New Ways to Save on Your Taxes
April 15 isn't far off, but it's never too early to start thinking about taxes.
So, money maven Ray Martin filled in "Early Show Saturday Edition" viewers on recent changes that could result in bigger refunds and smaller tax bills if you wind up owing anything.
MAKING WORK PAY TAX CREDIT
In 2009 and 2010, the Making Work Pay provision of the American Recovery and Reinvestment Act provided a refundable tax credit of up to $400 for working individuals and up to $800 for married taxpayers filing joint returns.
In 2009, many folks benefitted from this credit via reduced payroll tax withholding since spring 2009. But to lock in your credit -- which reduces your 2009 taxes by $400 if you're single or $800 if you're married/filing jointly -- you have to claim the credit on your 2009 tax return. You'll need to use the new Schedule M to do this.
The credit is equal to 6.2 percent of your earned income, capped at $400 or $800. For single filers, it starts phasing out at $75,000 of adjusted gross income and isn't available if AGI exceeds $95,000. The phase-out AGI for married couples is $150,000 to $190,000.
Bottom Line: Read, complete and include Schedule M with your 2009 tax return...if you qualify, you get a $400/$800 tax credit.
VEHICLE SALES TAX DEDUCTION
This is new. And I like this one for a couple reasons. First, a lot of people bought a new car during the 2009 Cash for Clunkers program, so many of those people can benefit from it. And the second reason is that it allows taxpayers to take a deduction for state and local sales taxes paid on the purchase of a new vehicle, and it's available whether or not a taxpayer itemizes deductions on their Schedule A. You can't deduct the cost of the vehicle, but you can deduct the cost of the sales tax.
Here is how it works: If you bought a new car, truck, motorcycle or motor home after Feb. 16, 2009, and before the end of the year, you can deduct the sales tax paid -- up to a maximum purchase price of $49,500 per vehicle -- as an itemized deduction or, if you claim the standard deduction, as a supercharged standard deduction.
The benefit begins phasing out for married couples with adjusted gross income above $250,000 and singles with AGI above $125,000. It is completely gone for single filers with AGI of $135,000 or more and joint filers with AGI of at least $260,000.
Bottom Line: This is only good for tax year 2009! Non-itemizers need to file a Schedule L with to get the benefit. Itemizers who elect to deduct state income taxes will claim the car sales tax as a separate itemized deduction.
PROPERTY TAX DEDUCTION FOR NON-ITEMIZERS
This is a new tax break, which began in 2008. And any time you have a new tax break, a lot of people don't think to claim it.
Here's how it works: People who ordinarily don't itemize deductions -- meaning they typically don't have enough deductions to exceed their standard deduction amount - usually do not get any additional tax deductions for the property taxes they pay. But now they can, even if they don't itemize deductions. It used to be that if, you wanted to deduct your home's property taxes from your income, you had to itemize (using Schedule A).
But a law passed in 2008 lets you increase your standard deduction by up to $500 if you're single and up to $1,000 if you're married and filing a joint return, to account for property taxes paid during 2009.
Bottom Line: Whether you are single or married; you'll need to include Schedule L with your 2009 tax return to get a break on your property taxes.
UNEMPLOYMENT DEDUCTION
This is another big one, mainly due to the fact that so many people lost their jobs last year (five million folks in 2009). First, if you collected unemployment benefits, typically 100 percent is taxable as income. But in 2009, the first $2400 of these benefits are tax-free, and if two people who file jointly each collected unemployment benefits, then the amount can be up to $4,800 as tax-free income.
Bottom Line: In 2009, the first $2400 of your unemployment benefits are tax-free.
REMINDER: JOB SEARCH DEDUCTION
Many folks may not realize that the expenses related to looking for a new job can be deductible, even if you didn't get the job you were looking for. We're talking about things like fees paid to employment agencies, help on your resume, advertising, postage, long distance calls and even travel related to your job search. When the total of these expenses and other miscellaneous deductions exceeds tow percent of your adjusted gross income, then you can deduct the amount over that two percent threshold.
CUT YOUR TAX BILL FURTHER
CHILD CARE CREDIT
A credit is much better than a deduction, since it reduces your tax bill dollar-for-dollar. So, missing one is even more painful than missing a deduction that simply reduces the amount of income that's subject to tax.
If you pay your child care bills through a reimbursement account at work, it's easy to overlook the child care credit. Although only $5,000 in expenses can be paid through a tax-favored reimbursement account, up to $6,000 (for the care of two or more children) can qualify for the credit.
Bottom Line: If you run the maximum through a plan at work but spend even more for work-related child care, you can claim the credit on as much as $1,000 in additional expenses. That would cut your tax bill by at least $200.
MILEAGE DEDUCTIONS
There are multiple ways to deduct the miles you drive in your personal vehicle from your taxes. You can deduct mileage from when the driving is primarily or needed for the delivery and receipt of necessary medical care -- for example, if you have to travel frequently back-and-forth to a doctor's office or hospital for regular treatments of chemo, dialysis, physical therapy, etc. Add up those miles because, for 2009, you'll get a 24 cent-per-mile deduction for medical-related travel.
Also, if you're doing charitable work and it's necessary for you to drive to provide your services, that's deductible. And for that, you can claim 14 cents per mile.
Bottom Line: Keep a record and watch this deduction add up.