Tuesday, December 23, 2008

Be Aware of Key Tax Law Changes

From SouthBendTribune.com:

Last week, we promised that we would mention a few of the more significant changes to the tax law that could affect your 2008 income taxes. Here are some that you might want to be aware of:

The capital gains rate for taxpayers in the 10 percent and 15 percent tax brackets is ZERO (zero percent) for this year and next. That means that folks in those lower two brackets will pay no tax at all on capital gains! Unfortunately, given the stock market and the economy, not many of us have had capital gains this year.

Here’s a caveat for readers with children who have investment income: This rate does not apply to anyone who is claimed as a dependent on another return, so your kids in high school and college won’t be able to enjoy the distinction of being in the zero tax bracket.

The limit on contributions to a traditional IRA has been raised to $5,000. This limit is $6,000 for those 50 and older. Remember, you can deposit money into an IRA until April 15, 2009, and still have it count as a 2008 contribution.

The mileage rate for automobiles used for business increased on July 1 from 50.5 cents per mile to 58.5 cents per mile. The bad news is that taxpayers will have to compute their mileage deduction making two separate computations for the year.

The ironically good news is that the IRS raised the rates when the cost of gas was over $4.00 per gallon and going up daily. But even though gas now costs less than $2.00 per gallon, the higher rate will apply until at least Jan. 1, 2009. The IRS has already announced lower rates for 2009.

The infamous “kiddie tax,” that special tax on investment income of children, also known as Uncle Sam’s version of Truth or Consequences, now includes all dependent children under the age of 24. What this means (and this is the short version) is that for dependent children under 24, investment income over $1,700 will be taxed at the parent’s rate.

If this is beginning to sound familiar, it should. The “kiddie tax” has been in effect since 1986, but this is the first year it has expanded to include college age dependent children. Congress decided that the government has to get some tax revenue somewhere!

In 2008, taxpayers who do not itemize their deductions will be entitled to a special deduction for property taxes paid, up to a maximum of $1,000 for married couples.

This is especially important for St. Joseph County residents who, because of the late mailing of the property tax bills, still haven’t paid their property taxes for 2008. The upshot: Be sure to pay your property taxes before Dec. 31!

There is a credit this year for first-time homebuyers equal to 10 percent of the cost of a personal residence up to a maximum credit of $7,500. The credit applies to homes purchased after April 8, 2008. Unlike most credits, however, this one has to be paid back to the government! (Barney Frank, call your office!)

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