What you need
As of today, Jan. 31, you should have received the necessary reports to file your taxes. This includes employment W-2s, 1099s, bank and loan interest statements, dividends and unemployment insurance. If you are claiming some of the credits below, make sure you have the appropriate receipts and product information.
Should you itemize?
According to a 2003 government study, 2.2 million Americans paid too much in taxes because they took the standard deduction instead of itemizing expenses. The IRS suggests you consider itemizing if:
• Your total deductions are more than the standard deduction amount
• You had large uninsured medical and dental expenses
• You paid interest and taxes on your home or on a home equity loan
• You had large unreimbursed employee business expenses
• You had large uninsured casualty or theft losses
• You made large contributions to qualified charities
The standard deductions
This is the fixed amount the IRS allows you to reduce your taxable income.
• If you are married filing jointly, deduct $11,400. If you also own a home, you can take the standard property tax deduction of $1,000.
• If you are single or married filing separately, deduct $5,700 plus the property tax deduction of $500 if you own a home.
• If you are the head of the household, deduct $8,350 plus another $500 if you own a home.
Stimulus credits
Taxpayers are encouraged to take advantage of federal stimulus package tax credits:
• New car purchase: If you bought a new vehicle between Feb. 17 and Dec. 31, 2009, you can deduct the state and local sales tax plus any excise taxes paid if the vehicle was priced $49,500 or less. Elaine Hollon, owner of E-Tax in Middletown, said check your sales receipt. Even if you took advantage of Cash for Clunkers, you can still claim this credit without itemizing.
• First-time homebuyers: Residents purchasing their first home can claim 10 percent of the home’s sale price up to $8,000. This means homes with a purchase price of less than $80,000 would not receive the full credit, Hollon said.
According to the IRS, to qualify as a first-time homebuyer, you must not have owned a primary residence within the last three years.
Legislation changes in November 2009 now require first-time home purchasers to file a paper return. Electronic returns will not receive the credit. Attach form 5405 to the return and the settlement statement showing all parties’ names, signatures, purchase price and date of purchase. New home construction buyers must attach the certificate of occupancy, the IRS said.
• Existing home owners: Residents who have owned a home for at least five consecutive years in the last eight years and are buying a new home can qualify for a $6,500 tax credit. To claim the credit, IRS officials suggest attaching documents proving past home ownership including mortgage interest statements, property tax or homeowners’ insurance records.
• Energy-efficiency improvements: Receive 30 percent of the cost up to $1,500 for energy-efficient upgrades, including new windows and doors, insulation, water heaters, heating and AC units or roofs. For more information, visit energystar.gov/taxcredits.
Other deductions
There are many other deductions available to reduce your taxable income.
• Earned Income Tax Credit: The EITC offers assistance to taxpayers whose incomes are below $48,279 for families with three or more qualifying children. For guidelines, visit irs.gov/eitc.
• Moving expenses: The IRS allows you to deduct any expenses incurred if you moved more than 50 miles. Claim up to 24 cents per mile driven for moving purposes.
• Individual retirement account payments: If you placed money into a traditional IRA, deduct that amount from your taxable income.
• Student loan interest: Deduct the interest you paid on student school loans up to $2,500.
• Tuition: If you are a student or are supporting a college student, you can claim a $2,500 credit per student per year for four years through the American Opportunity credit. Or you can claim $2,000 per student per year for two years through the Lifetime Learning credit. Claim just one of these credits each year.
• Classroom expenses: Teachers can claim up to $250 for classroom expenses.
• Health Savings Account: If you have a savings account set up for health expenses, individuals can deduct up to $3,000 and families can deduct up to $5,950.
• Child credit: Claim a $1,000 credit per child 17 years old or younger.
• Dependent care credit: Claim a credit up to 35 percent of child care or dependent care costs. Limits are set at $3,000 for one child or dependent and $6,000 for two or more.
• Business expenses: You can deduct any business-related expenses not covered by your employer. This can include claiming 55 cents per mile for business travel and the portion spent on supplies, education and phone or utility bill costs associated with your job.
• Jobless benefits: Unemployment benefits up to $2,400 received in 2009 are tax-free.
For more information, call the IRS at (800) 829-1040 or visit irs.gov.
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