IRS Is Giving Us Some Perks For 2008 Taxes
Monday, February 9, 2009, 12:11 AM | Leave Comment
Don’t forget the stimulus package in 2008 that resulted in a good-sized check for many U.S. taxpayers filing 2007 tax returns. There were other major tax changes in 2008 as well. Therefore, don’t miss out on some much-needed cash when you file your tax return this year.
While all that tax repairing tool affects most of us eventually, many of the changes last year were related to arcane rules – and will not show up on our Form 1040s.
Here are more recent changes that you might be able to benefit from:
Recovery rebate credit
Otherwise known as “stimulus payment,” technically IRS calls it “recovery rebate credit.” If you were not eligible for any amount last year, this may be the year you get more money if a layoff or investment losses slashed your income.
- The credit starts phasing out with Adjusted Gross Income (AGI) over $75,000 for single and $150,000 for married filing jointly.
- If you had a baby in 2008 you may be eligible for the additional $300 stimulus payment per child.
- If your college-age child now supports herself, she might qualify for up to $600. Parents cannot claim a payment for children older than 17 and a dependent cannot claim it for him or herself. But if the child graduated in 2008 and is no longer dependent, then that child could apply for it on her own. IRS: Recovery Rebate Credit Information Center.
First-time home buyer credit
- Current law
- If you are a first-time home buyer who bought a home after April 8, 2008, and before July 1, 2009, you may qualify for a credit of 10% of the purchase price up to a total of $7,500 on your 2008 tax return.
- Even if you bought the home in 2009, you can take the credit on your 2008 return.
- The credit is more like a loan and must be repaid over 15 years.
- Those who take the credit on homes bought in 2008 will have to repay the credit, under current law.
- Stimulus bill under consideration
- The stimulus bill under consideration now may eliminate the repayment rule for homes bought in 2009.
- It’s not clear if the new stimulus plan does eliminate the repayment rule.
- Will people who bought a home in 2009 but claimed the credit on their 2008 return be exempt from repaying the credit?
If you bought a home in 2009 – before the July 1 deadline – your best bet is to wait until the final bill gets signed into law to see whether to claim the credit on your 2008 return or to wait and claim it next year. IRS: First-Time Home buyer Credit
Deductions and exemptions for higher-income taxpayers
Higher earners’ ability to take itemized deductions and personal exemptions is limited – those perks phase out at higher incomes.
- The phase-out on deductions starts at AGI of about $159,950 for most filers and on exemptions at $159,950 for single filers and $239,950 for married filing jointly.
- In 2008, higher-income earners will find their itemized deductions and personal exemptions are cut by just one-third the amount in effect before the tax cuts.
- Thanks to the 2001 tax cuts, those phase outs themselves were slowly eliminated starting in 2006.
- In 2010, higher-income taxpayers enjoy these perks with no reduction at all, but as with the other tax cuts, this one expires after 2010.
Zero capital-gains rate
You might be eligible for zero rate on capital gains and qualified dividends even if you are in the 10% or 15% tax bracket in effect in 2008 for taxpayers. Don’t forget those brackets refer to taxable income, not Adjusted Gross Income (AGI).
- A family of four claiming the standard deduction could have AGI of $90,000 and that would translate to taxable income of $65,100 when you take the four personal exemptions plus the standard deduction.
- While your AGI may be higher than the $65,100 which marks the start of the 25% tax bracket for married filing jointly ($32,550 for single filers), deductions and other tax perks may bring your taxable income low enough to qualify for at least a portion of the zero rate.
AMT relief on ISO
Two kinds of stock options – Incentive Stock Options (ISO) and Non-qualified Stock Options (NSO) – are given to some C-Level executives and maybe other employees as well.
ISO, for one, is a form of equity compensation that provides some tax benefits. In recent years their popularity has grown to roughly match the popularity of NSO.
Financial gurus suggest two disadvantages with NSO:
- You have to report taxable income at the time you exercise the option to buy stock.
- The income is treated as compensation, which is taxed at higher rates than long-term capital gains.
ISO provides a way to avoid both of those disadvantages. Taxpayers got some good news in 2008. They don’t owe Alternative Minimum Tax (AMT) when they exercise an ISO.
If you had an unpaid AMT liability resulting from an ISO prior to 2008, the law put an end to it, so you don’t have to pay tax now. Congress sped up the process by which taxpayers can take a credit against regular tax for previous AMT bills, among other provisions. IRS: AMT and ISO Emergency Economic Stabilization Act of 2008 Relief.
Donate land
Some taxpayers donate land for conservation by a land trust or other qualified recipient. In 2008 and 2009, there is a generous new perk available for them.
This is treated as a special charity and taxpayers get
- 50% deduction of Adjusted Gross Income (AGI) whereas ordinarily they would get 30%.
- You have a 15-year carryover period instead of a 5-year.
Covert business loss into gain
We all know business profits are taxable – well, maybe not for big businesses. If you made profit the last two years, and this year you have net loss, then you are able to carry back the loss and offset the profit and collect a refund for the difference.
Keep an eye on the new stimulus bill being discussed now: The loss carry-back perk may get extended to five years, up from two years now. States may or may not apply this law. Check with your state.
Mileage deduction
For business owners, the IRS raised the standard rate for deducting mileage to 58.5 cents per mile for July through December 2008, up from 50.5 cents from January through June 2008. That compares with 48.5 cents in 2007.
The IRS on Jan. 1, 2009, dropped it back to 55 cents since gasoline has come down somewhat. If gas prices decline further, it may be that in mid-2009 they may adjust it downward again.
Financial success
As always, if you want to be on a path of financial success:
- Pay special attention to your personal finances.
- Get your free annual credit report now.
- take steps to improve your credit score.
- To invest, find a good financial adviser.
- To be debt-free, find a good credit counselor.
- To file taxes, find a good tax preparer.
- Take steps to ensure your financial adviser is trustworthy.
In a Nutshell
There are perks available we can take advantage of. Whether you do your taxes yourself or hire a professional tax preparer, you have the perks available to you.
