
- State and Local Sales Tax Deduction - this deduction actually expired in 2007 but was retro-actively extended through the end of next year and allows tax payers to deduct state and local sales tax instead of state and local income tax
- Alternative Minimum Tax (AMT) Patch - for the second straight year Congress has patched the controversial AMT rules to lessen the burden on certain middle to upper middle income households
- Maximum Captial Gains Tax Rate - the 15% maximum tax rate on qualified dividends and net capital gains has not changed
New Tax Breaks for Small Businesses
- Section 179 Depreciation Increase - the maximum amount that can be elected has been increased to $250,000 ($285,000 for enterprise zone and renewal community businesses; $350,000 for qualified Gulf Opportunity Zone property)
- Special Depreciation Allowance - a new 50% additional special first year depreciation allowance applies to most new property purchased and placed into service after 2007
- Increased limits on business vehicle depreciation - the maximum deduction you can take for a passenger car used in your business increased to $2,960; the maximum deduction you can take for a truck or van is now $3,160
Commonly Missed Tax Breaks
- Deducting state income taxes owed from the previous year - since the IRS will make you pay taxes on state and local tax refunds, it's only fitting that they will let you deduct the taxes you owed on prior year state and local income tax returns
- Deducting student loan interest -; the interest (not the principal) that you pay on your student loans can be deducted from your taxable income
- Deducting alimony payments (excludes child support) - Child support can NOT be deducted from your taxable income, but many people forget that alimony can
- Deducting points paid on mortgages / refinancing - if you refinance or pay down points on an existing mortgage those costs can be deducted from your taxable income
- Deducting fees paid for tax preparation - amateur tax payers (but not seasoned tax professionals!) often forget that they can deduct the cost of their tax preparation from the previous
- Deducting dependent care expenses - the cost of certain care for dependent children and adults can be deducted
- Deducting job search expenses - the cost of office supplies, travel and advertising incurred during the hunt for a new job is deductible
- Deducting non-reimbursed job expenses - items like uniforms, travel, lodging, meals and entertainment expenses that were required by your employer to pay out of pocket as a condition of your employment are not taxable
- Deducting moving expenses -; certain moving expenses can be deducted from your taxable income
- Deducting the expense of a cell-phone used for your job - if you're required by your employer to use your cell-phone for your job, then the business portion of your cell phone expenses is deductable
- Deducting property donated to a charity - donations of property (real estate, furniture, clothing, automobiles) to charity is deductable, but get a receipt from the charity and keep it to back up your claim
- Deducting mileage incurred in relation to charitable activities - if you donate your time or services to a charity, the mileage you rack up on your car to perform those charitable activities can be deducted at
- Deducting cash contributions to a charity - cash donations to charities are deductable from taxable income; keep a receipt for donations over $500!
- Deducting tithes to a church or religious organization - Many tax payers don't realize that what they put in the collection plate every Sunday is considered a cash contribution to charity and a potential tax deduction
- Deducting health insurance premiums - health insurance premiums can be deducted when you itemize
- Deducting dues paid to unions or professional organizations - if you pay union dues as a condition of your employment, then they can be deducted from your taxable income
- Deducting the cost of subscriptions to job related professional newspapers, magazines or journals - trade papers and journal related to your profession that you pay for out-of-pocket can be deducted from your taxable income
- Deducting home office expenses when the home is the primary place of business - so long as your home office is your primary place of business, you might be eligible to deduct a portion of your rent, mortgage, utilities and home improvement expenses
- Retirement tax credit for low and moderate income earners - to encourage lower income tax payers to save for retirement, Uncle Sam allows them to deduct the amount of their contribution from their taxable income (up to a certain point though!)
- Adoption Credit - households that adopted a child in 2008 can deduct certain expenses associated with the cost of the adoption
- Filing status changes due to marriage, divorce or death of a spouse - your filing status has a HUGE impact on your tax return; not knowing how these life changing events impact your filing status can mean the difference between owing taxes and getting a fat tax refund
This is just an overview of some of the most common tax breaks you could possibly take advantage of this year. With the economy as it is, it's more important than ever to ensure you don't miss out on any to keep your money in your pockets.
Some are brand new, but many have been around for a while and are commonly overlooked. If you use tax software, we strongly encourage you to bookmark this list and refer to it when you prepare your tax return to make sure you don't miss out on the tax savings you deserve. If you use a professional tax preparer, we encourage you to print this list and bring it to your tax preparer to make sure you aren't short changed on your tax return this year.
If you have any questions about these tax breaks, we encourage you to consult a tax professional or ask your questions in the comments below.