Attention: The deadline to e-file your 2008 return was 10/15/2009, however, you can still use eSmart Tax to prepare, print and mail your 2008 return to the IRS/State for processing

eSmart Tax – Tips for Preparing Your 2008 Return

LIBERTY TAX TIPS FOR FILING A 2008 RETURN
AND PREPARING FOR TAX YEAR 2009

Amending

AMENDING PAST RETURNS

You can amend your tax return if you've filed, and later realize that you've omitted income, overlooked deductions, or for any other reason need to change that return.  You can amend your return by filing Form 1040X within 3 years after the date you filed your original return.  You cannot change your filing status from married filing jointly to married filing separately after the due date of the original return.

Alternative Minimum Tax (AMT)

ALTERNATIVE MINIMUM TAX GETS “ANOTHER PATCH”

Due to tax provisions of the Emergency Economic Stabilization Act of 2008, the AMT has been “patched” again.  This means tax relief is in sight for over 20 million Americans who faced a sudden tax hike because they would have qualified for the Alternative Minimum Tax when filing their 2008 tax return.  For tax year 2008, the AMT exemption amounts will increase to $46,200 for single and head of household filers, $69,950 for married filing jointly or qualifying widower, and $34,975 for married filing separately.  Taxpayers can also deduct nonrefundable personal credits in 2008 such as the child tax credit to reduce their AMT liability.

Capital Gains

 NET CAPITAL GAINS AND LOSSES

The maximum tax rates for net capital gains are  0%, 15%, 25% and 28%.  The 0% rate replaced the 5% rate that was in effect before 2008.  Short term capital gains are capital assets such as stocks or bonds held for one year or less and are taxed at ordinary income rates.  Long-term capital gains are capital assets held for longer than one year before they are sold.  The holding period begins the day after acquiring these assets and ends on the day of sale.  Capital gains and losses are declared on Schedule D, Capital Gains and Losses. .

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Casualty and Theft Losses

CASUALTY AND THEFT LOSSES FOR PERSONAL PROPERTY

Liberty Tax Service reminds you that casualty and theft losses on personal-use property can be claimed on your tax return if you have damage from unexpected events such as wildfires, hurricanes, tornadoes, or from a burglary or theft.  If the property is not completely destroyed, you need to calculate the loss to see if it is deductible.  Figure the decrease in value by taking the lower of fair market value before the casualty or the adjusted basis and comparing it to the fair market value after the casualty.  This loss, minus any insurance reimbursements, is your actual loss.  Subtract $100 for each separate casualty or theft that occurred during the year.  The total of all casualty and theft losses must be further reduced by 10% of the taxpayer’s adjusted gross income to arrive at the deduction which will be reported on Schedule A, Itemized Deductions.  For a ‘federally declared disaster’ area in 2008, the $100 subtraction is waived. For those in the ‘Midwestern disaster’ area, both the $100 and 10% are waived.

DISASTER AREA

Declaring casualty and theft losses can be a confusing process.  Taxpayers must declare casualty losses in the year they suffered them unless they are in an area determined by the President to warrant federal disaster assistance.  Those suffering property losses in these areas may amend their previous year’s tax return to take the loss.  This action will enable them to get a possible return refund sooner from property losses instead of waiting until they file their current year’s tax return. 

Casualty and theft losses for personal property can be claimed as the result of destruction from unanticipated weather events such as wildfires, hurricanes, tornadoes, or from burglaries and break-ins, by filing Form 4684, Casualties and Thefts, Section A  If the property is not completely destroyed, determine the loss by figuring the decrease in fair market value minus any insurance reimbursements.  Then subtract another $100 for each casualty or theft that occurred during the year.  A total of all casualty and theft losses must be further reduced by 10% of the taxpayer’s adjusted gross income.  These limits do not apply to business and income producing property, such as rental property, which is claimed on Form 4684, Section B.  Taxpayers who have incurred property losses should file insurance claims promptly.  Only losses not covered by insurance should be claimed on Form 4684. For a ‘federally declared disaster’ area in 2008, the $100 subtraction is waived.  For those in the ‘Midwestern disaster’ area, both the $100 and 10% are waived.

