Time- and money-saving tips for your 2009 tax return

(ARA) - The American Recovery & Reinvestment Act makes early tax planning increasingly important. The number and complexity of the changes has prompted the IRS to release educational e-mails, videos, podcasts and other tools on a regular basis since the ARRA became law in February 2009.

"The 2009 stimulus package includes something for everyone. A taxpayer could potentially claim thousands more in tax credits and deductions. By familiarizing yourself with the act now, you'll save time and money on your 2009 and 2010 tax returns," says Jessi Dolmage, spokeswoman for 2nd Story Software, Inc., makers of TaxACT.

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The ARRA's key provisions will benefit millions of wage earners, homeowners, college students and vehicle owners through new and expanded credits and deductions.

The Making Work Pay Credit has resulted in more take-home pay for approximately 120 million households since April 2009. The credit is equal to 6.2 percent of your earned income, up to $400 for individuals and $800 for joint filers in 2009 and 2010.

Because the credit is being given through decreased federal withholding, the IRS recommends reviewing your withholding. Having too little tax withheld may result in a smaller refund or more taxes owed. A withholding calculator is available at www.IRS.gov. Withholding can be adjusted by submitting Form W-4 to your employer or Form W-4P for pension or annuity payments.

The credit starts phasing out at $75,000 for individuals and $150,000 for joint filers. The credit amount is reduced by the Economic Recovery Payment and Government Retiree Credit. Do-it-yourself tax software, including TaxACT 2009 Free Federal Edition, will automatically figure the amount on the new Schedule M and record it for you on Form 1040, 1040A or 1040EZ.

According to the IRS, 1.4 million taxpayers had taken advantage of the First-time Homebuyer Credit as of September 2009.

Taxpayers who have not owned a principal residence during the past three years before closing on a U.S. home before Dec. 1, 2009 can receive the credit on either an original or amended 2008 tax return, or a 2009 return on Form 5405.

This credit is 10 percent of the purchase price, up to $4,000 for married individuals filing separately and $8,000 for individual or joint filers, and phases out at higher income levels. Different rules apply to homes purchased in 2008, but the credit for homes purchased in 2009 won't have to be repaid unless it ceases to be the primary residence within three years of closing.

Home energy efficient improvements made in 2009 and 2010 make it possible for homeowners to get up to $1,500 through the Nonbusiness Energy Property Credit. Up to 30 percent of the costs for qualifying improvements to a primary U.S. residence can be claimed, including insulation; metal and asphalt roofs; exterior windows, skylights and doors; electric heat pumps; central air conditioners; natural gas, propane or oil water heaters; biomass stoves; furnaces and boilers. Materials must meet the new and higher energy efficiency standards.

The Residential Energy Efficient Property Credit provides a 30 percent credit for expenditures related to larger residential improvements such as solar electric equipment, solar water heaters, geothermal heat pumps, qualified fuel cells and small wind turbines.

Energy credits should be claimed on Form 5695.

The HOPE credit has been modified and is now called the American Opportunity Credit and is equal to 100 percent of the first $2,000 and 25 percent of the next $2,000 (totaling up to $2,500 per student) for tuition, related fees and required course materials for the first four years of post-secondary education in 2009 and 2010.

The refundable credit phases out at a modified adjusted gross income of $80,000 for individuals and $160,000 for joint filers. The credit is claimed using Form 8863, attached to Form 1040 or 1040A.

The ARRA also includes additional college expenses that can be paid for by 529 plans (also known as qualified tuition programs) for 2009 and 2010. Expenses can now include computer technology or equipment or Internet access and related services used by the beneficiary and the beneficiary's family during any of the years the beneficiary is enrolled at an eligible educational institution.

State or local sales or excises taxes paid on qualifying new vehicles purchased after Feb. 16, 2009, and before Jan. 1, 2010, may be deductible on 2009 returns.

The deduction is limited to the tax on up to $49,500 of the purchase price for each qualifying vehicle and phases out at income levels of $125,000 for individuals and $250,000 for joint filers.

Cars, light trucks and motorcycles must weigh 8,500 pounds or less, but motor homes are not subject to the weight limit.

You can claim the deduction regardless of whether you itemize deductions on Schedule A or take the standard deduction on Schedule L.

Now, what should you do with this information? "With so many credits requiring you to act before a certain date, do your tax planning now to determine where your money will be best spent over the coming months," according to Dolmage. She also recommends the following steps:

  1. Preview your tax situation using TaxACT 2009 Free Federal Edition. It will walk you through the ARRA credits and deductions, giving a more complete preview of your return. TaxACT releases preview versions of its software every October for use until final versions are released in January. (any data entered into preview will transfer to final). Start your free federal return at www.TaxACT.com
  2. Review your federal withholding. TaxACT offers a Making Work Pay Calculator that will estimate how much the credit is worth to you.
  3. Compile receipts and documentation for purchases that will result in credits.
  4. Visit www.IRS.gov/recovery to review all of the ARRA provisions. TaxACT also has an ARRA site at www.TaxACT.com/recovery-act.

Courtesy of ARAcontent