Professor Offers Tips on Saving Money with New Tax Credits and Deductionsby GDN Shared Post March 25, 2010
“The tax code changes every year,” says Bill Terando, an associate accounting professor at Butler University. “But in light of the recession, the most recent changes seem designed to reduce our taxes so we have more money to spend” — and stimulate the economy. These changes break down to five main areas:
1. Work. In 2009 and 2010, the Making Work Pay provision will provide a refundable tax credit of up to $400 for working individuals and up to $800 for married taxpayers filing joint returns. You qualify if you receive a paycheck and are subject to withholding. Employers will typically handle this through changes in withholding tax tables.
The new law also increased the exclusion for employer-provided transit and parking benefits to $230 per month, respectively. This change went into effect in March 2009, and ran through December 2009. These qualified transportation fringe benefits are excluded from an employee’s income for both income-tax purposes and payroll-tax purposes.
2. Home. Thanks to an extension of the Homebuyer Tax Credit, first-time homebuyers can receive a tax credit of up to $8,000 and repeat homebuyers up to $6,500 if you have a sales contract in place by April 30 and close before July 1.
First-time homebuyers can receive a credit as much as 10 percent of the purchase price, up to $80,000. If you bought a $50,000 house, for example, you would receive a $5,000 tax credit. “The government hopes this will stimulate home sales,” Terando says.
If you make energy-efficient improvements to your existing home in 2009 and 2010, you can receive an Energy Tax Credit up to $1500 for 30 percent of all qualifying improvements.
3. Family. The new law expands the number of families who can benefit from the Child Tax Credit in two ways, Terando says. First, it is a refundable credit which allows taxpayers to receive refunds even when the credit amount is not sufficient to offset current-year taxes due. Second, the new law reduces the minimum earned-income amount used to calculate the additional child tax credit to $3,000 (down from $12,550).
Low to moderate-income families with three or more children can also benefit from an increase in the refundable Earned Income Tax Credit up to $5,657. This credit begins to phase out for married taxpayers filing a joint return with children who have incomes greater than $21,420.
Finally, up to $2400 in Unemployment Benefits received in 2009 is tax free. All benefits received in excess of this amount are taxable. This provision only applies to unemployment benefits received in 2009.
4. Transportation. Anyone who purchased a new car, light truck, motor home or motorcycle from Feb. 17, 2009 to Dec. 31, 2009, can deduct the sales tax paid on the first $49,500 of the cost. The deduction is available to both itemizers and non-itemizers and applies to individuals who make up to $135,000 and married taxpayers filing jointly who make up to $260,000. “You qualify even if you bought the vehicle through the Cash for Clunkers program,” Terando says.
5. Education. The American College Opportunity Tax Credit is designed to lower the high cost of college through a credit of up of $2500 for tuition and required course materials. The latest changes to an existing credit make it available to more taxpayers.
“The income limits are now increased up to $80,000 for individuals and $160,000 for married couples filing jointly,” Terando says. “You can claim the credit for all four years of post-secondary education, rather than two as before. In addition, if the amount of the tax credit is more than your tax liability, the excess credit will be refunded to you up to a maximum of 40 percent of the total tax credit amount.”
Bill Terando, who has a doctoral degree in accounting with a specialization in taxation, joined Butler’s College of Business in 2009. He previously taught at the University of Notre Dame and Iowa State University and worked in public accounting for KPMG Peat Marwick in Sacramento, Cali.
To find other Butler University experts, visit http://www.butler.edu/experts/.