As we all know, this past year has been tough for most of us, especially those of us who are homeowners. Watching the value of your home decrease before your eyes is not a comforting feeling.

The IRS is going to help those of us this year that do not have enough to itemize by giving us the ability to claim a separate deduction for at least a portion of property taxes paid in 2008, even though we are taking the standard deduction!

This new deduction was created as part of the housing assistance legislation enacted last year. The new deduction for state and local real estate taxes is up to $1,000 for married folks who file jointly and up to $500 for most single filers.

If you’re a homeowner, be sure to look for the deduction on your 2008 tax return!

During the interview process of  ifileonline we will ask you about this new deduction automatically!

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Top Ten Facts about Taking Early Distributions from Retirement Plans 

If you took an early distribution from your retirement plan, here are some things you need to know:

1. Payments you receive from your Individual Retirement Arrangement before you reach age 59 ½ are generally considered early or premature distributions.

2. Early distributions are usually subject to an additional 10 percent tax.

3. Early distributions must also be reported to the IRS.

4. Distributions you rollover to another IRA or qualified retirement plan are not subject to the additional 10 percent tax. You must complete the rollover within 60 days after the day you received the distribution.

5. The amount you roll over is generally taxed when the new plan makes a distribution to you or your beneficiary.

6. If you made nondeductible contributions to an IRA and later take early distributions from that same IRA, the portion of the distribution attributable to those contributions is not taxed.

7. If you received an early distribution from a Roth IRA the distribution attributable to contributions is not taxed.

8. If you received a distribution from any other qualified retirement plan, generally the entire distribution is taxable unless you made after-tax employee contributions to the plan.

9. There are several exceptions to the additional 10 percent early distribution, such as when the distributions are used for purchase of a first home, certain medical and educational expenses or if you become disabled. Other exceptions can be found in IRS Publication 590, Individual Retirement Arrangements (IRAs).

10. More information about early distributions from retirement plans and the additional 10 percent tax can be found in IRS Publication 575, Pension and Annuity Income and Publication 590, Individual Retirement Arrangements (IRAs). Both publications are available on IRS.gov or by calling 800-TAX-FORM (800-829-3676).

What Every Parent Should Know about Child’s Investment Income 

Children with investment income may have part or all of this income taxed at their parent’s tax rate rather than at the child’s rate. Investment income includes interest, dividends, capital gains and other unearned income

This rule applies to children who have investment income of more than $1800 and meet one of three age requirements for 2008:

1.     The child is younger than 18.

2.     The child is 18 and has earned income that does not exceed one-half of their own support for the year.

3.     The child is older than 18 and younger than 24 and a full-time student with earned income that does not exceed one-half of the child’s support for the year.

To figure the child’s tax using this method, fill out Form 8615, Tax for Certain Children Who Have Investment Income of More Than $1,800, and attach it to the child’s federal income tax return.

When certain conditions are met, a parent may be able to avoid having to file a tax return for the child by including the child’s income on the parent’s tax return. In this situation, the parent would file Form 8814, Parents’ Election To Report Child’s Interest and Dividends.

More information can be found in IRS Publication 929, Tax Rules for Children and Dependents. This publication and Forms 8615 and 8814 are available on the IRS Web site at IRS.gov in the Forms and Publications section. You may also order them by calling the IRS at 800-TAX-FORM (800-829-3676).

Links:

• Form 8615, Tax for Children Under Age 18 With Investment Income of More Than $1,800 (PDF 49K)
• Form 8615, Instructions (PDF 24K)
• Form 8814, Parent’s Election to Report Child’s Interest and Dividends (PDF 43K)
• Publication 929, Tax Rules for Children and Dependents (PDF 220K)

Issue Number:    IR-2009-014

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Expanded Tax Break Available for 2009 First-Time Homebuyers 

WASHINGTON — The Internal Revenue Service announced today that taxpayers who qualify for the first-time homebuyer credit and purchase a home this year before Dec. 1 have a special option available for claiming the tax credit either on their 2008 tax returns due April 15 or on their 2009 tax returns next year.