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Standard Deduction and Real Estate Taxes/Certain Casualty Losses.

ADDITIONAL STANDARD DEDUCTION

Liberty Tax Service reminds you that if you do not itemize you may still be able to claim up to $500 ($1,000 if married filing jointly) of your real property taxes as an addition to your standard deduction.  Taxpayer in a federally declared disaster area may be able to decrease their standard deduction by their loss from Form 4684.

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Charitable Contributions

CHARITABLE CONTRIBUTIONS

Liberty Tax Service reminds you that the IRS has imposed stricter standards for the condition of some items donated to charities.  No deduction is allowed for clothing and household items unless the donated property is in “good used condition or better.” The rule does not apply to any contribution of a single item for which a deduction of more than $500 is claimed if the taxpayer includes a qualified appraisal with the return.  Monetary charitable contribution deductions will be disallowed unless the donor maintains a record of the contribution with cancelled checks, receipts, and written documentation.

VEHICLE DONATION AS A CHARITABLE CONTRIBUTION

Do you plan to donate your used car to a nonprofit organization?  Liberty Tax Service reminds you that you may not be able to claim the “blue book value” of the car.  The IRS has placed limitations on the amount that may be deducted for a vehicle donation.  The amount that can be claimed will be based on how the charity or nonprofit organization actually uses the vehicle.  If the organization sells the donated vehicle without using it in any significant way, the charitable deduction cannot exceed the gross proceeds of the sale.  If the organization uses the vehicle, but does not sell it, the taxpayer must have documentation of the vehicle’s value, or fair market value.  The receiving organization should issue Form 1098-C, Contributions of Motor Vehicles, Boats, and Airplanes exceeding $500.00.  One copy of this form should be kept with the taxpayer’s records and the other should be attached to the tax return.

CHARITABLE DONATIONS - TAX-FREE DISTRIBUTIONS FROM IRAs FOR CHARITABLE PURPOSES

Taxpayers can again make tax-free distributions from IRAs for charitable purposes through December 31, 2009.  The maximum contribution limit for 2008 and 2009 is $100,000.

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Children and Family

CHILD TAX CREDIT

Liberty Tax Service reminds you that the child tax credit remains $1,000 for a qualifying child under age 17.  A qualifying child is a son, daughter, stepchild, eligible foster child who is a dependent, brother, sister, stepbrother, stepsister, or descendent of one of them (including grandchild, niece and nephew).  This credit is nonrefundable, and can only reduce the taxpayer's income tax.  If you do not receive all of the child tax credit, you may be eligible for the additional child tax credit which is refundable.

ADDITIONAL CHILD TAX CREDIT

Liberty Tax Service reminds you that a refundable additional child tax credit may be available to those who qualify and have not used up the available amount.  A military taxpayer’s nontaxable combat pay is added to the earned income which may give a larger credit.  The percentage used to determine the credit is 15% of the earned income over $8,500. 

CHILD AND DEPENDENT CARE CREDIT

Liberty Tax Service reminds you that a credit for up to 35% of qualified child and dependent care expenses paid is available for taxpayers who pay childcare in order to go to work.  Qualified expenses may be allowed for up to $3,000 for one eligible individual ($6,000 for two or more).  Persons employed or looking for work that must pay someone to care for dependents under age 13 or for a qualified disabled person may also be able to take this credit.

ADOPTION CREDIT

Liberty Tax Service reminds you that the maximum adoption credit and exclusion amount is $11,650.  This is also the maximum exclusion from income under an employer’s adoption assistance program.  The full credit will be allowed for adopting a special needs child, regardless of whether the taxpayer has qualifying expenses.  This is subject to phase-out modified adjusted gross income limits of between $174,730 and $214,730.

