Like the change of a season, tax laws come and go. In fact, Uncle Sam tinkers with the tax code so much that it becomes nearly impossible to keep up. So let's take a minute to break down the 2009 biggies, the movers and shakers, the ones that will save you big money.
This year's fan favorite is the Making Work Pay Credit. If you've labored and received income (writer's note: spending time with your in-laws doesn't count because you could never be properly compensated for it) you might be eligible. Just know the max works out to be $400 ($800 filing jointly) or 6.2% of your income. Basically, the government is giving you a month of food (or a nice night out) just for showing up.
Ah but be sure to read the fine print. If last year you received an Economic Recovery Payment your work pay credit is reduced by the amount you received. Also, many employers have already adjusted your withholding by the amount you were supposed to get. So either fill out a Schedule M, call 866-234-2942 to check with an automated IRS service, ask your accountant, or wait until March 23rd (you will be able to check online) to see if you still qualify.
With unemployment still hovering around 10% and real unemployment (people whose benefits have run out or are back to work but overqualified for the jobs they currently hold) near 17%, it's a good bet many of us had to take advantage of this social service. Most years, the money received is taxable, (with the government withholding your tax bracket) and the balance of the liability due at tax time. But due to circumstances beyond its control, the government is giving the public a golden carrot in the form of a smooth tax break.
The first $2,400 that you collect from the department of labor is now tax free. So if you're in a 28% tax bracket that figure works out to be a $672 break. Just be aware anything you collected, above and beyond that $2,400, is taxed at your regular rates. Also know that your weekly withholdings will still apply. But at tax time, your bill will be reduced by the taxable amount on the first $2,400. Capiche?
For you, the first time homebuyer, it was a very good year. Not only were you able to achieve the American dream, but you were also able to secure an $8,000 credit ($4,000 if filing separately). And since that's a credit and not a deduction, you were able to use that entire wad of cash to furnish your new pad, take a vacation, or drink a lot of alcohol.
But before you go on a drunken binge, you would have needed to have purchased the home after 2008 and before May 1 2010. Also be aware that if you sold the home (or the home ceased to be your primary residence in 2009), you will have to use Form 5405 to repay the credit. Something you may not know is if your spouse had already purchased a home (either on their own or with someone else), you will not be eligible for the loot even if it's your first time.
The cash for clunkers program did what it was designed to do, stimulate the American public enough to trade in their junk and buy a bunch of fuel efficient cars. If you were smart and took advantage of this program, know that your $3,500 or $4,500 voucher for your old wheels is not taxable by the government. Let's break it down, you saved on gas, you saved the environment, and you got paid more than you should have – what a country.
While we're on the clunker credit if you bought a new car after February 16th 2009, you might be able to hang onto any local or state sales taxes on that vehicle. If you live in a state without sales tax, (like Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming) you might be able to deduct some other taxes or fees. If you itemize just check out Schedule A for the Form 1040, if not, use the Instructional Booklet for Form 1040A for guidance.
You might also be eligible for an electric vehicle credit. Just be sure it was bought after February 17th and that it was used in 2009. Even if you converted your old jalopy's engine to a new plug in drive motor, you may qualify.
If you know the changes in the tax code, you will save money. But, if you pay attention, know and act on certain government programs that come up throughout the year, you will save a LOT of money. In other words, you definitely want to be in the know when it comes to the things you love.
And really, who doesn't love money.