Highlights Of Recent Tax Changes

By Author: Jeff Parrack
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There were many changes to the tax code in 2009, affecting how millions of Americans will file. Highlighted below are a number of changes that will have the broadest effect, but there may be others that affect your tax situation and you should make sure to find out what these are. The IRS provides plenty of material to help self-filers, but when things start to become confusing or complicated, you may want to consult a good tax preparer or accountant.

Making Work Pay Credit
If you meet the qualifications and have earned income from work, you may be able to take a 6.2% credit on your tax return. With a $400 individual limit and $800 for married filing jointly, the Making Work Pay Credit can be reduced by a number of factors. To get the credit, the new Schedule M form must be filled out and submitted with your 1040 or 1040A. No additional forms can be submitted with a 1040EZ.

Economic Recovery Payment
In 2009, a $250 payment was sent by the U.S. government to Railroad Retirement Board retirees, disabled veterans getting Department of Veterans Affair benefits and various Social Security recipients (retirees, ...
... people on SSI and the disabled). This sum does not have to be counted as income for the year for federal purposes, but it will reduce any government retirement benefit or Making Work Pay Credit for those who got it.

First Time Homebuyer Credit
Purchases that meet the criteria will get you a credit up to $8,000 ($4,000 married filing separately). This is for homes purchased between December 31, 2008 and May 1, 2010. The credit for homes bought in 2009 go on the 2009 return, while people buying in 2010 can choose either the 2009 or 2010 filing.

Changes to Child Tax Credit and Earned Income Credit
Changes to the Child Tax Credit now make 15% of your taxable earned income over $3,000 refundable. The Earned Income Credit (EIC) has been changed in regard to children, also. In the past, only two children were eligible for inclusion under the EIC, but for 2009 a third child can be added to the formula to obtain greater benefits for qualifying filers.

Hope Education Credit
The maximum Hope Credit is now $2,500 for tax years 2009 and 2010. The Hope Credit can now be taken for the first four years of post-secondary education, and 40% of the credit is now refundable. The income levels at which you would be phased out of this credit have also been increased.

Deduction for Motor Vehicle Taxes
You may be able to deduct the state or local excise and/or sales taxes on a new car bought after February 16, 2009. If you itemize, this can be taken on Schedule A. If you do not itemize, you may still be able to increase your standard deduction (see following entry).

Increase for Standard Deduction
Each filing status now has higher levels of the standard deduction, but three other options could increase it, as well. You can now count qualifying state and local real estate taxes up to $500 ($1,000 married filing jointly), your net loss from disaster in an area declared a federal disaster and taxes paid on a new vehicle (see previous entry).

Standard Mileage Rates
For business travel, the standard mileage deduction for 2009 is 55 cents per mile. For moving and medical transportation, the rate is now 24 cents per mile, and charitable miles receive a rate of 14 cents per mile.

Non-business Energy Property Credit
You can now get a credit of 30% on qualifying energy improvements, and the maximum credit is now $1,500 for those that are put into service during 2009 and 2010.

Qualifying Child Definition
The qualifying child definition has been updated in several ways. A qualifying child has to be younger than the taxpayer (excluding permanently, totally disabled people), the child can only file a joint return to get a refund, and you have to claim an exemption for any child that qualifies you for the child tax credit. Several other changes affect special situations, so if you have children you should look into all these changes carefully or bring them to the attention of your preparer.

Cash for Clunkers
Any vouchers that you received for the Cash for Clunkers program are not counted as taxable income for federal purposes.

Unemployment Compensation
In the past, all unemployment payments were taxable, but for 2009 the first $2,400 is now excluded. Any amounts over that sum are still taxable.

Increased Exemption Amount
Each exemption you can claim now allows a deduction of $3,650 for 2009, as opposed to $3,500 in 2008. Exemption amounts continue to phase out with increasing adjusted gross income.
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