CHILD TAX CREDIT CHANGE

For 2008, the child tax credit is refundable to the extent of 15 percent of the taxpayer’s earned income in excess of $8,500.

“KIDDIE TAX” CHANGE CONCERNING CHILDREN’S INVESTMENT INCOME

Starting in 2008, there’s a change in the age that children with investment income can be taxed at their parents’ tax rate.  A child who is 18 and whose income is not more than half of their support, and/or a child who is a college student under age 24 and whose earned income is not more than half of the child’s support, will also have their investment income taxed at their parents’ rate.  Children in these categories can earn no more than $1,800 in investment income before they are taxed. 

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Depreciation

BONUS DEPRECIATION

Liberty Tax Service reminds you that you may be able to claim additional first year depreciation of 50% of the property’s depreciable basis.  Eligible property must have a recovery period of 20 years or less.  If you do not want to claim the 50% bonus depreciation, you must elect out for each class of property.

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Direct Deposit and Payment Options

SPLIT DIRECT DEPOSIT OPTION

Liberty Tax Service reminds you that that you can have your refund direct deposited in up to three different banks or financial institutions.  Taxpayers can use the direct deposit line on the Form 1040 to specify a deposit to one institution.  For more than one financial institution, taxpayers should use Form 8888, Direct Deposit of Refund to More Than One Account.

INSTALLMENT PAYMENT PLAN

Liberty Tax Service reminds you that you may pay the taxes you owe in installments if you can’t pay the total to the IRS by the tax deadline.   If you are not currently paying by an installment plan, complete Form 9465, Installment Agreement Request, and attach it to the front of the return.  You should send as much of the payment as possible with the return in order to limit penalty and interest charges which will continue accumulating until the total amount due is paid off.  Taxpayers who have already mailed or electronically filed their returns can mail Form 9465 to their appropriate IRS Service Center.  An IRS representative will contact you to discuss the situation and arrange the payments.

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Earned Income Credit

EARNED INCOME CREDIT (EIC)

Liberty Tax Service reminds you that the EIC income level limits for 2008 are:

  • More than one qualifying child – less than $38,646 for single taxpayers, and $41,646 for married filing jointly.
  • One qualifying child: less than $33,995 for single taxpayers, and $36,995 if married filing jointly.
  • No children: less than $12,880 for single taxpayers, and $15,880 if married filing jointly.
  • The maximum investment income for 2008 is $2,950.
EARNED INCOME CREDIT (EIC) AND MILITARY COMBAT PAY 

Liberty Tax Service reminds you that if you serve in a combat zone, you may elect to include combat pay in the earned income amount used to figure your earned income credit.  The maximum earned income credit for two or more qualifying children is $4,824 and for one child it is $2,917.  For a taxpayer who does not have a qualifying child, the maximum earned income credit is $438.

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Educational Tax Breaks

TUITION AND FEES DEDUCTION FOR HIGHER EDUCATION COSTS CONTINUES

Up to $4,000 of qualifying higher education expenses such as tuition and fees you paid for yourself, a spouse, or a dependent may be deductible.  The taxpayer cannot claim both this deduction and the Hope or lifetime learning credit for the same student in the same year. 

STUDENT LOAN INTEREST

Liberty Tax Service reminds you that taxpayers repaying a student loan (or education loan) may qualify to deduct up to $2,500 of their student loan interest as an adjustment to income.  There are AGI limitations which determine deductibility.  The credit may be phased out if your modified adjust gross income exceeds certain limits.  For 2008, the phase-out levels are between $55,000 and $70,000 for single, head of household, and qualifying widow taxpayers, and between $115,000 and $145,000 for married filing jointly.  

TUITION AND FEES DEDUCTION

Liberty Tax Service reminds you that qualifying higher education expenses such as tuition and fees you paid for yourself, a spouse, or a dependent may be deductible.  Up to $4,000 of these expenses can be deductible as an adjustment to income if your adjusted gross income is below $65,000 ($130,000 if married filing jointly).  The deduction is limited to $2,000 if your AGI exceeds that limit but is under $80,000 ($160,000 if MFJ).  The taxpayer cannot claim both this deduction and the Hope or lifetime learning credit for the same student in the same year.

