Wed, December 09, 2009
2009 Yearend Income Tax Planning Thoughts
As the end of the year approaches, it’s always a good idea to take see if there are any last-minute moves that make sense for you. Here are four opportunities for tax savings:
Tax credits for buying a home
Congress made a generous change to the first-time home-buying credit, extending it out to purchases completed by July 1, 2010 (with contracts in place before May 1, 2010) and adding a new $6,500 tax credit for those who have owned a home for five of the previous eight years and are buying a new one.
In addition to making the credits available to taxpayers with higher incomes, the change also capped the purchase value of qualifying homes at $800,000. For homes above this level, there’s no credit available at all.
Keep in mind that tax credits , unlike deductions, reduce your tax liability dollar-for-dollar. The homebuyer’s credits are refundable, meaning that if you owe no tax, you can actually get a check for any remaining credit that’s due to you.
American Opportunity Credit
A more generous credit is now available for college tuition and fees paid in 2009 and 2010. The credit is based on 100% of the first $2,000 and 25% of the next $2,000 spend for qualified education expenses.
The credit is available to taxpayers with a modified adjusted gross income of $80,000 for single filers and $160,000 for those filing jointly, and applies to expenses incurred in the first four years of post-secondary education.
Unemployment Benefits Tax Break
Did you receive unemployment benefits in 2009? The American Recovery and Reinvestment Act made the first $2,400 of your unemployment benefits tax free (but only for 2009).
Retirement Savings
Even if you started a job in mid-year, or your employer just started up a 401(k) plan last month, you’re entitled to put a full year’s worth of pre-tax contributions into your plan for 2009. For a regular 401(k), the employee is limited to contribution $16,500 (plus a $5,500 “catch-up” contribution if you turn 50 during 2009); for a SIMPLE 401(k) the limits are $11,500 plus a $2,500 catch-up addition. If you do accelerate your contributions at the end of the year, remember to readjust your contribution rate in early 2010.