Tax Benefits You Might Overlook
As the tax season approaches take some time to determine if you qualify for some of these often overlooked tax breaks. Some of these tax saving ideas require that you itemize your deductions. Others can be claimed by any qualifying taxpayer.
1. Charitable Volunteering. If you volunteer for a charitable organization you may have deductible expenses. Did you purchase supplies or required equipment? Perhaps you volunteer in a hospital and need to purchase a uniform. The costs for the apparel AND the costs to clean the uniform can qualify as charitable deductions. And don’t forget mileage, it too can often be deducted.
2. Moving Expenses. While job related moving expenses are a well known deduction, many clients don’t realize moving expenses for a first job may also be deducted if the job passes a 50 mile distance test from the place the newly employed person has been living.
3. Job Hunting Costs. Workers can often deduct job hunting costs provided the expenses are associated with looking for a new job in your present occupation. Qualifying costs include resume preparation, printing, postage, phone calls and outplacement/ employment agency fees. Remember these costs, along with other miscellaneous itemized expenses, must exceed 2 percent of your adjusted gross income before they produce any tax savings.
4. Child and Dependent Care Credit. Did you know the popular Child and Dependent Care tax credit also applies to summer day camp costs? As long as the camp is a day-camp and camp officials supervise the child while the parents work you can claim the credit for the camp costs.
5. Mortgage Refinancing Points. If you refinance your house or buy a second residence, any “points” you pay for the loan can be deducted proportionately each year over the life of the loan. If you sell your home or refinance before you have deducted the full cost of your “points”, you can then deduct the remaining amount in the year of the refinancing or sale.
Caution: The lender in the subsequent refinancing must be different to deduct points this way.
6. Military Reservists’ Travel Expenses. Military reserve forces and National Guard troops are allowed a deduction for travel expenses attending drills or meetings provided you travel more than 100 miles and stay overnight for the training exercise. This deduction includes mileage reimbursement at 55 cents per each mile traveled. Parking toll fees also qualify. You receive this deduction whether or not you itemize your deductions.
So take a minute to examine your activities over the past year and try to identify items that may lower your tax obligation. If you have questions about these topics or have other areas of concern please feel free to call. Return to TopKey 2009 Exemptions and Deductions
Listed here for your reference are key deduction rates for 2009.
Personal Exemptions -
The personal exemption for each qualifying dependent increases by $150 for 2009.
| 2009 | 2008 | |
|---|---|---|
| Exemption | $3,650 | $3,500 |
The exemption phases out by 2% for each $2,500 ($1,250 for married filing separately) by which your income is over:
| 2009 Phase Out | |
|---|---|
| Single | $166,800 |
| Married Filing Separately | $125,100 |
| Married Filing Jointly | $250,200 |
| Head of Household | $208,500 |
2009 Alert: This phaseout may only reduce the exemption by 1/3 in 2009.
Standard Deductions -
Standard deductions for those who do not itemize are as follows:| 2009 | 2008 | |
|---|---|---|
| Single | $5,700 | $5,450 |
| Married Filing Sep. | $5,700 | $5,450 |
| Married Filing Joint | $11,400 | $10,900 |
| Head of Household | $8,350 | $8,000 |
| If 65 or over and/or blind add: | ||
| Single/ Head of Household | $1,400 | $1,350 |
| Married/ Surviving Spouse |
$1,100 | $1,050 |
Itemized Deduction Phaseout -
Deductions are reduced by 3% of every dollar of Adjusted Gross Income over $166,800 ($83,400 if married filing separately) up to a maximum phaseout of 80% of your itemized deductions. Medical expenses, investment interest, casualty losses and gambling losses are excluded.
2009 Alert: The phaseout may only reduce your itemized deduction by 1/3 in 2009.
Standard Mileage Rates -
The standard mileage rates for 2009 are:| Mileage | 2009 Rate/Mile | |
|---|---|---|
| Business Travel | 55.0¢ |
|
| Medical/Moving | 24.0¢ |
|
| Charitable Work | 14.0¢ |
2009 Tax Rates
The income brackets for each tax rate are:
| Single | Married Jointly | Head of Household | Tax Rate |
|---|---|---|---|
| $1 - 8,350 | $1 - 16,700 | $1 - 11,950 | 10% |
| $8,351 - 33,950 | $16,701 - 67,900 | $11,951 - 45,500 | 15% |
| $33,951 - 82,250 | $67,901 - 137,050 | $45,501 - 117,450 | 25% |
| $82,251 - 171,550 | $137,051 - 208,850 | $117,451 - 190,200 | 28% |
| $171,551 - 372,950 | $208,851 - $372,950 | $190,201 - 372,950 | 33% |
| Over $372,950 | Over $372,950 | Over $372,950 | 35% |
More Special 2009 Tax Items
2009 marks another year of major tax law changes. While too vast to mention them all, here are some that will impact many clients.
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Energy Efficient Tax Credits 2009
The American Recovery and Reinvestment Act expands your tax-deductible opportunities to make energy efficient home improvements in 2009 and 2010. If you make any of the following improvements, you can possibly recover up to 30% of the costs:
- Exterior Windows and Doors
- Storm Windows and Doors
- Skylights
- Roofs (metal or asphalt)
- Insulation and Sealing
- Central Air Conditioning
- Air Source Heat Pumps
- Furnace (Natural Gas, Propane or Oil)
- Hot Water Boiler (Gas, Propane, or Oil)
- Advanced Main Air Circulating Fan
- Water Heater (Gas, Oil, Propane, or Electric Heat Pump)
- Biomass Stove
Here are some of the stipulations:
- The maximum credit allowed is $1,500.
- This tax credit doesn’t apply to new construction.
- Not all products and materials qualify so you must question your vendor, re-modeler or service company.
- The equipment or products must last a minimum of five years.
- The improvement must be placed in service on or after February 17, 2009.
- Improvements made before February 17, 2009 have different qualifications.
Shrinking Social Security Benefits
Fewer Benefits for Millions of Seniors in 2010
In 2010, for the first time in more than three decades, seniors will not receive a social security benefit increase. A formula set by federal law determines the benefit increase, formally known as the “cost of living adjustment” (COLA).
The COLA formula is closely tied to inflation rates, as calculated by the consumer pricing index. This year’s recession and the decreased cost of oil have led federal experts to predict a deflation (a decline in prices and wages) through mid-2010 and perhaps longer. Because there is a negative inflation rate for 2010, there will be no COLA, and thus no increase in benefit payments to social security recipients.
Fortunately, Federal law prohibits social security payments from going down, so check payments will simply freeze for many benefit recipients. However, monthly benefit payments may decrease for millions of Americans in the Medicare prescription drug program because the premiums are predicted to go up, and these premiums are often deducted from social security checks.
What to do? Plan now to take steps to account for this “freeze”. You may wish to re-forecast required distributions from your retirement plans or postpone a planned expense. Adjusting your budget now will help prepare for the impact of the Social Security Benefit freeze in 2010. Return to Top