HOPE AND LIFETIME LEARNING CREDITS

Liberty Tax Service reminds you that there are two nonrefundable tax credits for payments made for qualified tuition and related expenses for post-secondary education.  The Hope credit remains at 100% of the first $1,200 of expenses and 50% of the next $1,200 expenses, for a maximum credit of $1,800.  The lifetime learning credit gives a credit of 20% of qualified educational expenses not exceeding $10,000, for a maximum credit of $2,000.  There are phase-out modified adjusted gross income levels for both credits.  The limits are between $48,000 and $58,000 for single taxpayers, and between $96,000 and $116,000 for married filing jointly.

QUALIFYING EXPENSES FOR EDUCATIONAL CREDITS

Which educational expenses qualify for the education credits? Liberty Tax Service reminds you that tuition you paid for yourself, your spouse or a dependent to attend an eligible educational institution in 2008 should qualify.  The costs of books, supplies and equipment do not usually qualify but may qualify if these purchases are required by and paid to the school in order to attend.  The amount of credit for the Hope and/or Lifetime learning credits will be reduced for single taxpayers whose modified adjusted gross income is between $48,000 to $58,000 (between $96,000 and $116,000 for married filing jointly).

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EMTs and Firefighters

NEW EXCLUSION OF INCOME FOR VOLUNTEER FIREFIGHTERS AND EMERGENCY MEDICAL RESPONDERS

A new exclusion takes effect in 2008 and continues until 2011 that will allow firefighters and emergency medical personnel to exclude from their gross income rebates or reductions of property or income taxes provided by a state or local government for providing services.  The exclusion is limited to $30 multiplied by the number of months that the services were performed. 

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Exemptions

EXEMPTIONS FOR 2008

Liberty Tax Service reminds you that you can deduct $3,500 for each exemption for 2008 filing.  There are phase-out levels depending on the taxpayer’s Adjusted Gross Income. The AGI phase-out begins at:

  • $119,975 for married persons filing separately,
  • $159,950 for single individuals,
  • $199,950 for heads of household, and
  • $239,950 for married persons filing jointly or qualifying widow(er)s.

Starting this year, exemptions cannot be reduced to less than $2,333 so you can’t lose more than 1/3 of the dollar amount of your exemptions.  In other words, each exemption cannot be reduced to less than $2,333.

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Expired Tax Benefits

The following tax benefits have expired and will not apply for 2008.
  • Nonbusiness energy property credit expired at the end of 2007, but will again be available in 2009. Certain energy efficient home improvements such as windows, insulation materials and other property placed in service during 2009 can yield a credit of up to $500. The residential energy credit may offer a tax break on a 2009 return if all installation is done and/or work was completed in 2009.  Residential energy credits apply to homes, houseboats, mobile homes, condominiums, and qualifying manufactured homes. 
  • The increased limit on a deduction for a qualified conservation contribution from 30% of AGI to 50% of AGI (100% of AGI for certain farmers and ranchers).

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Homeownership- Buying and Selling a Home

MORTGAGE PREMIUM DEDUCTION 

Did you buy a home in 2008? Liberty Tax Service reminds you that you may take an itemized deduction for “qualified mortgage insurance premiums” paid or accrued in 2008 as a result of home acquisition debt.  The deductible amount is subject to a phase-out of 10% for taxpayers who are married filing jointly with an adjusted gross income of over $100,000 ($50,000 for taxpayers filing married filing separately).

SELLING A HOME

A home seller who is a single taxpayer has the opportunity to owe no tax on the first $250,000 of profit for the sale of a home owned and lived in for two of the last five years.  A married couple owes no taxes on the first $500,000 of profit for the same time period. 

Beginning in 2008, a surviving spouse who sells a principal residence within two years of the date of death of the spouse may exclude up to $500,000 of the gain if the ownership and use tests were met immediately before the date of death.

