Here are the top five changes that may show up on your 2009 return. 

ARRA provides several tax breaks that can affect your 2009 return. The recovery law provides tax incentives for first-time homebuyers, people who purchased new cars, those that made their homes more energy efficient, parents and students paying for college, and people who received unemployment compensation. 

You may be able to take an IRA deduction if you were covered by a retirement plan and your 2009 modified adjusted gross income is less than $65,000 ($109,000 for married filing joint).

The 2009 basic standard deductions increased. They are:

• $11,400 for married couples filing joint and qualifying widows/widowers
• $5,700 for singles and married filing separate
• $8,350 for heads of household

Taxpayers can now claim an additional standard deduction of state or local sales or excise taxes paid on most new motor vehicles bought after February 16, 2009. You can also increase your standard deduction by the state or local real estate taxes paid during the year or net disaster losses from a federally declared disaster. 

The standard mileage rates changed for 2009:

• The standard mileage rates for business use of a vehicle: 55 cents per mile
• The standard mileage rates for medical reasons or a deductible move: 24 cents per mile
• The standard mileage rate for using a car to provide services to charitable organizations remains 14 cents per mile. 

The amount of taxable investment income a child can have without it being subject to tax at the parent's rate has increased to $1,900 for 2009.

 

If you donate to charities providing earthquake relief in Haiti, you can claim these donations on your 2009 or 2010 federal return. The deduction is available only if you itemize, and is only for cash donations made to these qualifying charities after Jan. 11, 2010, and before March 1, 2010. This includes contributions made by text message, check, credit card or debit card.

For donations by text message, a telephone bill will meet the recordkeeping requirement if it shows the name of the donee organization, the date of the contribution and the amount of the contribution. For cash contributions made by other means, be sure to keep a bank record, such as a cancelled check, or a receipt from the charity showing the name of the charity and the date and amount of the contribution.

This year’s special Haiti relief provision is modeled on a 2005 law that, in the wake of the Dec. 26, 2004, Indian Ocean tsunami, allowed taxpayers to deduct donations they made during January 2005 as if they made the donations in 2004.

 

Working taxpayers may be eligible for the Making Work Pay tax credit, a significant provision of the American Recovery and Reinvestment Act of 2009. This credit means more take-home pay for millions of American workers. Five things you should know:

1. Available for 2009 and 2010, the credit equals 6.2 percent of a taxpayer’s earned income. The maximum credit is $800 for married filing joint and $400 for other taxpayers. Most wage earners have been enjoying a boost in their paychecks from this credit since April.
2. Eligible self-employed taxpayers can also get the credit, by adjusting their September and January estimated tax payments.
3. Any of the following should ensure enough tax is being withheld: married couples with two incomes, individuals with multiple jobs, dependents, pensioners, Social Security recipients who also work, and workers without valid Social Security numbers. Having too little tax withheld could result in a smaller refund or a balance due rather than an expected refund.
4. The Making Work Pay credit phases out beginning at $75,000 for single taxpayers and $150,000 for married filing joint.
5. Taxpayers can check whether their withholding is enough with the IRS withholding calculator or the worksheets in Publication 919, How Do I Adjust My Withholding?

For more information on this and other key tax provisions of the Recovery Act, visit the IRS Recovery Act Information Center.

 

The American Opportunity Credit modifies the existing Hope Credit for 2009 and 2010, making it available to more taxpayers. Income guidelines are expanded and required course materials are added to the list of qualified expenses. Many of those eligible will qualify for the maximum annual credit of $2,500 per student.

The American Opportunity Credit, in many cases, offers greater tax savings than existing education tax breaks:

• Tuition, fees, books and other required materials generally qualify. In the past, books usually were not eligible.
• The credit is equal to 100 percent of the first $2,000 spent and 25 percent of the next $2,000. That means the full $2,500 credit may be available to a taxpayer who pays $4,000 or more in qualified expenses for an eligible student.
• The full credit is available for individual taxpayers whose modified adjusted gross income is $80,000 or less ($160,000 or less for married filing joint). The credit begins to phase out for higher incomes. These limits are higher than under the existing Hope and Lifetime Learning credits.
• Forty percent of the American Opportunity Credit is refundable, so even people who owe no tax can get up to $1,000 for each eligible student. Existing credits and deductions do not provide a benefit to people who owe no tax.

