Thomson Reuters sums up new tax-saving opportunities from the American Recovery and Reinvestment act of 2009 that financial advisors would be wise to share with their boomer clients...
- The "making work pay credit" provides a $400 ($800 for joint return filers) tax credit for employees and self-employed individuals. This credit is refundable--meaning you can get the money even if you owe no income tax for the year. The credit is intended to reach your pocket quickly through additions to your pay check. Eligibility for it phases out, however, starting when your income exceeds $75,000 ($150,000 for joint return filers). How will employers know whether the phaseout applies to their employees--especially employees who are married or who have two jobs? The law does not specify an answer, but if you receive too much of a credit from your employer, expect to pay it back when you file your 2009 income tax return.
- Get a sales tax deduction for car purchases. The sales tax on up to $49,500 of the purchase price is deductible regardless of whether you (1) claim the standard deduction or (2) itemize your deductions and choose to deduct state and local income taxes instead of sales tax. The deduction begins to phase out, however, when income exceeds $125,000 ($250,000 on a joint return).
- The first-time homebuyer credit is enlarged and improved. The credit for first-time homebuyers in part of 2008 is capped at $7,500 and has to be repaid over 15 years. For the first 11 months of 2009, the maximum credit is increased to $8,000 and repayment is not required unless you sell the home or stop using it as your main residence within three years. Here too, a phaseout provision applies if your income exceeds $75,000 ($150,000 for joint returns). The credit for 2009 purchases can be claimed on your 2008 return. Should the form for the 2008 credit be used to do so? Homebuyers need guidance from the IRS quickly regarding the mechanics of claiming it.
- The energy credit gets another life. Previously, you could claim an aggregate "lifetime" credit amount of up to $500 for making certain energy-efficient improvements to your home. For 2009 and 2010, the credit computation is more generous, and the aggregate ceiling for the two years is $1,500.
- The mass transit benefit exclusion is bulked up. Previously, you could exclude from income up to $120 per month of mass transit benefits provided by your employer (or funded with pre-tax employee contributions). Thanks to the new law, the figure rises to $230 starting generally in March 2009 and through 2010.
- The Hope Scholarship credit is expanded in size and availability in a variety of ways. Prior to the new law, the Hope Scholarship credit was generally capped at $1,800 and available for only the first two years of post-secondary education. The new American Opportunity tax credit amends the Hope Scholarship credit for 2009 and 2010, raising the credit maximum to $2,500 and its availability to the first four years of post-secondary education. Furthermore, among other beneficial changes, the income level at which the credit begins phasing out rises too - from $50,000 ($100,000 for joint return filers) to $80,000 ($160,000 for joint return filers).
- Alternative minimum tax (AMT) relief has come early in the year. AMT "patches," raising the AMT exemption amounts have become a year-end ritual. This created anxiety and complicated tax planning, however, for many individuals until that year's fix was in. For 2009, we already know that the patch is sewn up. The AMT exemption rises to $46,700 for unmarried individuals ($70,950 for joint return filers) from $46,200 ($69,950 on joint returns) in 2008. If a patch were not enacted, however, the 2008 amounts would not have applied in 2009; rather, the way the Internal Revenue Code is written, the AMT exemption amount would have dropped to $33,750 ($45,000 on joint returns).