Back to School on Education Credits – Tax Tip of the Week November 25, 2009
Posted by admin in : Tax Tip , add a commentFor the last several years you have had the choice of using the Hope Education Credit, the Lifetime Learning Credit, or the Tuition and Fees Deduction to help defray higher education expenses.
For 2009, the new American Opportunity Credit will replace the Hope Credit for most taxpayers. The new credit has several advantages over the Hope Credit:
- If filing a joint return, you will not be phased-out of using this credit until your AGI exceeds $180,000. The Hope Credit phased-out at $116,000.
- The maximum credit you can take is $2,500 vs. $1,800 under the Hope Credit.
- You can now include the cost of books and other fees, including tuition, to maximize the credit. (You only need $4,000 in qualified expenses to receive the maximum credit.)
- This credit is available for the first four years of post-secondary education vs. the first two years under the Hope Credit.
- Even if you have no tax liability, up to 40% of the credit is now refundable.
The rules of the Lifetime Learning Credit and Tuition and Fees Deduction have not changed. You still need to look at all three education credits when preparing your return to make sure you optimize the best option.
Good luck to the student in your family!
Call us with any questions. In Dayton, call 937-436-3133 and in Xenia, call 937-372-3504. Or visit http://www.bradstreetcpas.com.
…until next week.
Digging into the details of the home buyer tax credit – Tax Tip of the Week November 18, 2009
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By now, you have probably heard that the $8,000 first-time home buyer tax credit has been extended until July 1, 2010. This means you must have a contract in place by April 30, 2010, and the deal must close before July 1, 2010. NOTE: We do not expect this credit to be extended again.
You also probably heard about the new $6,500 tax credit towards a home purchase for those who have lived in their existing homes five out of the last eight years. The new home does not need to cost more than the existing home. The credit is available for purchases from November 6, 2009 through April 30, 2010.
You may not be aware, however, of some of these details:
- If you qualify for either of these credits you must now attach a copy of the closing statement (HUD-1) to your tax return for any home that closes between December 1, 2009 and June 30, 2010. We suggest that the HUD-1 be attached to the return regardless of the closing date.
- If you purchased a home in 2009 that qualifies for either credit, you can amend your 2008 tax return to receive the credit. However, we understand that it is now taking the IRS up to 20 weeks to process an amended return. If you haven’t already amended your 2008 return by now, it will probably be best to just wait until you file your 2009 tax return.
- You do not qualify for either credit if the home is purchased from a relative, or spouse’s relatives.
- If unmarried persons purchase a home, the IRS allows you to use “any reasonable manner” to allocate the credit.
- If you qualify for the $6,500 credit it does not appear, for now anyway, that you need to sell your existing home when purchasing the new home. It appears you could turn your existing home into a rental property or treat it as a second home.
- For either credit, the home you purchase must be your principal residence.
- You cannot use these credits to make a down payment on the purchase of the new home. However, one strategy you could use would be for a parent to make a tax-free gift of $8,000 to an adult child (must be at least 18 years old) for the down payment. The young adult would then pay back the gift of $8,000 in a tax-free payment upon receipt of their tax refund.
There are many other rules and scenarios regarding these tax credits. You strongly encourage you to call us before signing any contracts.
Call us with any questions. In Dayton, call 937-436-3133 and in Xenia, call 937-372-3504. Or visit http://www.bradstreetcpas.com.
…until next week.
Avoid an under-payment penalty – Tax Tip of the Week November 11, 2009
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If you owe more than $1,000 on your federal tax return; $500 on your Ohio tax return; or $100 on your city tax return, you will be hit with an under payment penalty.
One way to avoid this penalty is to make sure you pay enough in taxes in 2009 to equal or exceed your 2008 tax liability. This is called a Safe Harbor estimate. The taxes can be paid via withholdings, or making an estimated payment.
If you had any changes in your 2009 earnings, you should check your pay stubs and make sure enough will be withheld to avoid penalties.
Call us with any questions. In Dayton, call 937-436-3133 and in Xenia, call 937-372-3504. Or visit http://www.bradstreetcpas.com.
…until next week.
Racking up the Miles – Tax Tip of the Week November 4, 2009
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Track your mileage to maximize tax deductions
If you use your car or truck in your job or business, and are not reimbursed for the expenses, you probably know you are entitled to take a mileage deduction for the business miles that you drive. You may not be aware, however, there are other possible mileage deductions as well.
The 2009 Business mileage deduction is 55¢ per mile.
Medical Mileage
A medical mileage deduction is usually a difficult deduction to take because you can only deduct the out-of-pocket medical bills that exceed 7.5% of your income. If you have the misfortune of having medical expenses this high, it means you probably drove a lot of miles to doctors, hospitals, therapy centers, pharmacies, etc. The mileage deduction can be added to all of your other expenses. The 2009 Medical mileage deduction is 24¢ per mile.
Moving Mileage
If you move more then 50 miles from your current residence to a new residence because of a job change, and are not reimbursed, you may qualify for a moving expense deduction. You can add the mileage expense deduction for one trip by each member of the household to the new home.
The 2009 Moving mileage deduction is 24¢ per mile.
Volunteer Mileage
If you use your vehicle in any type of charitable or volunteer capacity, you can add the volunteer mileage deduction to any other charitable cash donations that you may give.
The 2009 Volunteer mileage deduction is 14¢ per mile.
As always, the IRS requires that you be able to substantiate any type of mileage deduction taken. So keep good records, and be sure you write off as many miles as possible.
We are “driven” to minimizing your tax exposure!
Call us with any questions. In Dayton, call 937-436-3133 and in Xenia, call 937-372-3504. Or visit http://www.bradstreetcpas.com.
…until next week.
