New IRS tax breaks available, but action required by Dec. 31 for many

News Release
Published: December 12, 2008

BIRMINGHAM — Tax year 2008 is quickly nearing an end and the Internal Revenue Service reminds taxpayers that the important deadline of Dec. 31 is fast approaching for many tax-planning issues.

In 2009, the IRS expects Alabamians to file more than 2.1 million tax returns and anticipates that more than 1.5 million of those will be filed electronically.

“E-filing is so widely used because it helps ensure that you take advantage of tax benefits and end up with a virtually error-free tax return,“ said IRS spokesman Dan Boone. “You may even be able to e-file free using IRS Free File.“

All new deductions and credits are included on the e-file software, so it can help increase your refund or lower your tax bill, according to Boone.

“It’s fast, easy and secure,“ Boone said.
 
With a reminder that deductions and credits you plan to claim for 2008 may require action by year’s end, the IRS offers these tax tips:

NEW - First-Time Homebuyers Tax Credit – First-time homebuyers should begin planning now to take advantage of a new tax credit available for a limited time.  The credit applies to primary home purchases between April 9, 2008 and June 30, 2009.  Normally, this tax credit must be paid back in equal payments over 15 years.  The credit is 10 percent of the purchase price of the home, with a maximum available credit of $7,500 for either a single taxpayer or a married couple filing jointly.  First-time homebuyers are those who have not owned a home in the three years prior to a purchase.

NEW - Real Estate Tax Deduction – Available for the 2008 and 2009 tax years, this deduction can increase your standard deduction if you don’t itemize deductions but pay real estate taxes.  The additional deduction amount is equal to the amount of real estate taxes paid up to $500 for single filers or up to $1,000 for joint filers.

NEW - Recovery Rebate Credit – If you did not qualify or did not receive the maximum amount for the 2008 Economic Stimulus Payment you may be entitled to a Recovery Rebate Credit when you file your 2008 tax return and complete the Recovery Rebate Credit worksheet. .  You need to know the amount of the payment you received in 2008, which can be found on your Economic Stimulus Payment Notice (Notice 1378). Two online tools on IRS.gov will be available soon: the Recovery Rebate Credit Calculator will help taxpayers figure the amount they should claim on their 2008 tax return; and How Much Was My 2008 Stimulus Payment? – helps you determine what your stimulus payment was.

Tuition and Fees Deduction - Without having to itemize deductions, you may be able to deduct qualified tuition and required enrollment fees up to $4,000 that you pay for yourself, your spouse, or a dependent. However, a taxpayer cannot take both the tuition and fees deduction and education credits (Hope & Lifetime Learning Credits) for the same student in the same year. Check out the limits and rules that apply and learn about other education-related tax benefits in the 2008 edition of IRS Publication 970, Tax Benefits for Education, available soon.

 
Educators’ Out of Pocket Expense Deduction - The educator expense deduction allows teachers and other educators to deduct the cost of books, supplies, equipment and software used in the classroom. Eligible educators include those who work at least 900 hours during a school year as a teacher, instructor, counselor, principal or aide in a public or private elementary or secondary school.  Worth up to $250, the educator expense deduction is available whether or not the educator itemizes deductions.

Proof Required for “Cash” Contributions - Since tax year 2007, to deduct any charitable donation of money, you must have a bank record, credit card statement or a written communication from the recipient showing the name of the organization and the date and amount of the contribution. In determining what may be deducted as a charitable contribution, see IRS Publication 526 for 2008, soon to be released.

Earned Income Tax Credit (EITC) - This credit is offered by the Federal government to working families and individuals. You may qualify for the Earned Income Tax Credit, or EITC, if you worked, but did not earn a lot of money.  EITC is a refundable tax credit meaning you could qualify for a tax refund even if you did not have federal income tax withheld. If you qualify, the amount of your EITC will depend on whether you have children, the number of children you have, and the amount of your wages and income. For more information, go to http://www.irs.gov/eitc or see IRS Publication 596 for 2008.

 
Recordkeeping – Are your tax records organized?  The IRS encourages taxpayers to take the time now to gather and organize their records to reduce stress at tax time. For tips, see Publication 552, Recordkeeping for Individuals, for 2008.

 
Tax Forms and Publications – Tax Forms and Publications can be accessed on the IRS.gov Web site or requested by calling the IRS toll-free at 1-800-TAX-FORM (1-800-829-3676).

Beware of Bogus E-mails - The IRS does not send emails about your taxes. If you get an email that appears to be from the IRS, it very well could be an attempt to steal your private information. Don’t click on any links in the message. Rather, forward the email to using the instructions at http://www.irs.gov.

IRS.gov Web site - Remember that for the genuine IRS Web site be sure to use .gov.  The address of the official IRS Web site is http://www.irs.gov. The IRS.gov Web site contains a wealth of information for your tax planning and filing needs.  Check out the latest tax changes on the IRS.gov Web site and remember to e-file your tax return which helps ensure you do not miss out on any tax deductions, credits and benefits.

Planning Your Income – Some taxpayers, such as the self-employed, may have some discretion regarding when they receive income. Properly deferring income until next year can lower your taxable income and tax bill this year. This strategy, however, will raise your tax bill next year. Publication 334, Tax Guide for Small Business, may be of help. And many taxpayers also have some control over their income via the sale of investments to incur a gain or loss. This is generally a key area of decision-making for investors. These decisions must be made and executed by Dec. 31 to be counted on a 2008 tax return. Publication 550, Investment Income and Expenses, for 2008, explains the rules.

Retirement Savings - Taxpayers have various options to save for retirement. You need to be mindful of their contribution deadlines and limits. For example, Dec. 31 is the deadline for contributions to a 401(k) plan while April 15 is the deadline for IRA contributions. Taxpayers can get help from their 401(k) plan administrators where they work. Publication 560, Retirement Plans for Small Business, and Publication 575, Pensions and Annuity Income, may also help. You have more time to make contributions to individual retirement arrangements (IRAs) for a given tax year. You generally have until April 15 of the following year. Publication 590, Individual Retirement Arrangements, for 2008, can answer most questions.

New children – If you had or adopted a child in 2008, you should get a Social Security number for that child as soon as possible to ensure you can count the child as a dependent on your 2008 return. Also, having or adopting a child in 2008 may mean you will receive a larger Recovery Rebate Credit.