Eligible parents and students can get the benefit of this credit during the year by reducing their withholding with a new Form W-4, claiming additional withholding allowances.

More information, including income and qualification restrictions, is available on the IRS Tax Benefits for Education Information Center.

 

The American Recovery and Reinvestment Act (ARRA) included a provision that allows college savings plans and prepaid tuition programs to be used to buy computer equipment and services. These 529 plans are a way for families to save for a child’s college education. Qualified expenses are normally limited to tuition, fees, books, supplies, equipment and special needs services. For someone who is at least a half-time student, room and board also qualify.

For 2009 and 2010 only, the Recovery Act adds to this list computer technology and equipment or Internet access and related services. In general, expenses for computer technology do not qualify for the American Opportunity Credit, Hope Credit, Lifetime Learning Credit, or the tuition and fees deduction.

More information about these plans, including the new computer addition, can be found on the new IRS Tax Benefits for Education Information Center and in Publication 970, Tax Benefits for Education.

 

Taxpayers who need to change a return they already filed can file an amended return. Here are some tips every taxpayer should know about amending a federal return: 

• To amend a return, use Form 1040X, Amended U.S. Individual Income Tax Return. The same form is used for 1040, 1040A and 1040EZ returns, and for e-filed returns.
• You should file an amended return if any of the following were reported incorrectly: filing status, dependents, total income, deductions or credits.
• You usually do not need to file an amended return for math errors — the IRS will make the correction for you. You also do not usually need to file an amended return because you forgot to include forms, such as W-2s or schedules — the IRS normally requests those forms from you.
• Be sure to enter the year of the return you are amending at the top of Form 1040X. Generally, you must file Form 1040X within three years from the date you filed your original return or within two years from the date you paid the tax, whichever is later.
• If you are amending more than one tax return, prepare a 1040X for each return and mail them in separate envelopes.
• If the changes involve another schedule or form, attach it to the 1040X.
• If you are filing to claim an additional refund, wait until you have received your original refund before filing Form 1040X. You may cash that check while waiting for any additional refund.
• If you owe additional tax for 2008, you should file Form 1040X and pay the tax as soon as possible to limit interest and penalty charges. Interest is charged on any tax not paid by the due date of the original return, even if you filed an extension.

 

If you can't meet the April 15 deadline to file your return, you can get an automatic six-month extension of time to file from the IRS. Here is what you need to know about filing an extension:

• An extension will give you extra time to get your return to the IRS, but it does not extend the time you have to pay any tax due. You will owe interest on any amount not paid by April 15, plus a late payment penalty if you have not paid at least 90 percent of your tax by then.
• If your return is completed but you are unable to pay the full amount of tax due, don't request an extension. File on time and pay as much as you can. The IRS will send you a bill or notice for the balance due.
• Request an extension to file by submitting Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return, with the IRS by April 15, or make an extension-related electronic credit card payment. For more information about extension-related credit card payments, see Form 4868.
• To obtain a copy of Form 4868 or other forms and publications, use e-file tax preparation software, download them from IRS.gov or visit your local IRS office. Forms and publications can be ordered by calling 800-TAX-Form (800-829-3676). However, telephone requests normally take 10 days to fill and may not arrive before the tax deadline of April 15. 

 

If you cannot pay the tax you owe in full by April 15, you should still file your return on time and pay as much as you can to avoid penalties and interest. There are also other payment options to consider:

• Additional time to pay - Depending on your circumstances, the IRS sometimes allows a brief additional amount of time to pay. Request this through the Online Payment Agreement (OPA) application at IRS.gov or call 800.829.1040. If you get an additional 30 to 120 days to pay the tax, you'll usually pay less penalty and interest than if you paid by installment agreement over a longer period.
• Installment agreement - You can apply for an IRS installment agreement using the OPA application on IRS.gov. This is for taxpayers who owe $25,000 or less in combined tax, penalties and interest. You can find out immiately if you're approved. The OPA option gives you a simple and convenient way to set up an installment agreement, eliminates the need for personal interaction with IRS and reduces paper processing.
• Credit or debit card - You can pay your taxes with your credit card or debit card at the Drake E-Payment Center, www.1040paytax.com (877-517-4881).

