With the economic times getting tougher, we all need to find ways to save money. The recent tax law changes may put extra money in your pocket when you file your federal income tax this year.  For example, If you’re not a first time homebuyer but your last home purchase was more than 3 years ago you may qualify for a new $7,500 tax credit for first-time home buyers.

Technically, it’s a tax-free loan that has to be repaid over 15 years but it’s still a great deal. Some new tax breaks have qualifying dates that don’t follow the calendar year. The home buyer credit applies only to purchases between April 9, 2008, and June 30 of this year. And many have income restrictions. For example, the home buyer credit is phased out at modified-adjusted incomes of $150,000 for married couples or $95,000 for singles.

Here are some other tax law changes that may affect your 2008 federal income tax return.

Kiddie tax
The “kiddie tax,” which taxes a child’s investment income beyond $1,800 at the parent’s tax rate, now covers some children until they turn 24. “People used to try to pay for college by transferring appreciated assets to their children to pay college expenses,” said Mark Luscombe, principal tax analyst at CCH, a tax publisher in Riverwoods, Ill. The children could then sell those assets and pay far less tax than their parents would have owed. “Now that no longer works,” Luscombe said. The rule applies to children who are enrolled in college or a trade school and who are still dependent on their parents for most of their financial support.

Capital gains
Low-income households will pay zero tax on capital gains from assets they’ve owned at least a year. To qualify, your wages must place you in the bottom two income tax brackets, which cover taxable incomes up to $65,100 for married couples filing joint returns, or $32,550 for singles. Previously, people in these brackets had to pay a 5 percent tax on such long-term capital gains. Most higher-earning taxpayers will continue to pay a 15 percent tax on capital gains.

Luscombe said he thinks this change explains why the kiddie tax was extended to older offspring. Parents would have had even more incentive to shift investments over to kids who would pay zero tax on the gains. “Taxpayers really like the concept of a zero percent tax rate,” he noted.

Standard deduction plus
Nearly two-thirds of taxpayers claim the standard deduction instead of itemizing, according to the IRS. This year those using the standard deduction can claim an extra amount for state and local property taxes. Married couples filing jointly can claim up to $1,000 extra; singles can claim $500. This will benefit people such as retirees who have paid off their mortgages and don’t have enough deductions aside from their property taxes to make itemizing worthwhile.

Taxpayers also can claim an extra amount on top of their standard deduction to account for losses suffered from a federally declared disaster.

Forgiven mortgage debt
If you lost your home to foreclosure or a short sale (with the lender agreeing to accept sales proceeds that are short of what’s owed on the mortgage), that unpaid debt is technically considered income to you. For the tax years 2007 through 2012, the government is waiving any tax liability on that phantom income. The lender will send you — and the IRS — a copy of Form 1099-C, “Cancellation of Debt,” reporting that forgiven debt as income. To make sure you are not taxed on the amount, you will have to file Form 982, “Reduction of Tax Attributes Due to Discharge of Indebtedness.” (Forms can be downloaded free from http://www.IRS.gov.) If you’ve lost a home to foreclosure, be sure the bank and IRS have your current address (notify the IRS by mailing in Form 8822) so you receive important notices promptly.

This year-old change to the tax laws will affect more people this year, thanks to soaring foreclosure rates. Forgiven debt on vacation homes and rental properties is still taxable as if it were income.

Recovery rebate credit
Remember how last year’s economic stimulus payment arrived in your mailbox without you even requesting it? The credits were as high as $1,200 for married couples, $600 for singles and $300 for children, and you were automatically eligible if your income met the program’s limits. To get the stimulus checks in hand quickly, the IRS did the math for you, looking back to your 2007 reported income to estimate whether you would be eligible for all or part of the credit.

Now that you know how much you actually earned in 2008, it’s time to tidy up that math with this year’s tax return. If you got less than the full credit last year, you may qualify for the remainder now. Generally that will happen if your income in 2008 was lower than in 2007, or if you added another child to your household, who qualifies for a $300 credit.

This is already causing confusion with 2008 returns. The IRS reported that about 15 percent of people who filed in January made a mistake regarding the recovery rebate credit. To do it right, you will need to fill out a worksheet that comes with your tax return to calculate the dollar amount of rebate credit (if any) you are due. To fill out the worksheet correctly, you will you need to know exactly how much you received last year.

You do not have to pay tax on your economic stimulus payment, nor do you have to give any back if the IRS sent out a check that was too big in light of your actual 2008 income.

For more information on the tax changes for 2008 you can go to the IRS website at http://www.IRS.gov.

source: Washington Post

Tax season usually heats up once that Groundhog Day is here. That’s usually the time you start getting your 2008 income tax information your income sources. 

But there is still two months yet before the deadline but time does fly. Before you know it you’re scrambling to get your federal income tax return done.

Filing one’s taxes electronically seemed like a novelty 10 years ago but accounts for almost six out of 10 returns today.

For the 2007 tax year that taxpayers filed a year ago, the Internal Revenue Service received almost 90 million by way of electronic filing out of a total 155.5 million returns.

And almost 27 million returns were filed from home computers, an increase of 19 percent from the previous year’s total of 22.6 million.

The options for free e-filing are increasing as well, said IRS spokeswoman Lea Crusberg.

For the 2008 tax year, which taxpayers will file by this year’s April 15 deadline, people with adjusted gross income of $54,000 or less – about 70 percent of all taxpayers – are eligible for free filing through the IRS in a partnership with some software manufacturers.

Last year, almost 4.8 million returns were sent through free-file, an increase of 24 percent compared with the previous year’s 3.9 million free-filed returns.

Federal Income Tax refunds are available in as few as 10 days from filing if the taxpayer provides the IRS with direct-deposit information.

Another route taxpayers might choose is through a paid tax preparer who also provides refund anticipation loans. That means the preparer will provide you with most of what your expected refund is for a fee.

The IRS said another benefit of its e-filing system is taxpayers can file now and if they owe money, pay later – up to the deadline of April 15.

“The IRS does not charge taxpayers to e-file their completed returns, but some tax preparers and software manufacturers may charge a fee. However, this year a number of large software companies are waiving this additional fee,” the IRS said.

E-filed tax returns are encrypted and taxpayers will receive an acknowledgement within 48 hours that the IRS has accepted the return.

The IRS also said that e-filed returns have an error rate of 1 percent compared with 20 percent for paper-filed returns.

So take advantage of free-filing federal income tax if you qualify. But if you don’t, take advantage of the online tax prep companies – in most cases, they are cheaper than going to an accountant.
source: beaumontenterprises.com