FIRST-TIME HOME BUYER’S CREDIT-NEW IN 2008

This new measure provides a maximum credit of up to $7,500.00 ($3,750.00 for married filing separately), or 10 percent of the home purchase price for eligible first-time home buyers who purchase residences between April 9, 2008 and July 1, 2009.  This is a fully refundable credit that first-time home buyers can utilize even if they owe less in taxes than the credit amount of up to $7,500, or even if they don’t owe any taxes.  Taxpayers can claim the credit for 2008 purchases by filing the new Form 5405 with their 2008 tax returns.  The home must be the taxpayer’s main residence, must be located in the United States, and the D.C. first-time home buyer credit cannot be claimed in the year of the purchase or any prior year.  It is important that taxpayers who take advantage of this new credit plan understand that the credit is an interest-free loan that must be paid back over 15 years in 15 equal installment payments beginning the second year after the credit is claimed. 

EXTENDED TAX RELIEF FOR SOME FINANCIALLY DISTRESSED HOMEOWNERS

Homeowners experiencing “short sales” and foreclosures will get an extended break for “debt-forgiveness” tax consequences.  Instead of treating cancellation of debt as taxable income on the foreclosure of a principle home, no taxes will be levied on discharges of indebtedness of up to $2 million dollars for married taxpayers filing jointly, and of up to $1 million dollars for a married taxpayer filing a separate return through tax year 2012. 

SELLING A HOME: CHANGE IN EXCLUSION

A home seller who is a single taxpayer has the opportunity to owe no tax on the first $250,000 of profit for the sale of a home owned and lived in for two of the last five years.  A married couple owes no taxes on the first $500,000 of profit for the same time period.  Homeowners reap annual tax benefits from the deductions allowed for mortgage interest and itemizing, which is usually more beneficial than taking the standard deduction. 

Starting in 2008, when a main residence is sold after the death of a spouse, it must be sold within two years of the death date for the surviving spouse to claim the $500,000 exclusion.

REAL ESTATE TAX DEDUCTION FOR NON-ITEMIZERS EXTENDED

Homeowners who are not able to itemize deductions can deduct their real estate taxes as an additional standard deduction of up to $500 ($1,000 if MFJ) for tax years 2008 and 2009.

LIMITED PROPERTY TAX DEDUCTION FOR NON-ITEMIZERS FOR 2008: 

This measure makes tax relief available to homeowners who pay local and state property taxes.  The standard deduction for non-itemizers is the lesser of the amount of real property taxes paid during the year or $500 for a single taxpayer or /$1,000 for a married couple.

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Hybrid Cars/Alternative Fuel Credit

HYBRID CAR PURCHASES MAY STILL YIELD TAX BENEFITS

In the market for a new vehicle with great gas mileage that can even yield a tax break?   The IRS still allows timely tax breaks for purchasing certain hybrid cars, but a tax credit has replaced the clean-fuel burning deduction.  The allowable credit amount is subtracted from the amount of federal taxes owed.  A full or partial credit amount may be available, depending on the number of that hybrid vehicle model sold by the manufacturer.  

 A hybrid vehicle is one that combines an electric motor with a gasoline-powered engine.   The vehicle must be purchased for your use, and you must be the original owner.  This deduction can be claimed whether or not the taxpayer itemizes.  Full credit is allowed for hybrid car purchases for a limited time that depends on when the manufacturer sells 60,000 models.  Some hybrid models like the Toyota Prius no longer qualify for the credit.  For the latest chart of eligible hybrid models and credit amounts, visit http://www.irs.gov/newsroom/article/0,,id=157632,00.html

Itemized Deductions

ITEMIZED DEDUCTIONS

To itemize or to take the standard deduction?  Liberty Tax reminds taxpayers that they can choose to claim the standard deduction, which means deducting a flat amount.  Or they can itemize their deductions and subtract certain items and expenses on Schedule A.  For 2008, if your Adjusted Gross Income (AGI) is above $159,950 ($79,975 if married filing separately), you may not be able to claim the total amount of your itemized deductions.  Itemized deductions include home mortgage interest and points paid in the year of a home purchase, medical and dental expenses, deductible taxes, interest expense, charitable contributions, employee business expenses, and other miscellaneous expenses.

