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Tax Tips |
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This page is updated on a regular basis with tips and news from the IRS and other reputable sources. The goal is to keep you informed of new legislation, tax planning suggestions, etc. Please be sure to check back frequently.
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324 Wall Street Princeton, NJ 08540
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Donna Montgomery Associates, LLC
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Phone: 609-921-6220 Fax: 609-921-6695 E-mail: DonnaJmont@aol.com
For directions to our office: www.mapquest.com
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NEW JERSEY TAX LEGISLATION PASSED JUNE 2009
The NJ state income tax rates for those earning more than $400,000 will be higher for the tax year that began on January 1, 2009. Married couples and single filers earning between $400,000 and $500,000 will pay income taxes at a rate of 8 percent, up from 6.37 percent. Those earning between $500,000 and $1 million will now pay at rate of 10.25 percent, up from 8.97 percent. And those earning over 10.75 percent will now pay at a rate of 10.75 percent, the second highest rate in the nation to Hawaii. Those earning more than $250,000 also get hit by the elimination of a property tax deduction. The income tax changes will generate at least $1 billion in new revenue.
2009 STANDARD DEDUCTIONS, EXEMPTIONS AND TAX BRACKETS
The following is a list of 2009 exemptions and standard deductions:
¨ Personal exemptions will increase $150, to $3650 ¨ Standard deductions for MFJ taxpayers will increase $500, to $11,400 ¨ Standard deductions for single and MFS taxpayers will increase $250, to $5,700 ¨ Standard deductions for HoH taxpayers will increase $350, to $8,350 ¨ The annual gift tax exclusion will increase $1,000, to $13,000 ¨ The maximum EITC for families with two or more children will increase $204, to $5028 while the income limit for the credit for MFJ filers with more than one child will be $43,415 ¨ The foreign earned income exclusion will increase to $91,400
Tax brackets for single and married filing separate taxpayers are:
¨ Taxable income up to $8,350 = 10% ¨ Taxable income over $8,350 to $33,950 = 15% ¨ Taxable income over $33,950 to $82,250 = 25% ¨ Taxable income over $82,250 to $171,550 = 28% ¨ Taxable income over $171,550 to $372,950 = 33% ¨ Taxable income over $372,950 = 35%
Accordingly, the brackets for married filing joint are:
¨ Taxable income up to $16,700 = 10% ¨ Taxable income over $16,700 to $67,900 = 15% ¨ Taxable income over $67,900 to $137,050 = 25% ¨ Taxable income over $137,050 to $208,850 = 28% ¨ Taxable income over $208,850 to $372,950 = 33% ¨ Taxable income over $372950 = 35%
REQUIRED DISTRIBUTIONS FROM IRA’S & OTHER PENSIONS SUSPENDED FOR 2009
With the broad investment market declines, many have seen their IRA and pension accounts lose substantial value. For taxpayers that do not need a full RMD, the RMD rules add insult to injury by (a) requiring annual distributions from the accounts, thus further depleting their balances, and (b) possibly causing account holders to sell investments at distressed values to be able to make the distribution.
In a relief measure, Congress has included in the recently enacted Worker, Retiree and Employer Recovery Act a provision that waives the requirement for taxpayers to make an RMD in 2009. Therefore, taxpayers who do not need a full RMD distribution in 20090 do not have to make one.
The provisions apply to IRA’s, and many (but not all) pension plans. Individuals withdrawing under a five year method may also get an additional year to make withdrawals.
This is only a one year relief provision—RMD’s must recommence in 2010. Unfortunately, the provision does not apply to 2008 RMD’s - these must still be made in full. Of course, taxpayers who need full RMD distributions for living expenses will not benefit from this provision.
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. Review the tax return filing instructions including 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 www.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.
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.
Real Estate Tax Deduction
There is an additional standard deduction for those who don’t itemize their 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. This deduction is available for the 2008 and 2009 tax years and increases your standard deduction.
Tuition and Fees Deduction
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. You do not have to itemize to take this deduction. 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. Income limits and other special rules apply to each of these provisions. To determine whether your expenses are qualified, refer to IRS Publication 970, Tax Benefits for Education. The 2008 edition is available soon online. This publication also describes other education-related tax benefits.
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 on Schedule A.
New Rules for “Cash” Charitable 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 to be released in the near future.
Special Charitable contributions for Certain IRA Owners
An IRA owner, age 70 ½ or over, can directly transfer tax-free up to $100,000 per year to an eligible charitable organization. This option, created in 2006 and recently extended through 2009, is available to eligible IRA owners, regardless of whether they itemize their deductions. Distributions from employer-sponsored retirement plans, including SIMPLE IRAs and simplified employee pension (SEP) plans, are not eligible.
To qualify, the funds must be contributed directly by the IRA trustee to the eligible charity. Amounts so transferred are not taxable and no deduction is available for the amount given to the charity. Not all charities are eligible. For example, donor-advised funds and supporting organizations are not eligible recipients.
Transferred amounts are counted in determining whether the owner has met the IRA’s required minimum distribution rules. Where individuals have made nondeductible contributions to their traditional IRAs, a special rule treats transferred amounts as coming first from taxable funds, instead of proportionately from taxable and nontaxable funds, as would be the case with regular distributions. See Publication 590, Individual Retirement Arrangements (IRAs), for more information on qualified charitable distributions.
Rules for Donating Clothing and Household Items
To be deductible, clothing and household items donated to charity must be in good used condition or better. A clothing or household item for which a taxpayer claims a deduction of over $500 does not have to be in good used condition or better if the taxpayer includes a qualified appraisal of the item with the return. Household items include furniture, furnishings, electronics, appliances, and linens.
Electronic Filing
The IRS encourages taxpayers to consider e-filing their tax returns. Nearly 90 million returns were filed electronically this year, accounting for about 58 percent of all filers. E-filing is easy, safe and accurate. The fastest way for you to receive a tax refund is to e-file and choose direct deposit; you can receive your refund in as little as ten days. The error rate of an e-filed return is less than 1 percent compared to 20 percent for a paper tax return.
Beware of Bogus E-Mails
The IRS does not send unsolicited e-mails about your taxes. If you get an e-mail that appears to be from the IRS, it may be an attempt to steal your private information. Don’t click on any links in the message. Rather, forward the e-mail to phishing@irs.gov using the instructions at www.irs.gov.
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 will, however, 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.
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 that you can include 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. |
