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Saturday, January 23, 2010
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Wednesday, January 20, 2010
New deductions and credits for 2009 taxes
WASHINGTON – More forms to file. New and expanded credits and deductions.
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.
"Depending on their individual situation, there could be good news and there could be bad news," said Amy McAnarney, executive director of the Tax Institute at H&R Block.
Some things 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."
Others revisions are more likely to affect low- and moderate-income workers. 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.
These changes 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.
You're likely already receiving 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 — like 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. Of those, 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.
This year, the agency estimates that it will take taxpayers using form 1040 an average 21.4 hours to complete their taxes. That includes record keeping, tax planning, and completing and filing the return. The more complicated your return, the more time it will take to complete it.
One major thing that taxpayers will find different this year is the homebuyer tax credit.
"It's already gone through three iterations," said Mark Luscombe, principal analyst for CCH's tax and accounting group.
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 are income limitations for both.
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. The Hope credit that the new credit replaces temporarily covered only the first two years and for most people was smaller. 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.
What about those students who take more than four years to finish college? "If you're in your fifth year, you're out of luck," Luscombe said.
However, there is another credit — the lifetime learning credit — that 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 like insulation, storm windows or an energy efficient furnace.
For people who lost jobs, the first $2,400 in unemployment benefits is not taxable.
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.
Tuesday, January 19, 2010
17 Ways Consumers Are Changing - Yahoo! Finance
By Rick Newman , On Friday January 15, 2010, 2:38 pm ESTYou seem different. More anxious. Pensive, perhaps. What's on your mind?
A lot of people desperately want to know. Market researchers always want to get inside the heads of consumers, and they've never been more curious than they are now. In the aftermath of a wrenching recession, Americans are saving more, spending less, and rethinking many of the tenets that have governed middle-class living for the past 40 years. Vast amounts of money are at stake, as consumer-product firms try to guess how Americans will spend their scarce dollars in the future.
[Slide Show: 17 Ways Consumers Are Changing.]
Are shoppers beaten down? Will thrifty spending endure? Or will the irrepressible American consumer come roaring back stronger than ever? Nobody's quite sure, but here are 17 ways consumers seem to be changing, based on economic data, market-research studies and dozens of reports from customers themselves:
Less credit, more cash. Consumer borrowing has fallen by record amounts, as Americans pay down debt and adjust to banks lowering their credit card limits. Credit card spending dropped sharply in early 2009, moderated, then started plunging again. But overall spending hasn't fallen quite as much, which suggests more people are paying for purchases in cash. "I try to use money (not credit) for clothing, basic home equipment, and gifts," says Margaret Jorgensen of Ste. Genevieve, Mo. "I don't want to pay 18 percent interest on a pair of shoes or underwear!"
The end of the monthly payer. Many consumers used to be comfortable piling up debt as long as their income could cover the monthly payments. No more. "The era of unbridled, debt-financed consumer spending is over, and the monthly payer is out of action," Eric Janszen, president of iTulip, a finance-advisory firm, wrote in Harvard Business Review last year. As consumers focus more on their total debt, they'll probably buy less and shun high-priced status symbols. But they'll still spend on certain things. "Messages that center on family, life simplification, and getting back to basics will appeal," says Janszen.
[See how to live happily on 75 percent less.]
Greater suspicion. Banks wrecked the economy, then cut lending and raised fees. The government prevented a depression, but not before giving billions to Wall Street titans. Stock prices are surging while jobs disappear. The past few years have been a Great Letdown, among other things, with polls showing that Americans' confidence in banks, big business, and other pillars of the establishment is at record lows.
More resourcefulness. If you can't count on anybody else, then you're likely to rely more on yourself. Americans are taking more responsibility for their own finances and careers, undertaking more do-it-yourself projects, and learning how to cook at home instead of eating out. Travel spending is down, but sales of camping gear are up. Savvy workers are taking more midcareer courses to keep up with turbulent times.
[How are your habits changing? Tell us: flowchart@usnews.com]
Less brand loyalty. Millions of consumers traded down to store brands over the past couple of years--and many plan to stick with them. The quality of off-price products has turned out to be better than expected, so there may be little reason to pay more for brand-name goods with essentially the same quality. "The shift of consumers away from more expensive products is a widespread trend," declares a 2009 report from consulting firm McKinsey.