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IRAs and 401(k)’s/Retirement Planning

RETIREMENT SAVINGS CONTRIBUTIONS CREDIT

Liberty Tax Service reminds you that if you contributed to an IRA or an employer-sponsored retirement plan in 2008, you may be eligible for a credit.  This nonrefundable credit is based on the adjusted gross income and can be up to $1,000 per taxpayer.  It can be taken in addition to the deduction of the traditional IRA contribution.

INDIVIDUAL RETIREMENT ARRANGEMENTS (IRAs)

Liberty Tax Service reminds you that for taxpayers covered by a pension plan at work, the modified adjusted gross income limit for deducting traditional IRA contributions has increased.  A couple filing married filing jointly whose income is between $85,000 and $105,000 can take a partial deduction this year.  Single taxpayers (including head of household filers) making between $53,000 and $63,000 can take a partial deduction.  The contribution limit for 2008 is $5,000 ($6,000 if age 50 or older)..

For 2008 and 2009, if you are at least 70 1/2 and have a distribution made by the trustee of an IRA account directly to a charitable organization, the distribution will be nontaxable.  The total charitable distribution cannot be more than $100,000 ($200,000 if married filing jointly). 

IRA ADDITIONAL TAX ON EARLY WITHDRAWALS

Liberty Tax Service reminds you that now there is no additional 10% tax on early withdrawals from an IRA in the following two circumstances: one of these is buying a first home for yourself, your children or grandchildren.  A maximum of $10,000 can be withdrawn for this home purchase.  No additional tax is due if the withdrawal is used to pay higher education expenses for the IRA owner, spouse, child, or grandchild.  The withdrawal is still subject to income tax.

401(k) RETIREMENT PLANS

Liberty Tax Service reminds you that employees often have the option of contributing to a 401(k) retirement plan at their place of employment.  It’s a method that employees can choose that allows their cash wages to go into the plan on a pre-tax basis, thereby lowering their taxable income for each year they contribute.  Although the amounts are included in wages subject to social security, Medicare and federal unemployment, these amounts are not reflected on your Form W-2.  There are limits to the amounts that can be contributed annually.  For 2008, the maximum annual contribution is the smaller of $46,000 or 100% of the actual compensation paid to the participant.

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Jobs and Career

JOB EXPENSES

Liberty Tax Service reminds you that generally, you can depreciate the amount you spend for tools used in your work.  Some of the other expenses you may deduct include union dues, job-related magazines and books, and other related business expenses.  If your employer requires you to wear work clothes or uniforms that are not suitable for everyday wear, you may deduct the cost and upkeep.  These expenses are deducted on Schedule A subject to 2% of your adjusted gross income.

MOVING EXPENSES

Liberty Tax Service reminds you that if you’ve moved at least 50 miles during 2008 in order to start work at a new work location, you may be able to deduct some moving expenses.  Your moving mileage is deductible at 19 cents per mile from January 1 through June 30, 2008, and 27 cents per mile from July 1st through December 31, 2008.   Deductible moving expenses include the cost of moving furniture and household items as well as your lodging en route.  Always be sure to notify the IRS of your relocation, by sending a Form 8822, Change of Address, to the IRS Service Center where you filed your last return.

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Medical Expenses

MEDICAL EXPENSES

Liberty Tax Service reminds you not to overlook medical deductions for which you qualify.  Hearing aids, eyeglasses, contact lenses, hospital fees for nursing, physical therapy, lab tests and x-rays are all deductible.  You may also deduct mileage driven to fill prescriptions at 19 cents per mile from January 1 through June 30, 2008, and 27 cents per mile from July 1st through December 31, 2008.  Taxpayers who itemize can deduct unreimbursed medical expenses that they paid during the year if these exceed 7.5% of their adjusted gross income. 

