IRS offers end of the year tax tips

ATLANTA — Tax year 2009 is quickly nearing an end. The Internal Revenue Service reminds Georgia taxpayers to avoid putting off important financial tasks until the last minute. The important deadline of Dec. 31 is fast approaching for many tax-planning issues.

“Georgia taxpayers should review the recent tax changes and recently expanded tax credits as part of their year-end tax planning,” said IRS Spokesman Mark S. Green. “Some tax breaks and a review of your current tax situation may result in a bigger refund or less taxes to be paid come tax time,” Green said.

The IRS offers these tax tips for you to consider:

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, however, will 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 2009 tax return. Publication 550, Investment Income and Expenses, for 2008, explains the rules.

Residential Energy Property Credit: There is a new energy tax credit for homeowners who make energy efficient improvements to their existing homes. The credit applies to improvements such as adding insulation, energy efficient exterior windows and energy-efficient heating and air conditioning systems. The new law increases the credit rate to 30 percent of the cost of all qualifying improvements and raises the maximum credit limit to $1,500 for improvements placed in service in 2009 and 2010.

Homebuyer Credit Expanded: First-Time Homebuyers who purchase in 2009 can get a credit of up to $8,000. A new law also provides a “long-time resident” credit of up to $6,500 to others who do not qualify as “first-time homebuyers.” To qualify this way, a buyer must have owned and used the same home as a principal or primary residence for at least five consecutive years of the eight-year period ending on the date of purchase of a new home as a primary residence. For qualifying purchase contracts entered into by April 30, 2010 and settled on by June 30, 2010 eligible taxpayers may claim the credit on either their 2009 or 2010 tax returns.

Vehicle Sales Tax Deduction: Taxpayers who buy certain new vehicles after Feb. 16, 2009, and before Jan. 1, 2010 can deduct the state and local sales taxes they paid or other taxes and fees they paid in states with no sales tax. The deduction is limited to fees or taxes paid on up to $49,500 of the purchase prices of a qualified new car, light truck, motor home or motorcycle. The amount of the deduction is phased out for taxpayers whose modified adjusted gross income is between $125,000 and $135,000 for individual filers and between $250,000 and $260,000 for joint filers. The deduction is available even if you do not itemize deductions.

Form 1098 Showing Real Estate Taxes Paid: Even if you don’t itemize deductions, for 2009 you can still deduct amounts paid for state or local real estate taxes. The amount can be up to $500 for single filers or up to $1,000 for joint filers.

Unemployment Compensation: The first $2,400 of unemployment benefits an individual receives in 2009 are tax free. This provision applies only to benefits received in 2009: Normally, unemployment benefits are taxable.

Moving Expense: Your moving expenses may be deductible on your federal tax return if you meet certain tests relating to all three of the following requirements: (except member of the armed forces)

• Your move is closely related to the start of work at a new job location;

• You meet the distance test; (at least 50 miles) and

• You meet the time test (least 39 weeks during the first 12 months).

However, if your employer reimburses you for the cost of the move, you may have to include some of the reimbursement in income. (Check out Publication 521, Moving Expenses.)

Educator Classroom Expense Receipts: If you’re an educator who used your own funds to purchase items for use in the classroom, you may be able to deduct up to $250 of those expenses on your tax return.

College Expense tax breaks and Form 1098-T: If you paid college expenses for yourself, your spouse or a dependent, you may be able to claim one of the two education credits, including the new American Opportunity Tax Credit (AOTC), worth up to $2,500, or you may be able to take a tax deduction. Also new – part of the AOTC can be refunded if you have little or no tax liability. And don’t forget that interest paid on student loans may be deductible.

New children: If you had or adopted a child in 2009, you should get a Social Security number for that child as soon as possible to ensure you can count the child as a dependent on your 2009 return.

Records of Alimony Paid or Received: If you paid alimony, you can deduct it. If you received alimony, you should report it as taxable income.

Do you have a record keeping system? You can avoid headaches at tax time by keeping track of your receipts and other records throughout the year. If you don't have a record keeping system, now is a good time to start one for tax year 2010. It can be as simple as file folders or a shoebox. Just put everything that relates to taxes in one place. However, the more organized your records are, the easier it will be to complete your tax return next year. There is no substitute for good records. A good record keeping system can help ensure that you don’t miss out on any credits or deductions when you file your tax return.

Itemizers: should save proof of mortgage interest and real estate taxes paid (Form 1098) plus private mortgage insurance premiums paid, unreimbursed medical and dental expenses, casualty losses and certain miscellaneous expenses listed at IRS.gov.

Itemizers should also include charitable donations, but remember that they must be made to a charity recognized by the IRS and you must have acceptable documentation of all donations. If you donate used clothing or household items, they must be in good condition.

IRS.gov Web site: You can find more information about these credits and deductions on IRS.gov.

• Tax information, forms and publications are available through the IRS Web site 24 hours a day at www.irs.gov.

• If you don’t have access to the Internet or want to speak with an IRS representative, you may call the IRS toll-free at 1-800-829-1040 for tax information. To order forms or publications, call the IRS at 1-800-829-3676.

Taxpayers should consider seeking out additional information either through IRS.gov or a tax professional.

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