Deduction for Sales Tax on New Vehicles Taxpayers who purchased a new car, light truck, motorcycle or motor home after February 16, 2009 and before January 1, 2010 can deduct the state and local tax paid. The amount is limited to the tax paid on the first $49,500 of the purchase price. The deduction can be used to increase the standard deduction or as an itemized deduction and is subject to phase out rules
Economic Recovery Payment Most recipients of social security benefits, supplemental security income, railroad retirement or veteran’s benefits should have received a stimulus payment of $250 in 2009. This economic recovery payment is not taxable. For married couples, if both spouses receive benefits, each is entitled to the stimulus payment.
Making Work Pay Credit The Making Work Pay Credit is 6.2% of earned income not to exceed $400 ($800 if married filing jointly). It is subject to income limitations and will be reduced if the taxpayer received an economic recovery payment or is entitled to the government retiree credit.
Unemployment Compensation Beginning in 2009, each recipient of unemployment compensation can exclude from gross income up to $2,400 of unemployment benefits received.
Government Retiree Credit This credit is available to recipients of pension or annuity payments for service performed for the U.S. government or any U.S., state or local government or any instrumentality of any of these, as long as the service was not covered by social security. The credit is $250 ($500 if married and filing jointly and both spouses receive a qualifying pension or annuity). The credit is not allowable if the taxpayer received an economic recovery payment.
American Opportunity Tax Credit This new credit is a modification of the Hope Credit. The maximum credit is $2,500 per student and is subject to phase out rules. For students who attended a school in a Midwestern disaster area, the credit can be calculated using previous rules. The credit can be claimed for the first four years of post-secondary education (previously two years). Generally, 40% of the credit is refundable. Qualified tuition and related expenses have been expanded to include books, supplies and equipment needed for a course.
Sale of Main Home Gain from the sale of the main residence is no longer excludable from income if allocable to periods of non-qualified use. Generally, non-qualified use means any period after 2008 in which neither spouse nor former spouse used the property as a main home (with certain exceptions).
Nonbusiness Energy Property Credit This credit which expired after 2007 has been reinstated and is limited to $1,500 for improvements made in 2009 and 2010. The credit is 30% of the cost of certain energy-efficient property or improvements such as high-efficiency heat pumps, air conditioners, water heaters, energy-efficient windows, doors, insulation, certain roofs and stoves that burn biomass fuel.
Residential Energy Property Credit Beginning in 2009, there is no limitation on the 30% credit amount for qualified solar electric property costs, qualified solar water heating property costs, qualified small energy property costs and qualified geothermal heat pump property costs.
RECORD RETENTION GUIDLINES
Several clients mentioned that, due to identity theft concerns, they have made it a practice to shred most documents including all of their paid bills. While identity theft is a serious problem, destruction of some of these records creates another problem, the inability to provide documentation to support tax deductions. In the event of an audit, unsupported deductions can be disallowed, resulting in assessment of additional tax, penalties and interest. Considering IRS’s announcement of increased audits, now more than ever it is important that the requirement to maintain supporting documentation be met.