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Mileage That’s Deductible

DEDUCTIBLE MILEAGE RATES

Liberty Tax Service reminds you that the standard business mileage rate is 50.5 cents per business mile driven from January 1 through June 30, 2008 and 58.5 cents per business mile driven form July 1 though December 31, 2008.  The deductible amount for mileage driven during a move and/or for medical purposes is 19 cents per mile driven from January 1 through June 30, 2008 and 27 cents per mile driven form July 1 though December 31, 2008.  Charitable mileage is deductible at 14 cents per mile in 2008.  Be sure that you document this mileage by keeping a log or other written record.

MILEAGE-DEDUCTIBLE RATES CHANGE

With gas prices fluctuating, it’s a good time to be taking advantage of all possible tax deductible mileage.  Mileage for some business, medical, charitable, moving, and educational purposes may be deductible.  Here are the mileage rates that are in effect July 1st through the end of 2008:

  • Business mileage: 50.5 cents per mile from January 1st until June 30th, 2008, 58.5 cents per mile from July 1st until the end of 2008.
  • Medical or moving mileage: 19 cents per mile from January 1st until June 30th, 2008, 27 cents per mile from July 1st until the end of 2008.
  • Charitable mileage: stays at 14 cents per mile for all of 2008.

The standard deductible mileage rates for 2009 will be 55 cents per mile for business miles driven, 24 cents per mile for medical and/or moving purposes, and 14 cents per mile for miles driven for charitable purposes.

Be sure that you document your mileage by keeping a log or other written record.

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Military and Veterans Tax Scenarios

SOME DISABLED VETS MAY AMEND RETURNS FOR CWT BENEFIT REFUNDS

Liberty Tax Service reminds you that refunds may be in order for disabled American veterans due to a court decision on their Compensated Work Therapy benefits.  The U.S. Tax Court recently ruled that payments made to disabled veterans through the CWT program are not taxable, but can now be classified as benefits. Disabled veterans who have been taxed for these CWT program benefits can amend their returns for tax years 2005 (until April 15, 2009) or 2006 by filing Form 1040X.  Payments were issued on Form 1099 to disabled veterans from the Department of Veterans Affairs for the CWT program since 1965.  The goal of the CWT program is to help disabled veterans who can’t work learn new career skills in partnership with private businesses. 

EARNED INCOME CREDIT (EIC) AND MILITARY COMBAT PAY 

Liberty Tax Service reminds you that if you serve in a combat zone, you may elect to include combat pay in the earned income amount used to figure your earned income credit.  The maximum earned income credit for two or more qualifying children is $4,824 and for one child it is $2,917. For a taxpayer who does not have a qualifying child, the maximum earned income credit is $438.

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Recovery Rebate Credit

RECOVERY REBATE CREDIT

There’s a new Recovery Rebate Credit available in 2008.  To be eligible, taxpayers must either:

  • Have total earned income, social security benefits and other designated benefits total at least $3,000 or
  • Have a tax liability more than zero, and meet these income levels:\
  • $8,950 – Single or Married Filing Separately
  • $11,500 – Head of Household
  • $14,400 – Qualifying Widow(er)
  • $17,900 – Married Filing Jointly

The amount of the credit is up to $600 for all filing statuses except $1,200 for married filing jointly, and an additional $300 for children who are considered qualifying children for the child tax credit.  This is reduced or eliminated by any economic stimulus rebate already received.