With the tax filing deadline close at hand, the IRS offers these tips for those still working on their returns:

1. File electronically instead of using paper tax forms. If you file electronically and choose direct deposit, you can receive your refund in as few as 10 days.
2. Check the identification numbers. Carefully check the identification numbers — usually Social Security numbers — for each person on the return. Missing, incorrect or illegible Social Security Numbers can delay or reduce a tax refund.
3. Double-check your figures. If you are filing a paper return, you should double-check that you have correctly figured the refund or balance due.
4. Check the tax tables. If you are filing a paper return you should double-check that you have used the right figure from the tax table.
5. Sign your return. Taxpayers must sign and date their returns. Both spouses must sign a joint return, even if only one had income. Anyone paid to prepare a return must also sign it.
6. Mail to the correct address. Use the coded envelope included with your tax package to mail your return. If you did not receive an envelope, check the section called "Where Do You File?" in the tax instruction booklet.
7. Mail a payment correctly. Make any check out to “United States Treasury” and enclose it with, but don't attach it to, your return or Form 1040-V, Payment Voucher. Include your Social Security number, daytime phone number, the tax year and the type of form filed.
8. Consider an electronic payment. Electronic payments are a convenient, safe and secure way to pay taxes. You can authorize an electronic funds withdrawal, or use a credit card or a debit card. For more information on electronic payment options, visit IRS.gov.
9. Get an extension for your return. By April 15, you should either file a return or request an extension of time to file. Remember, the extension of time to file is not an extension of time to pay. 

 

Errors on tax returns delay the processing of your return and often, your refund. Avoid these common errors: 

1. Incorrect Recovery Rebate Credit - The Recovery Rebate Credit is for people who did not receive a stimulus payment in 2008 or who did not receive all they were due. To avoid delays in refunds, taxpayers must know whether they received a payment in 2008 and the correct amount of that stimulus payment.
2. Incorrect or missing Social Security number - Enter exactly as it is on the Social Security card.
3. Incorrect or misspelling of dependent’s last name - Enter exactly as it appears on the Social Security card.
4. Filing status errors - Make sure you choose the correct filing status for your situation.
5. Math errors - Make sure all addition and subtraction is correct. Remember, when you file electronically, the software takes care of the math for you.
6. Computation errors - Take your time. Many taxpayers make mistakes when figuring taxable income, withholding and estimated tax payments, Earned Income Credit, Standard Deduction for age 65 or over or blind, the taxable amount of Social Security benefits, and child and dependent care credit.
7. Incorrect bank account numbers for Direct Deposit - Double-check any bank account numbers you provide.
8. Forgetting to sign and date the return - An unsigned tax return is like an unsigned check – it's invalid.
9. Incorrect Adjusted Gross Income information - If you e-file this year, and you also e-filed last year, you'll need to verify your identity to the IRS by providing your 2007 AGI or PIN.

 

Are you expecting a refund from the IRS this year? Here are the top 10 things you should know about your refund: 

1. Refund options – You have two options for receiving your federal refund: a paper check or a direct deposit.
2. Separate accounts – You may use Form 8888, Direct Deposit of Refund to More Than One Account, to have your refund split among up to three separate accounts, such as checking or savings or retirement accounts.
3. Paper return processing time – If your return is complete and accurate, your refund will usually be issued within six weeks from the date the IRS receives it.
4. E-filed returns – If you file electronically, your refund will normally be issued within three weeks after the acknowledgment date.
5. Check status online – The fastest and easiest way to find out about your refund is to go to IRS.gov and click on the “Where’s My Refund?” link on the home page. You will need your Social Security number, filing status and the exact amount of your refund.
6. Check status by phone – Call the IRS Refund Hotline at 800-829–1954. You will need to your Social Security number, your filing status and the exact amount of your refund.
7. Delayed refund – For things that may delay the processing of your return, see above for common tax return errors.
8. Larger than expected refund – Do not cash the check until you receive a notice explaining the difference. Follow the instructions on the notice.
9. Smaller than expected refund – If this happens you may cash the check. If the IRS determines that you should have received more, it will later send the difference. If you did not receive a notice and you have questions about the amount of your refund, wait two weeks and then call 800–829–1040.
10. Missing refund – The IRS will send you a replacement check for a refund check that is lost or stolen. If the IRS was unable to deliver your refund because you moved, you can change your address online. Once your address has been changed, the IRS can reissue the undelivered check. For more information, visit IRS.gov or call 800-829-1040.

