Fiscal Tax Blog
Key taxpayer provisions: The good news is that 95% of taxpayers will benefit from at least one of the tax breaks. Unlike the 2008 Economic Stimulus, there will not be stimulus rebate payment checks in 2009.
Details of 2009 Stimulus Plan Tax Law Changes
Provision | What is it? | Who gets it? | When do they get it? |
First-time Homebuyer Credit | Up to an $8,000 refundable tax credit for first-time homebuyers. | You purchase a personal residence between January 1, 2009 and November 30, 2009, and you have not owned a home in the last three years. | When taxpayers file their 2008 or 2009 tax returns. |
Energy Property Credit | A credit of up to $1,500 for qualifying residential energy improvements. | Taxpayers who invest in qualifying energy improvements such as: (storm windows and doors, energy efficient furnace, air conditioner, heat pump, etc) to their residential property. | When taxpayers file their 2009 and 2010 tax returns. |
Vehicle Purchase | A tax deduction for the state and local sales tax on a purchase of a new vehicle in 2009 costing up to $49,500. | Individuals who purchase new vehicles after 2/16/09 and before 2010. Phase out at 125k / 250k. | When taxpayers file their 2009 return. |
Education Tax Credits | An enhanced Hope credit that can be applied to the first 4 years of college. Max credit of $2,500 of which 40% is refundable. --- Most | Individuals who pay for qualified education expenses for the first four years of college. Phase out starts at 80k / 160k. | When taxpayers file their 2009 and 2010 returns. |
Earned Income Tax Credit | An increased tax credit for families with 3 or more children. Additional marriage penalty relief for married couples filing joint returns. | Certain qualifying individuals (based upon income) and married couples filing jointly. | When taxpayers file their 2009 and 2010 tax returns. |
Unemployment Compensation | An exclusion from tax on the first $2,400 of unemployment benefits. Additional $25/week and extended time to receive benefits. | Jobless taxpayers receiving unemployment compensation. | Sometime during 2009 and/or through filing your 2009 tax return. |
Tax Credit for Workers. “Making Work Pay Credit” | A refundable credit of up to $400/single and $800/married. Taxpayers payroll check will increase $8.00 to $16.00 per week. | Individuals who are employed or self employed. Benefits start to phase out at 75k/150k and full phase out at 95k/190k. | 2009 and 2010: Benefit delivered thoughout year as an increase in paycheck. Will start by April 2009. |
Retirees Payment | A $250 one time payment (mailed to your home or direct deposited to your bank account). | Individuals who receive Social Security, Tier I railroad retirement, SSI or VA pension or disability benefits. | Sometime during 2009 and/or through filing your 2009 tax return. |
COBRA | A federal subsidy of 65% of monthly COBRA premiums for 9 months. | Jobless individuals paying for COBRA insurance and involuntarily terminated. | Sometime during 2009, COBRA charges will be reduced. |
Note:
- Most provisions above are subject to phase out for higher-income individuals. Ask us for more details.
- Individuals may want to consider adjusting their income tax withholding during the year (and thereby increasing their paychecks), if indeed any of these provisions significantly reduces their end-of-year tax liability.
The difference between a deduction and a tax credit is straightforward. A deduction is an amount allowed to be taken off your total taxable income. It reduces the amount of tax you owe. A tax credit is an amount that is allowed to reduce your total tax amount due. It may even result in refund money.
For example, a deduction is allowed for each family member living in the household. You can deduct, from the income that your tax would have been calculated at, a certain amount for each person. This reduces the taxable income amount. Further down the tax form, there is a place for tax credits. If there is a child tax credit, you would be able to deduct a certain amount for each child from the amount of tax you would have owed the government prior to the tax credit line.
Deductions can be for yourself, your spouse, your child, and any other dependent for whom you care and provide over half of their living expenses, even if in care instead of cash. This can include parents, grandchildren, and foster children. There are other deductions, like for mortgage interest or alimony paid.
Tax credits may be given by the government for various things, including a per child (extra) tax credit. More familiar tax credits would be for the amount of Federal withholding that has been withheld during the tax year from your paycheck. If you paid self employment tax throughout the year, you would get a tax credit for that, because you have already paid it into the Treasury. If you overpaid amounts due, you will receive a refund for any overage amount. Other tax credits include energy credits for purchases made, such as solar panels, or Energy Star appliances.