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Renewed Tax Benefits That Were Set to Expire in 2008:

These tax benefits were scheduled to expire, but were renewed so they will continue for 2008:
  • Alternative Minimum Tax (AMT) was “patched” again.   Due to tax provisions of the Emergency Economic Stabilization Act of 2008, the AMT has been “patched” again.  This means tax relief is in sight for over 20 million Americans who faced a sudden tax hike because they would have qualified for the Alternative Minimum Tax when filing their 2008 tax return.  For tax year 2008, the AMT exemption amounts will increase to $46,200 for single and head of household filers, $69,950 for married filing jointly or qualifying widower, and $34,975 for married filing separately. This has only been extended for 2008.
  • The tuition and fees deduction will continue to be available to eligible taxpayers to deduct up to $4,000 for qualified higher education expenses for themselves or immediate family members.  This has been extended through 2009.
  • Taxpayers will continue to have the option to deduct their state and local sales taxes instead of state and local income taxes when they itemize.  This option is especially beneficial to taxpayers living in states which have no state income tax. This has been extended through 2009.
  • The educator expenses deduction for teachers and other qualifying educators is extended for tax years 2008 and 2009.  They can continue to deduct up to $250 a year for out-of-pocket expenses paid for classroom supplies whether they itemize or not. This has been extended through 2009.
  • District of Columbia first-time homebuyer credit (for homes purchased after 2007) has been extended through 2009.
  • Taxpayers 70½ and older can again have the trustee make tax-free contributions from their IRAs directly to charities. Doing this will reduce their taxable distribution. This is especially helpful for those who can no longer itemize their deductions. This has been extended through 2009.  

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Sales Tax Deduction

SALES TAX DEDUCTION CONTINUES THROUGH DECEMBER 31ST, 2009

Taxpayers can take advantage of state sales tax deductions if they itemize deductions.  Those who live in one of seven states without a state income tax may deduct their state sales tax when they itemize.  Taxpayers in states with state income taxes can choose to deduct their state income taxes or state sales taxes, whichever is more advantageous. 

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Standard Deductions

STANDARD DEDUCTION

The standard deduction amounts for 2008 are:

Married filing jointly  $10,900
Single   $5,450
Head of household  $8.000
Married filing separately  $5,450

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Small Business Owners/ Sole Proprietors

SECTION 179 DEDUCTION

Liberty Tax Service informs you that the new limit for the section 179 deduction is $250,000 for qualified business property placed in service in 2008.  The section 179 deduction is for tangible personal property such as machinery and equipment instead of depreciating them over the useful life of the items. Section 179 can only be deducted in the year of purchase.

HOME OFFICE

Liberty Tax Service reminds you that a home office will qualify as the principal place of business if it is used exclusively and regularly to conduct administrative or management activities of a trade or business and/or store inventory.  There must be no other fixed location of the business where the taxpayer can conduct these activities.  The area claimed can only be used for your business, and not at all for personal use.  You may or may not be able to claim the entire amount.  You can if your gross income from the business is equal or greater than your total business expenses. 

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Depreciation

BONUS DEPRECIATION

Liberty Tax Service reminds you that you may be able to claim additional first year depreciation of 50% of the property’s depreciable basis.  Eligible property must have a recovery period of 20 years or less.  If you do not want to claim the 50% bonus depreciation, you must elect out for each class of property.

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Teachers and Educators Deduction

TEACHERS AND ELIGIBLE EDUCATORS DEDUCTION CONTINUES THROUGH DECEMBER 31st, 2009

Eligible educators who spend their own money on classroom supplies may qualify for a tax break again when filing a 2008 return.  An eligible educator is a kindergarten through grade 12 teacher, instructor, counselor, principal or aide who works at least 900 hours in either a public or private school.  The adjustment for these expenses, of no more than $250, can be claimed whether or not the taxpayer can itemize.

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Withholding

ADJUSTING YOUR WITHHOLDING AMOUNT

Liberty Tax Service reminds you that you can adjust the withholding amount and the allowances you are claiming by completing a new Form W-4, Employee’s Withholding Allowance Certificate, and giving it to your employer.  Recent tax changes or personal changes such as marriage or divorce, birth of a child, and changes in employment or income may mean that too little or too much tax is being withheld.  If you need to have more money taken out of your paycheck, reduce the number of withholding allowances, or figure the additional amount of money that you would like withheld each pay period.

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