Wednesday, Apr 25, 2018
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Tax time: trying to find a break

If you re a recent home buyer, or a longtime homeowner, this year s tax season may look pretty good to you.

Also, some tax filers who were ineligible for a government stimulus check last year may find stimulus money coming their way.

Overall, there are not a lot of changes in the tax code that will cause filers grief this year. A number of rates and deductions have risen, and few wrinkles have been added that could affect some taxpayers positively or negatively. But by and large, there are not many new wrinkles to be concerned about.

Given the politics of the country, not a lot has changed. A lot of stuff got extended, said Chuck Mira, of Mira + Kolena Ltd., a Toledo tax and accounting service.

One notable change, though, relates to last year s economic stimulus checks, which ranged from $300 to $1,200 or more, depending on how many children a family had.

If you were eligible for a check last year but didn t receive it by not filing a return or failing to claim it, you can still get the money through a tax credit when you file your federal income tax form.

But the process has created confusion for all tax filers.

A new line is on the 1040 form for the recovery rebate credit or RRC. It allows those still eligible for money those who didn t file a return, those who were dependents in 2007 but are no longer dependents in 2008, or those who may have had a child born in 2008 to take a stimulus tax credit for the amount they are owed.

Only about 3 percent of folks are really still eligible for this and would claim the recovery rebate credit, IRS spokesman Eric Erickson said.

However, the IRS has found that in early tax returns which have been filed that 15 percent have mistakes on this credit line, which is Line 70 on the 1040 form, Line 42 on the 1040A, and Line 9 on the 1040 EZ.

For most taxpayers who got their check last year or the maximum amount owed, they re going to put a zero in there or leave it blank, Mr. Erickson said.

However, many tax filers are incorrectly listing the amount of money they ve already received, he added. The key is whether the taxpayer is entitled to the credit.

Robert Hodge of Robert G. Hodge Tax Services of Toledo said, I ve had some clients get the extra $300 because they had a child last year. And I have a young couple, both of whom were students in 2007 and claimed by their parents, but who graduated last year, got out on their own, got married, and they got the full $1,200 tax credit.

Two items of note changing this year, tax professionals say, apply to home ownership.

The first is a refundable First-time Home Buyer Credit, which involves good news and bad news.

Under the program, any taxpayer who had not owned a home for three years and who purchased a home on or after April 9, 2008, is eligible to receive up to a $7,500 interest-free loan in the form of a refundable tax credit equivalent to 10 percent of the purchase price of a home.

Taxpayers who receive this tax credit must repay any amount they receive over 15 years in equal installments, or, earlier if the home is sold.

I tell people to take that $7,500 and just put it in the bank, said Fran Gordon of Taxtyme Service LLC in Northwood.

The bad news is that, in the American Recovery and Reinvestment Act recently signed into law, the $7,500 has been boosted for home buyers this year to $8,000 and is now a tax credit, not a loan. It applies only to homes purchased between Jan. 1 and Dec. 1, 2009, so first-time buyers who bought last year are out of luck.

Longtime homeowners who don t itemize will get a fatter tax refund with the addition of a new property tax standard deduction ($500 for singles, $1,000 for married filing jointly).

In the past you could take your property tax deduction only if you itemized, Ms. Gordon said. A lot of people don t make those itemized limits so they just take the standard personal deduction. But now people can take the property tax deduction and a standard deduction. That s a nice thing for a lot of people that have owned their own homes for a long time and don t have complicated returns, she added.

Tax filers will find several rate and deduction changes.

The standard deduction has risen to $5,450 for singles, $10,900 for married couples filing jointly, and $8,000 for heads of households, increases of $100 and $200, and $150 respectively.

Personal and dependent exemptions have increased by $100 to $3,500. Most taxpayers can take personal exemptions for themselves and an additional exemption for each eligible dependent.

Investors will be pleased too. The 5 percent tax rate on qualified dividends and long-term capital gains is reduced to zero.

The change applies to investors whose taxable income is less than $65,100 if married filing jointly or qualifying widow or widower); $32,550 if single or married filing separately, or $43,650 if head of household).

Those who use cars, vans, pickups, or panel trucks for business will get a break too. The mileage rate for Jan. 1 through June 30 is 50.5 cents, up 2 cents. And the rate for the rest of 2008 is 58.5 cents.

Last year the Internal Revenue Service got tough on demanding proof for charitable deductions. Tax experts said that has not changed and may be even tougher this filing season.

For noncash contributions, you have to be really careful and be able to back it all up. It was abused for so long that now you have to have a receipt for everything you give, said Mr. Hodge, who is the owner of Robert G. Hodge Tax Services.

It used to be letters for everything over $250, and now it s letters for everything, Mr. Hodge said.

A new question tax preparers are getting this year is how unemployment benefits are taxed.

There are not as many as I thought I would see because most of them are just starting to get their benefits now, but I am definitely seeing more unemployment cases, Mr. Hodge said.

Honestly, this is the most depressing tax season I ve ever been through, and I ve been doing taxes for 36 years, he said. I ve had to advise people to walk away from their homes.

Tax-wise, unemployment benefits are fully taxable income, but when applying for benefits, applicants will be asked if they want up to 10 percent withheld for tax purposes.

People don t know what kind of situation they will find themselves in later, so it s always better to request withholding, Mr. Hodge said.

Contact Jon Chavez or 419-724-6128.

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