Tax Tips

Tax Tips for New Parents:

1. Apply for a Social Security number for your new child as soon as possible. Most hospitals will assist with this application.
2. Remember to claim an exemption for your new child. You can claim an exemption for the entire year for any child born before midnight on December 31, 2008. For 2008, the exemption amount is $3,500.
3. Also remember to claim the Child Tax Credit. For 2008, the credit is $1,000 and directly reduces your tax. Any couple with less than $110,000 adjusted gross income qualifies for the entire credit.  If both parents work, there is a tax credit available to off-set child card expenses.
   
   

Dependent Care Tax Credit
If you and your spouse both work, you may be able to claim the dependent care tax credit for a child under age 13, even if you are “high earners”. The credit is available for the cost of child care that is necessary to enable you to work. 

Still Not Too Late To Get Your Rebate
If you did not get your rebate check last year you can reconcile and correct it when you file your 2008 tax return. Tax payers can complete a worksheet calculating the amount of the credit based on their 2008 tax return.  

Failing to Itemize
Every year, only about 30% of taxpayers itemize deductions. A study finds that 2.2 million filers could cut their tax bills by claiming itemized deductions (such as mortgage interest, property taxes, and charitable contributions). Instead, they take the standard deduction.
If you did not itemize a return within the last three years, check to see if the total itemized deductions you could have claimed exceeded the standard deduction. If so, file IRS Form 1040x, Amended US Individual Income Tax Return, to take the extra deductions now and get a tax refund.

Education Tax Breaks
Hope scholarship tax credit is worth up to $1,800 of the cost of the first two years of postsecondary schooling incurred by a taxpayer.
Lifetime learning credit gives a tax credit equal to 20% of up to $10,000 of the cost of any instruction at a higher educational institution.

Home Office Deductions
You can now deduct a home office if you need it to maintain records for your business because you have no other office, even if you do not actually work in the office. Prior to 1999, a home office was deductible only if it was the principal place where you conducted a business. 

Tax-Free Gain on a Home
The tax law lets you take totally tax-free gain of up to $250,000 ($500,000 on a joint return) on the sale of a home that has been your primary residence for two of the prior five years.

Mortgage Interest
You can deduct mortgage interest on a second residence and your primary residence. A boat or a motor home may be considered a second residence if it has living quarters, including beds, kitchen facilities and a bathroom.

First Time Homebuyers
Receive a temporary refundable tax credit equal to 10% of the purchase price of a home, up to $7,500 ($3,750 for married individuals filing separately). The credit is effective for homes purchased after April 9, 2008, and before July 1, 2009. The credit must be repaid, however, in equal installments over 15 years, in effect making it an interest free loan from the government. The credit must be claimed on the taxpayers 2008 or 2009 tax return. 

The Mortgage Forgiveness Debt relief Act of 2007 (MRA)
This new law signed December 20, excludes up to $2 Million of principal residence mortgage forgiveness debt. This is effective for debt discharged in 2007-2009. This means that tax payers will not have any surprises after a foreclosure such as a 1099 form from the loan company.  

Various Deductions:

1. Charitable contributions.  Be sure you have adequate documentation for all charitable donations to avoid losing deductions for legitimate gifts you have made.
2. State taxes.  Refunds of state taxes that are reported to the IRS on From 1099s are not necessarily taxable income on your federal income tax return.  They are taxable only if you deducted a refunded tax in the year in which you originally paid it.
3. Investments.  When calculating gain or loss on mutual funds or stock shares, that were sold during 2008 don’t forget to include reinvested dividends in the cost basis of the sold shares.  Failing to do so will unnecessarily increase your reported gain (or reduce your deductible loss.)
4. Medical expenses.  These are deductible only to the extent that they exceed 7.5% of your adjusted gross income (AGI).  But “big ticket” items bought for medical reasons may get you over the limit.  For example, air conditioners and humidifiers.  Even home improvements, such as central air-conditioning, elevators, remodeled bathrooms, and lap swimming pools, are deductible to the extent they do not increase a home’s value.