 

The American Recovery and Reinvestment Act of 2009 expanded the First-Time Homebuyers Credit  in two significant ways for qualifying taxpayers who buy a home in 2009 before December 1. The credit no longer has to be repaid, and the maximum has been increased to $8,000, or $4,000 for married filing separately. Qualifying taxpayers can claim the credit either on their 2008 or 2009 tax returns.

Form 5405, First-Time Homebuyer Credit, provides additional information on who can and cannot claim the credit, income limitations and repayment of the credit.

For taxpayers who purchased a home after April 8, 2008, and before Jan. 1, 2009, the old credit maximums still apply: $7,500, or $3,750 for individual filers. The credit for these 2008 purchases must be repaid in 15 equal installments over 15 years, beginning with the 2010 tax year.

 

Debt forgiveness usually is considered taxable income. However, under the Mortgage Forgiveness Debt Relief Act of 2007, you may be able to exclude up to $2 million of debt forgiven on your principal residence in 2007-2012 ($1 million for married filing separate). 

You may exclude debt reduced through mortgage restructuring, as well as mortgage debt forgiven in a foreclosure. To qualify, the debt must have been for buying, building or substantially improving your principal residence, and the debt must have been secured by that residence. Refinanced debt used for other purposes, such as to pay off credit card debt, does not qualify for the exclusion.

If your debt is reduced or forgiven you will receive a year-end statement, Form 1099-C, from your lender. By law, this form must show the amount of debt forgiven and the fair market value of any property foreclosed. The IRS urges borrowers to examine the Form 1099-C carefully. Notify the lender immediately of any mistakes, especially on the amount of debt forgiven (Box 2) and the value listed for your home (Box 7).

If you qualify, you claim the exclusion by filling out Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness, and attaching it to your federal tax return for the year. 

 

For 2008 and 2009 tax years, you can deduct state or local real estate taxes, even if you don’t itemize deductions. Here are the requirements for the additional deduction:

• The additional deduction is equal to the amount of real estate taxes paid. The maxiumum is $500 for single filers or $1,000 for joint filers.
• The taxes must be imposed on you.
• You must have paid the taxes during the tax year.
• The taxes must be charged uniformly against all property in the jurisdiction and must be based on the assessed value. Many states and counties also impose local benefit taxes for improvements to property, such as assessments for streets, sidewalks and sewer lines. These taxes usually cannot be deducted.
• Real estate taxes paid on foreign or business property do not qualify.
• You must file Form 1040 or 1040A to claim the additional deduction. Be sure to check the box on line 39c of Form 1040 or line 23c of Form 1040A.

 

E-filing is fast, and that's a terrific reason to e-file! But the most important reason is that when you e-file through 1040.com Online Tax Preparation, the program catches math and other common errors, letting you quickly make corrections and try again.

Make sure the last name of each individual claimed on your tax return is the official last name of the person. If you have any question or doubt as to the official last name of an individual you will be claiming on your return, verify the information with the Social Security Administration at (800) 772-1213.

 

If you want to claim a charitable deduction, be sure the charity or philanthropic organization you select is a tax-qualified organization under IRS rules. Use GuideStar for Donors to research nonprofits' tax-exempt status.

Charitable purchases are only deductible in the amount exceeding the worth of the item purchased. For example, if you attend a fancy $500 a plate dinner for children's hospital, the deductible amount is equal to $500 minus the fair market value of the dinner. Learn more from our Contributions article.

Make sure you obtain a receipt for any and all of your charitable cash contributions – if you want to deduct them! Learn more from our Contributions article.