SAN FRANCISCO–(Businesswire)–The good news for the 2009 tax year: there are more expenses you can claim and still use the standard deduction. Most taxpayers take the standard deduction because it’s a lot simpler than itemizing, especially when they don’t have a lot of individual deductions. According to the IRS, there are a few new ways to potentially reduce your tax bill.
College: If you’re footing the bill for college and your child is attending more than part time, ask your tax advisor about the American Opportunity Credit. It was designed to replace the older Hope and Lifetime Learning Credit and may be more favorable. Your income can be as high as $160,000 for married couples filing jointly ($80,000 for single filers). You can take full credit for the first $2,000 you spend on college expenses, and 25 percent of the next chunk up to another $2,000 (maximum total credit, $2,500). Anyone interested in college-related tax advantages should also note that starting this year your 529 college savings plan can be used for computer purchases, if it’s the college requires it.
Unemployment: You can now exclude the first $2,400 in unemployment benefits before you start paying taxes on the rest. This also applies to your spouse separately, so if you both received unemployment benefits in 2009 you can each exclude the first $2,400.
Automobiles Bought or Sold: This year only, you can deduct the sales tax from the purchase of a new car, truck or motor home acquired after February 16th, 2009. The deduction applies to taxes paid on purchase price up to $49,500, and is phased out if your income is high ($250,000 for married filing jointly). If you took advantage of the government’s Cash for Clunkers program, you do not have to report the proceeds as income. Also, because of the CARS Act, if you bought certain fuel-efficient automobiles, you may be eligible for ‘green’ tax credits.
Property Taxes: This is not new for 2009, but don’t forget that if you’re married filing jointly, you can still write off $1,000 of your property taxes without itemizing for 2009 (singles can write off $500). Note: For the 2009 tax year the standard deduction is $11,400 for married couples filing jointly and $5,700 for single filers.
First Home Purchase: If you bought your first home in 2009 the First Time Homebuyer Credit is valuable (and will apply to purchases through April 30, 2010 or where a sales contract is fully executed by that date). You can get up to 10% of your purchase price back, to a maximum of $8,000 (note that you’ll need to stay in the home as your principle residence for at least three years, or face the prospect of paying the credit back). This credit is available to anyone who hasn’t owned a home as a principle residence for the previous three years. Starting in November 2009, there’s also a $6,500 credit for homeowners trading up to a new principle residence. Since these are credits, you can even get a check back from the government if you end up with a “negative” tax liability. Mobile homes and manufactured homes are included; vacation homes are not. There are income restrictions, depending on your filing status and when the home was purchased.
Getting a Refund? Here’s How To Make The Most Of It
The best use of your tax refund depends on you, your needs and goals. When you know a refund is headed your way, talk to your banker or financial advisor to assess the best way to invest, spend, or save it. Here are a few things to consider:
Pay down debt: Applying your refund toward high-interest debt – such as balances on credit cards – can move you in the right direction. Even a payment $10 above the minimum required monthly payment will help you shorten repayment time and reduce finance charges. As you pay off debt faster and start paying down principal, you can set a budget to meet goals – whether it’s your next vacation or your retirement.
Jump start your savings: When your debt is under control, increasing savings may be the next best way to use your refund for your financial goals. It’s good to have at least enough savings to cover three months’ worth of expenses in case of an unexpected event, such as job loss or injury. Think of it as an emergency fund.
Save for retirement: Saving for retirement is important in every economic cycle, and setting aside your refund for this purpose can be a great boost. Wells Fargo’s new Retirement site has interactive age-based information for customers and non-customers alike.
Invest in education: The market downturn caused many parents of young children to re-evaluate college savings plans. College remains one of the single biggest expenses for families, and the retail cost of a college degree more than doubled in the last 20 years, outpacing inflation. It’s a good idea to consider how the refund can help.
Contribute to charities important to you: From local food drives to Haiti and Chile earthquake relief, we all know non-profits need our support as much as ever. If you’ve been looking for an opportunity to give, using your tax refund may be a good way to make that contribution. With your trusted financial advisor’s help, the refund can be your first step in charitable giving.