Qualifying taxpayers who buy a home this year before Dec. 1 can get up to $8,000, or $4,000 for married filing separately.

“For first-time homebuyers this year, this special feature can put money in their pockets right now rather than waiting another year to claim the tax credit,” said IRS Commissioner Doug Shulman. “This important change gives qualifying homebuyers cash they do not have to pay back.”

The IRS has posted a revised version of Form 5405, First-Time Homebuyer Credit, on IRS.gov. The revised form incorporates provisions from the American Recovery and Reinvestment Act of 2009. The instructions to the revised Form 5405 provide additional information on who can and cannot claim the credit, income limitations and repayment of the credit.

This year, qualifying taxpayers who buy a home before Dec. 1, 2009, can claim the credit on either their 2008 or 2009 tax returns. They do not have to repay the credit, provided the home remains their main home for 36 months after the purchase date. They can claim 10 percent of the purchase price up to $8,000, or $4,000 for married individuals filing separately.

The amount of the credit begins to phase out for taxpayers whose adjusted gross income is more than $75,000, or $150,000 for joint filers.

For purposes of the credit, you are considered to be a first-time homebuyer if you, and your spouse if you are married, did not own any other main home during the three-year period ending on the date of purchase.

The IRS also alerted taxpayers that the new law does not affect people who purchased a home after April 8, 2008, and on or before Dec. 31, 2008. For these taxpayers who are claiming the credit on their 2008 tax returns, the maximum credit remains 10 percent of the purchase price, up to $7,500, or $3,750 for married individuals filing separately. In addition, the credit for these 2008 purchases must be repaid in 15 equal installments over 15 years, beginning with the 2010 tax year.

For additional FAQ’s regarding the First-time Homebuyer’s Credit – check this out!

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IRS Tax Tip 2009-24

Here are a few tax law changes you may want to note before filing your 2008 federal tax return:

1. Expiring Tax Breaks Renewed
The following popular tax breaks were renewed for tax-years 2008 and 2009:

• Deduction for state and local sales taxes on Form 1040 Schedule A, Line 5
• Educator expense deduction on Form 1040, Line 23 or Form 1040A, Line 16
• Tuition and fees deduction on Form 8917

In addition, the residential energy-efficient property credit is extended through 2016. In general, solar electric, solar water heating and fuel cell property qualify for this credit. Starting in 2008, small wind energy and geothermal heat pump property also qualify.

2. Standard Deduction Increased for Most Taxpayers
The 2008 basic standard deductions all increased. They are:

• $10,900 for married couples filing a joint return and qualifying widows and widowers
• $5,450 for singles and married individuals filing separate returns
• $8,000 for heads of household

Beginning this year, taxpayers can claim an additional standard deduction based on the state or local real-estate taxes paid in 2008. Also new for 2008, a taxpayer can increase his standard deduction by the net disaster losses suffered from a federally declared disaster.

3. Contribution Limits Rise for IRAs and Other Retirement Plans
This filing season, more people can make tax-deductible contributions to a traditional IRA. The deduction is phased out for singles and heads of household who are covered by a workplace retirement plan and have modified adjusted gross incomes between $53,000 and $63,000. For married couples filing jointly, the income phase-out range is $85,000 to $105,000.

4. Standard Mileage Rates Adjusted for 2008
The standard mileage rates for business use of a vehicle:

• 50.5 cents per mile from Jan. 1 to June 30, 2008
• 58.5 cents per mile driven during the rest of 2008

The standard mileage rates for the cost of operating a vehicle for medical reasons or a deductible move:

• 19 cents per mile Jan. 1 to June 30, 2008
• 27 cents from July 1 to Dec. 31, 2008

The standard mileage rate for using a car to provide services to charitable organizations remains at 14 cents a mile. Special rates apply to the Midwest disaster area.

5. Kiddie Tax Revised
The tax on a child’s investment income previously only applied to children younger than age 18. It now applies if the child has investment income greater than $1,800 and is:

• Younger than 18
• 18 years of age and had earned income that was equal to or less than half of his or her total support in 2008
• Older than 18 and younger than 24, a student and during 2008 had earned income that was equal to or less than half of his or her total support.