you thought you had the tax laws figured out, guess again. There are more forms to file and new and expanded credits and deductions.
The good news: most of the changes help taxpayers When taxpayers sit down to file their 2009 returns, they will find plenty new some the result of adjusting for inflation, and others changes passed by Congress last year to try to bring the country out of recession.
It really is pretty incredible the number of changes that are made every year, said Charlotte McMullan, a certified public accountant at Macon-based McMullan & McMullan accounting firm. The way it is now, it would be difficult (to do a return without help).
Her employees who do tax work attended an eight-hour meeting in December to become familiar with the new laws and they held another meeting Saturday, she said.
Some changes this year affect all taxpayers. The personal exemption, for example, has increased, to $3,650 each for the taxpayer and dependents, up $150 from 2008.
And tax brackets have been adjusted upward by about 5 percent since 2008, said Greg Rosica, tax partner at Ernst & Young and a contributing author to the Ernst & Young Tax Guide 2010. That means you might not jump to a higher tax bracket if you earned more.
Certainly there are benefits there for all taxpayers, said Rosica. There are ones that span the entire income spectrum out there.
Most of the changes are an advantage for low- to moderate-income taxpayers, McMullan said.
Income limits for the earned income tax credit have been raised and there s a new category families with three or more children. The Internal Revenue Service says one in six taxpayers claim the credit.
Still other changes affect those at higher income levels. The exemption for the alternative minimum tax has been increased once again, this time to $70,950 for joint returns and $46,700 for individuals. If your income is higher than these amounts, you could be subject to the AMT tax.
Ron Douthit, CPA and partner with Macon-based McNair, McLemore, Middlebrooks & Co. LLP, said the AMT exemption is catching more people than it was ever intended to catch or should catch. (Some people who do their own taxes) are not computing the AMT correctly and the IRS checks this closely.
Some changes also affect Georgia tax returns, McMullan said. For example, people with high-deductible health insurance can deduct a portion of it and there are child care credits and credit for college tuitions that are not included on the federal return, she said.
Tax changes can be complicated
The changes for the federal return are among those that happen every year, to keep taxes in line with inflation. But there are a host of other revisions, new for 2009, that will make filing your tax return this year a little more complicated.
For one thing, the standard deduction for taxpayers who don t itemize has become a little less standard.
The standard deduction itself has increased, to $11,400 for married couples filing jointly, $5,700 for individuals and $8,350 for heads of household. As before, it is even bigger if you are blind or 65 or over.
But new this year, you can take more of a standard deduction if you paid state or local real estate taxes, bought a new car and paid sales or excise taxes and met the income limits, or were a victim of a federally declared disaster.
If you choose to increase your standard deduction by one or more of these items, you ll have to file a new form Schedule L. Otherwise, you can just enter the standard deduction on Form 1040.
The three deductions for state or local real estate taxes, sales or excise taxes on new car purchases or net disaster losses also can be taken by people who itemize.
There are expanded tax credits for home purchases and education. And a tax credit for making your home more energy efficient has been reinstated.
Tax experts caution people to be careful that they re claiming every deduction and credit to which they re entitled. A credit reduces the amount of tax you owe; a deduction reduces the income on which taxes are assessed.
Some retirees received the benefit of the Making Work Pay credit under the stimulus bill that Congress passed last year. However, you may have to pay a portion back if you re a married couple and both spouses work, or if you have more than one job. If you re a low- or moderate-income worker, you might have some money due to you. A new form, Schedule M, will have to be filed to claim the credit.
Each year carries with it changes in the tax law. It s important that people understand what has changed in their personal situation, Rosica said.
Did you get married or have a baby? Did you buy or sell stock? Did you inherit money, property or other goods?
Jeff Schnepper, MSN Money tax expert, recommends that people sit down with a tax professional at least once every three years to review their life changes and financial situation. First of all, it s deductible, he said. Second of all, if you re not a professional, you don t know the minutiae. You don t know all the things you can do right and you don t know all the things you re about to do wrong.
Experts point to common mistakes that people make, which could delay a refund.
According to the Ernst & Young tax guide, some of these errors are mathematical. Others involve omission such as failing to include your Social Security number or those of your dependents. Make sure you pick the correct filing status head of household or surviving spouse vs. single, for example. And don t forget to sign your return.
Last year, the IRS received more than 141 million tax returns. About 70 percent were filed electronically. More than 110 million filers were due refunds, averaging $2,753 each.
The IRS encourages people to file electronically, saying it reduces errors and enables people to get their refunds more quickly. People who file electronically and use direct deposit can get their refunds as soon as 10 days after they file.
One major thing that taxpayers will find different this year is the homebuyer tax credits.
In 2008, the credit was actually an interest-free, long-term loan. For people who purchased a home in 2009, the credit is a true credit it only has to be paid back if you stop using the home as your principal residence within three years of purchase. The credit is $8,000 for first-time homebuyers, defined as those who haven t owned a home in the last three years.
Congress also added a credit for long-time homeowners who purchase a new principal residence $6,500. To qualify, a homebuyer would have had to live at least five years in a previously owned home.
There also is an expanded credit for college education.
The new American opportunity credit provides a maximum annual credit of $2,500 per student for each of the first four years of college. To be eligible, taxpayers would have to pay $4,000 or more in tuition, fees and course materials.
The credit, which phases out at higher incomes, is 40 percent refundable. This means that even people who owe no tax can get an annual payment of the credit up to $1,000 for each eligible student, the IRS said.
Another credit the lifetime learning credit may be available for students in their fifth or sixth year of college or in graduate school.
Other changes include the reinstatement of the credit for making your home more energy efficient. The maximum credit has increased, to $1,500 for $5,000 in expenditures on things such as insulation, storm windows or an energy efficient furnace.
For people who lost jobs, the first $2,400 in unemployment benefits is not taxable. But Douthit cautions that anything reported to the IRS should be reported on a tax return, even though it may be backed out as a deduction in another space on the form.
You are required to report any income whether you are sent a (Form) 1099 or not, Douthit said.
To benefit from most of the tax breaks, you would have had to take action before the end of 2009. But there are a couple of exceptions.
You still might be able to claim the homebuyer credit if you have a signed contract by April 30.
And, if at the end of the day you find you owe the IRS money or want a bigger refund, you may be able to contribute to an individual retirement account until April 15 and take a deduction on your 2009 taxes.
If you re covered by a plan at work, you may be able to deduct a contribution of $5,000-$6,000 if you re at least 50 if your modified adjusted gross income is less than $65,000 if you re filing as an individual, or $109,000 if you re married filing jointly.
Douthit reminds taxpayers to make sure their returns are filled out correctly or the IRS may come calling.
As a tax practitioner we are seeing many more audits than we used to, especially of individuals, he said. It s a cyclical thing for years audits just dropped off. But now, the government is broke and they are looking for money and they have seen so many taxpayers get lax on the way they report. So, now they have hired more agents and put more people on the street.
People should save their returns and all supporting documents at least three years and it s a good idea to keep just the returns longer than that, he said.