By LaDell Emmons
Tax season is here once again. Here are eight tips to help you keep more of that hard-earned paycheck. The following is information that the Extension Personal Finance Specialist, Dr. Eileen St. Pierre, has sent to help during tax season.
1. Avoid refund anticipation loans.
Tax preparation companies that offer these will advance you the amount of your refund, less loan fees (in addition to the fees charged to prepare and file your return). The annual interest rate for these loans can range from about 60 percent to more than 700 percent, depending on the size of your refund. If you e-file your return and choose direct deposit, you will get your refund in 10 business days. If you cannot wait 10 days to buy something, then you probably don’t need it.
2. Deduct contributions for Haiti earthquake relief.
If you itemize deductions, you can deduct Haiti relief contributions made by text message, check, credit card or debit card on your 2009 federal tax return. Donations made after Jan. 11, 2010 and before March 1, 2010 are eligible. If you made a contribution by text, make sure you save your cell phone bill.
3. Did you trade in your clunker? Deduct the sales tax.
You are allowed to deduct the sales tax on new vehicle purchases up to $49,500 even if you do not itemize. You must have purchased the vehicle between Feb. 17 and Dec. 31, 2009. This is great for those of you who took advantage of the “Cash for Clunkers” program. If you itemize deductions, you would include the sales taxes on Schedule A.
Are you wondering what Schedule L is for in your 1040 booklet? Schedule L is for filers who take the standard deduction. Fill out Schedule L to increase your standard deduction by the amount of the sales tax on your new vehicle purchase. Schedule L can also be used to deduct certain state or local real estate taxes (up to $500 for a single filer, $1000 for joint).
4. Don’t forget about the Making Work Pay Tax Credit.
This tax credit was part of the 2009 stimulus package. It provides a tax credit of up to $400 for individuals and $800 for married taxpayers in 2009 and 2010. The tax credit was passed along to you in the form of a higher paycheck by withholding less in taxes. However, you still need to fill out Schedule M if you file Form 1040 or Form 1040A. You will get an additional $400 or $800 in tax credit so you don’t want to forget to file it. For those taxpayers filing Form 1040EZ, there will be a spot on the form to figure the credit. You will have to do this again for your 2010 federal tax return.
5. Kids in college? The Hope Credit has been expanded.
The Hope Credit has been renamed, increased, and expanded as part of the 2009 stimulus package. It’s now called the American Opportunity Credit and will rebate up to $2,500 for each qualifying student for the first four years of college (the “old” Hope Credit was just $2,000 for the first two years of college). Income limits have been expanded, so the full credit is available to married couples filing jointly with a modified gross income up to $160,000.
6. Energy-saving tax credits are back.
For 2009 and 2010, a tax credit equal to 30 percent of the cost of energy-saving home improvements, with maximum of $1,500 over the two-year period, is available. Improvements include windows, high-efficiency furnaces, and water heaters. This is an increase of the old tax credit from 2007 (there was no such credit in 2008). If you installed a solar water heater, geothermal heat pump or a wind turbine in 2009, your credit can be 30 percent of the total cost of the system. See Form 5695 for details.
7. Home buyer tax credit expanded.
You have to been living under a rock to not have heard of the first-time home buyer tax credit. But many people may not realize that this credit was extended and expanded for those purchasing homes after November 6, 2009. In addition to the $8,000 credit for first-time home buyers, there is now a $6,500 credit for longtime homeowners who continuously owned a home for at least five of the eight years leading up to the purchase of a new home. You need to have a binding contract on or before April 30, 2010 and close on the new home by June 30, 2010 to qualify for the expanded credit. See Form 5405 for details. You must file a paper return to claim this credit because you need to attach your settlement statement.
8. Finally, pay yourself first.
You have until April 15, 2010 to make your 2009 contribution to a traditional or Roth IRA. You can contribute up to $5000, $6,000 if you’re age 50 or older. In a traditional IRA, you deduct the contribution from 2009 taxes, but you will have to pay federal income tax on the money when you withdraw it at retirement. In a Roth IRA, you pay federal income tax on your contribution before it is invested. However, when you withdraw the money at retirement, it’s tax-free. Unlike traditional IRAs, Roth IRAs are not subject to minimum distribution requirements. Whichever account you choose, the important thing is that you are saving for retirement.
For more information in Pittsburg County, call 918-423-4120 or log onto www.oces.okstate.edu/pittsburg.
Oklahoma Cooperative Extension Service offers its programs to all eligible persons regardless of race, color, national origin, religion, gender, age, disability or status as a veteran and is an Equal Opportunity Employer.
LaDell Emmons is the Extension Family and Consumer Sciences Educator for the Pittsburg County Oklahoma Cooperative Extension Service. Contact her via e-mail at ladell.emmons@okstate.edu.