The deduction reduces total amount of taxable income; the tax credit reduces total amount of tax owed. A deduction can put you into a lower tax bracket. Occasionally a tax credit, like the Earned Income Credit, can result in a refund. There may be special tax credits offered only in a particular year, but deductions are standard.
Can't take advantage of this tax break?
Check out our list of 40 Tax Breaks that you could use to get your largest tax refund ever in 2009.
Have a question about this tax break?
Leave a comment below and we'll get you an answer that could save you money on your tax return this year.
Many Americans default to choosing the standard deduction when preparing their federal tax returns merely because they do not understand the difference between the standard deduction and itemized deductions. When you choose to use the standard deduction, you do not have to provide any kind of documentation or evidence for the deduction. The standard deduction is based solely on the number of dependents and the filing status of the person making the tax return.
For most people, the reason to choose the standard deduction is that using itemized deductions requires better record keeping and a greater understanding of the tax laws. For example, medical expenses over a certain amount, including over-the-counter medicines, prescriptions, insurance co-pays, eyeglasses and more can be deducted as part of an itemized deduction. However, these expenses would have to be significant to make it worthwhile to choose the itemized deductions rather than the standard deduction.
Likewise, when people are choosing whether to use the standard deduction or itemized deduction, they must consider how many itemized deductions they might be eligible for. Contributions to charity, on reimbursed work-related expenses, and more might be eligible as itemized deductions. One thing to keep in mind is that in an audit itemized deductions must be verifiable. There is no requirement to justify the standard deduction.
If you have complete records, then it can be a good idea to take the time to determine whether your itemized deduction would exceed the amount of the allowable standard deduction. When you have had unusually high expenses, be they medical expenses, moving expenses or a combination thereof, it is a good idea to at least look at the forms for itemized deductions and determine for yourself which is the better option.
Many expenses which are advertised as deductible are only deductible when you choose to itemize your deductions. This includes everything from student loan interest to mortgage interest to business expenses. Ultimately, many people find that the standard deduction is the better deal for them and are glad that they do not have to justify the itemized deductions.
Can't take advantage of this tax break?
Check out our list of 40 Tax Breaks that you could use to get your largest tax refund ever in 2009.
Have a question about this tax break?
Leave a comment below and we'll get you an answer that could save you money on your tax return this year.
Permissible tax deductions work to abate tax liability. What is problematic is the lack of awareness in distinction of “above the line” deductions and “below the line” deductions. What is more, “above the line” deductions are worth more to the bottom line than “below the line” deductions; “the line” being your adjusted gross income, known as (AGI). As such, your (AGI) determines your tax rate; consequently you want to have as many “above the line” deductions as possible.
“Above the line” deductions are those that you have subtracted on the top portion of your tax return, before your adjusted gross income (AGI) has been determined. “Above the line” deductions are important in helping you reduce your adjusted gross income which is the key to reducing your tax liability.
These are examples of, however are not a complete list of, “above the line” deductions:
• Schedule C or F Business Deductions
• Rental Deductions
• Stock Losses
• Moving Expenses
• Student Loan Interests Paid
• Alimony
“Below the line” deductions are those that you will subtract from your adjusted gross income (AGI) sum at the bottom of the tax return. So your (AGI) has already been determined when you utilize “below the line” deductions.
These are examples of, however are not a complete list of, “below the line” deductions:
• Charitable Donations
• Medical Expenses
• Tax
• Interest Expenses
“Above the line” deductions are more advantageous to the tax payer. Additionally, “below the line” deductions are not allowable unless in excess of the required (AGI) percentage. For example, medical expenses are “below the line” deductions; however they are only allowable if they exceed 7.5% of the tax payers adjusted gross income, (AGI).
“Above the line” deductions are invaluable in the sense that they are fully allowable even in the event the tax payer takes standardized deductions as apposed to itemized.
Can't take advantage of this tax break?
Check out our list of 40 Tax Breaks that you could use to get your largest tax refund ever in 2009.
Have a question about this tax break?
Leave a comment below and we'll get you an answer that could save you money on your tax return this year.
Questions have been posed regarding why specific counties are included/excluded from the Midwest Disaster Relief legislation. Specifically, Kelly wants to know why Lake County, Indiana is not included. The answer lies with our elected representatives in Washington. I'm sure these wise folks had good reason and information when deciding what counties to include or exclude. Senators Evan Bayh and Richard Lugar should be able to address the Lake County, Indiana question.
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