Smaller is bigger. It goes without saying that many things are getting smaller rather than bigger, including household budgets and people's ambitions. "Smaller things now make the bigger statement," says the Futures Co., a market-research firm. "Smaller portions, smaller houses, smaller cars, and local communities."
A rental rebound. The "ownership society" is over. After peaking a few years ago, home ownership rates, not surprisingly, have started a long journey downward, as foreclosures shake out people who couldn't afford their homes in the first place and tough borrowing standards limit new buyers. The home ownership rate peaked in 2004-2005, when about 70 of households were occupied by owners. That percentage could sink to the low 60s within a decade. A renter's mentality is extending to other big purchases, like cars and furniture: The Aaron's rent-to-own furniture chain, for example, has been thriving.
Less window shopping. When you browse, you buy--so more people seem to be eliminating window shopping as a casual pastime. Heather Mitchell of Friendswood, Texas, says that since she stopped making unnecessary trips to the mall, "it's hard to measure the savings, since I would impulse-buy on those trips to stroll the stores. I've also saved a lot in gas and wear and tear on my car."
[See 4 things that could derail a recovery.]
More closet shopping. Americans have piled up a lot of goods in recent years, and many people are surprised at how much good clothing or other stuff they've squirreled away. "I shop in my closet when the urge hits me to buy something new," says Paige Hodges of Los Angeles, "and I always find a little treasure that I forgot I had."
Decluttering. There are a lot of reasons to offload unnecessary accoutrements: Downsizing to a smaller home, getting laid off and doing some spring cleaning, or picking up a few bucks selling stuff you don't need. "Somebody will always buy the stuff you don't want," says Joe Pasquale of Nashville, who sells three or four unused items a week online. "Old routers. Old clothes. A pair of my wife's Lucky jeans. It's amazing what people will buy."
Food frugality. Spending on restaurants is down, but those who do eat out are ordering fewer side dishes and appetizers or substituting an appetizer for a main dish, according to the NPD Group, a market-research firm. Others are cutting back on home meals and taking other steps to reduce food costs. "I find that in shopping for food, the smaller the store, the less I spend," says Nancy Bymers of Albuquerque. "A smaller store has fewer choices and conveniences. Who really needs three types of peppers diced into bits at over $5? I am very capable of disassembling a pepper."
More gardening. Veggies from the backyard are usually cheaper, and more healthful, than those from the store. That's one reason sales of canning equipment have boomed over the past two years. While you're at it, grow a cut-flower garden, says Lois Barber of Sandy Hook, Conn. "This will allow you to have fresh flowers in your house. They'll lift your spirits, make you feel rich, and make a great gift if someone invites you over for dinner."
[See 10 products that boomed during the recession.]
Less waste. When you have less money, you waste less, for obvious reasons. The Futures Co. thinks this "renunciation of wastefulness" constitutes a movement: "Perhaps more than any other single element, not being wasteful will define overall value in the recovery consumer marketplace," the firm says in a recent report.
Less healthcare. There's no upside here. With unemployment skyrocketing, millions have lost health insurance coverage or cut back on care to save money. Some people go without drugs they've been prescribed or cut the dosages in half, so the pills last longer. (Not recommended!) In some areas, people are compensating for reduced coverage by taking advantage of free offerings like mammograms or flu shots.
More negotiating. It's no longer cool to pay the list price for everything, and consumers are less embarrassed asking for discounts. Retail merchants won't always haggle, but eBay sellers will, and state-your-price websites like Priceline have been booming.
[See 10 companies missing the earnings boom.]
More volunteering. Americans with more time on their hands find it rewarding to spend some of it helping others. "I do volunteer projects to help keep social connections up," says Kathy Bowman of Joseph, Ore. "Think volunteering at community events, serving on the boards of disability or folk dance organizations, small donations to the humane society or kids' projects."
Redefining success. We used to measure it by how much money and stuff we had. Whoops. With jobs scarce and money tight, Americans are seeking more satisfying work--and giving up material goods to get it. Cathy Goerz of San Francisco spent the past year making a low-budget film documentary--a longtime goal--after losing her job at a corporate communications firm. She lives on 75 percent less than before, but she cherishes the freedom: "My quality of life has not changed at all," she says. "I think it's improved. I'm not tied down by location, and I don't have to be under somebody's gaze eight hours a day." Now that's a recovery.
Friday, January 08, 2010
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