Each year, the IRS and Congress makes changes that effect how much income tax we’ll end-up paying. This year, such changes were made with an eye toward assisting both struggling taxpayers, and our Treasury. Not an easy line to walk or harmonize. Congress worked to adjust various deductions in accordance with our current inflation, provide various new credits to stimulate spending, assist businesses, and as always: worked to ensure that the AMT still serve its true purpose.
Here are the main changes that affect most taxpayers:
AMT Exemption Increased
For those of you who do Not know what AMT( "Alternative Minimum Tax"), which is the additional income tax you have to pay in addition to your regular income tax–Good! You are not yet affected by it. For those of you who are facing AMT(seems like more and more of us these days), congress realized that too, and therefore in 2008, the Alternative Minimum Tax Exemption was raised to the following levels:
$69,950 for married couple filing jointly, and qualifying widows ,up from $66,250
$34,975 for a married person filing separately, up from $33,125 and
$46,200 for singles and heads of household, up from $44,350
Note that this rise helps those taxpayers who have too many deductions (those that do not qualify for purposes of AMT calculation). For now, this adjustment is only effective for 2009, and unless Congress will soon act many taxpayers will face greater tax payments.
Personal Exemption Increases
According with inflation, the personal exemption on all family members claimed rises up. The exemption is $3,500, up $100 from 2007.
Tax Brackets Readjusted
The tax brackets for Both 2008 and 2009 have been adjusted according with inflation, which will most likely assist you!
Standard Deduction Increases
For those taxpayers who chooses to take the Standard Deduction in lieu of the Itemized Deduction, you can enjoy higher deduction amount as follows:
$10,900 for married couple filing jointly, and qualifying widows
$5,450 for single filers, and married filing separately, and
$8,000 for heads of household; All signifying $100 -$200 increase
Note that the Standard Deduction you can get is reduced if you are claimed as a dependent of someone else.
This year, as opposed to prior years for only Itemized filers, The Housing Assistance Tax Act of 2008 allows homeowners who claim the Standard Deduction, to claim an additional standard deduction for property tax.
The additional amount is limited to $500 or $1,000 for joint filers.
Additionally, if you suffered net disaster losses you may increase the Standard Deduction by such losses. The Standard Deduction amount will increase again in 2009, particularly helpful in case of inflation.
Qualified Tuition Deduction Continues
This is a tax break, allowing you to deduct up to $4000 in qualified tuition expense. It is available for both 2008 and 2009.
Sales Tax Deduction Still Available
For those taxpayers who can not enjoy the State Tax Deduction, in States without income taxes, the Sales Tax Deduction is available through 2009.
First Time Home Buyers Credit
If you bought a house in 2008, or wish to do so, buy the house by June 30, 2009. A $7,500 Credit is available for your 1040 income taxes. This credit however, is an interest free loan essentially, that has to be paid back to the government within 15 years. Still, this credit can really be of help to many young couples.
Adoption Tax Credit Increase
For those of you adding new members to your family through adoption, you may enjoy higher credit for such for both 2008 and 2009.
Earned Income Tax Credits ("EITC")
For those who are at lower tax brackets, and can enjoy this credit, the amount Increased from 2007. Note, that as opposed to many other credits, this credit Is Refundable.
Kiddie Tax is Revised
The tax on a child’s investment income, which previously only applied to children under age 18, in 2008 will also apply to 18 years and older. These 18 years of age, who had earned income that was equal to or less than half of his or her total support, and for those who fall in age group of 18 to 24, a student, with earned income equal to or less than half of his or her total support, such income is subject to the kiddie tax! Form 8615, is used to determine the amount. This is one of the not so favorite revision this year.
IRA and Other Retainment plans contribution Rise
Make your deductible contribution to your IRAs by April 15, to get the deduction for your 2008 taxes. If you are over 50 years old, you can now contribute up to $6000, rather than $5000 as before. Also,if you are covered by a workplace retirement plan, then your tax-deductible contribution to a traditional IRS is phased out(at higher amount for 2008)if:
Your filing status is married filing jointly and your AGI is more than $85,000 but less than $105,000
Your filing status is single, head of household and your AGI is more than $53,000 but less than $63,000
Your filing status is married filing separate returns your deductible phase-out starts at under $10,000
On a similar note, if you are age 70 1/2, for the 2008 according with the current state of the economy, Congress put a law into effect that does not require the mandatory distribution from your retirement account. Again, whether to take the distribution or not is a function of assessing your need for cash, and your ability to pay the income tax on the distribution.
Capital Gain Rates Reduced
For those who are investing, and report capital gains, the 5% tax rate on qualified dividends and net capital gains is reduced to zero. In general however, these reduced rates are available for individual whom taxable income falls below:
$65,100 for married filing jointly, or qualifying widow
$32,550 if single filer, or married filing separately
$43,650, if head of household
Business Milage Rates Goes Up
Dramatically high gas prices in the first half of 2008, prompt the IRS to boost the milage rates up for business, medial, and moving expense activities of your car. Two milage deduction rates will apply for the two parts of 2008.
Teacher Reimbursed Expense Extended
Teachers can claim up to $250 in such deduction, even without itemizing.
Last Year’s Economic Stimulus Payments Not Taxable
Remember the Economic Stimulus payments we received last year. They are Not reportable on your 2008 tax return. However, the stimulus payment affect whether a taxpayer can claim the Recovery
Rebate Credit and How Much of the credit can be used. Look on your 1040, 1040A, and 1040EZ for instruction on the matter.
These are only Some of the 2008 tax changes that Might affect you. Consult with your tax professional, refer to the IRS’s website, at www.irs.gov, to learn about other changes impacting your particular situation. Paying attention to these changes may cause your tax liability to be lower. Either way, file your personal income tax return timely by April 15, 2009, or file for an extension. Also, pay any tax liability timely. Facing IRS Penalties and Interest is a costly option, which you can Not afford in our current economical state.
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