“Help yourself and your tax accountant by keeping all of your tax-related receipts and documents in one place. Also, think ahead about how you can reduce your tax burden during the year through use of retirement plans, tax deductible contributions, etc.,” states Kevin Penn, CPA and tax advisor in Cleveland, Ohio. Ask your tax professional to help you lay out a tax plan for 2009.
Changes for 2009
There are a number of tax law changes that may affect your 2009 tax planning. Many of the deductions and credits are subject to income limits and phase out rules. Below are some of the more significant changes for individuals.
- Required minimum distributions for IRAs and defined contributions plans (401k, 403b, etc.) are waived for 2009 to help retirees recover losses incurred from market volatility over the last several months.
- The Making Work Pay credit is an income tax credit equal to the lesser of 6.2 percent of one's earned income or $400 ($800 for married joint filers)
- The First Time Homebuyer Credit is increased to $8,000, and repayment is not required after 36 months of ownership.
- New vehicles purchased after February 17th for the rest of 2009 are subject to an “above the line” deduction of state and local sales or excise tax. This deduction directly reduces gross income. Only the sales tax on the first $49,500 of a vehicles purchase price is allowed.
- The American Opportunity Tax Credit increases the Hope Education tax credit from $1,800 to $2,500.
Get ready
Setup a tax filing system, and as you receive tax-related receipts or information during the year, put it in the folder. When you make tax-related payments or contributions, write a check or get a receipt so that you have written documentation of the payment. If you have a business, set up a separate checking account and credit card for business use only.
Determine where you are
Make a copy of your 2008 Form 1040 and pencil in estimates of your 2009 income. If you have a business or own rental real estate, estimate your full year income and expenses for 2009. Do you anticipate that your income will increase or decrease in 2009?
Estimate your itemized deductions for 2009. Will they increase or decrease for this tax year? Pencil in your total deductions on your Form 1040 and subtract it from your adjusted gross income (AGI) to determine your Taxable Income.
Use the tax tables to determine your estimated tax. Subtract any applicable credits from your total tax.
Using your pay stubs, estimate your withholding for the year and add quarterly tax payments. Subtract your payments from the total tax to determine the amount of your overpayment or tax due. This is your first pass estimate for your 2009 taxes. Is this where you want to be or are there opportunities to make some changes that can reduce your tax burden?
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