Tuesday, December 23, 2008

New Tax Law Changes Can Help Millions of Taxpayers Save Money

/PRNewswire-FirstCall/ -- As we near the final days of 2008, what continues to weigh heavy on the minds of many people is the slowing U.S. economy -- unemployment has reached the highest percentage in years at 6.7 percent*, layoffs and business closures continue and the housing market remains weak. This year, lawmakers have passed more than a hundred new tax law changes intended to help millions of individual taxpayers. Jackson Hewitt Tax Service(R) encourages taxpayers to find out how these new tax credits and deductions can help lower their individual tax liability and possibly put more money back in their pockets this tax season.

"With more than a hundred pro-taxpayer credits and deductions, many taxpayers will qualify for new benefits that may not have been available last year," said Mark Steber, vice president of tax resources at Jackson Hewitt Tax Service. "Taxpayers affected by these changes could see significant savings, and with the current recession, it is even more important that taxpayers get all of the tax benefits they deserve."

Tax Law Changes
Steber outlines some money-saving tax law changes for 2008, including:

-- Economic Stimulus Payment and Recovery Rebate Credit: This initiative
is a two-phased program consisting of the economic stimulus payment
and the recovery rebate credit. Phase one was the economic stimulus
payment which was an advanced payment of the projected amount of
recovery rebate credit available on the taxpayer's 2008 return. Phase
two is the 2008 component of the program, so taxpayers who did not
receive their full economic stimulus payment in 2008 may qualify for
the remainder as a Recovery Rebate Credit on their 2008 tax returns.
For example, Jane, a single taxpayer, filed her 2007 tax return in
February 2008. She filed single, without children, and received a
$600 economic stimulus payment. In November, Jane gave birth to a
baby girl. Because she had a child in 2008, Jane may be eligible for
an additional $300 credit when she files her 2008 tax return and
claims her child as a dependent.

-- Mortgage Debt Forgiveness Relief Act: Homeowners who experienced
foreclosure on their primary home can exclude the cancelled debt
amount from their taxable income. For example, a married couple
filing jointly with an adjusted gross income (AGI) of $35,000, and a
home foreclosure that includes $10,000 in cancelled debt, could
decrease their tax liability by $1,500 under this act. In the past,
the $10,000 of cancelled debt would have been considered taxable
income to the individual that owed the debt. The home must meet the
following criteria:
-- It must be the taxpayer's main residence
-- The amount of debt forgiven cannot exceed $2,000,000
-- The loan must have been used to buy, build or substantially
improve the home.

-- Housing Assistance Tax Act: Taxpayers who pay real estate taxes and
are not otherwise eligible to itemize deductions can increase their
standard deduction amount by the lesser of:
-- Real estate taxes paid in 2008 OR
-- $500 ($1,000 if married filing jointly)

For example, a married couple filing jointly with an income of $28,000 that did not itemize their tax return but paid $1,200 in real estate taxes in 2008 could increase their standard deduction amount by $1,000. This additional standard deduction would decrease their tax liability by $100.

-- Additional Child Tax Credit: The Additional Child Tax Credit is a
refundable credit. This year, the income threshold has been decreased
to $8,500 from $12,050, allowing certain taxpayers to qualify for up
to $533 more per child in a potential refund. For example, a single
parent with two children and an income of $15,000 would receive a
refund of $5,799. Before the change, the potential refund amount
would have been $5,266.

-- First Time Homebuyers Credit: Taxpayers who purchased a new home for
the first time after April 8, 2008, may qualify for a refundable
credit up to $7,500. Part of the American Housing Rescue and
Foreclosure Prevention Act, this refundable tax credit works like an
interest-free loan for all qualified taxpayers. The credit must be
paid back in equal parts over a period of 15 years beginning in 2010.

Extending expired tax benefits
Lawmakers also extended several expired tax benefits, including:
-- Tax-free charitable donations for taxpayers 70.5 or older who choose
to direct up to a $100,000 donation from a traditional or Roth IRA
directly to a charitable organization.
-- A two-year extension of the Educator Expense Deduction which allows
teachers an above-the-line tax deduction of up to $250 for
out-of-pocket classroom expenses.
-- A two-year extension of the Qualified Tuition Deduction which allows
students to directly deduct up to $4,000 of qualified tuition and fees
paid to a college or trade school.
-- A two-year extension to the sales tax deduction. Taxpayers can claim
the greater of their state and local income taxes paid or their state
and local sales taxes paid when itemizing deductions. This is of
particular interest to taxpayers that live in states with little or no
income tax and those that purchased high-ticket items during the year.

"These are just some of the changes in the tax laws this year," added Steber. "Taxpayers should consult a trained tax preparer this year in particular, to ensure they don't miss out on the benefits available as a result of these new credits and deductions or any other commonly overlooked deductions. Clearly it is even more important this year that taxpayers ensure they get back the money they deserve or keep more money in their pockets."

Unemployed in 2008

For those taxpayers who were unemployed in 2008, it is important to remember that unemployment compensation is taxable on federal and most state tax returns. Income tax is not automatically withheld from unemployment compensation, however, individuals can elect to have taxes deducted. If you did not have taxes withheld throughout the year, you may have a potential balance due when you file your 2008 income taxes.

For those taxpayers looking for a job during 2008, there are deductible costs they can claim if they itemize deductions, including:

-- Mileage costs accrued on a personal vehicle while job hunting
including trips to job interviews and to the unemployment office.
Between January 1, 2008, and June 30, 2008, taxpayers can claim 50.5
cents per mile. Between July 1, 2008 and December 31, 2008, taxpayers
can claim 58.5 cents per mile.
-- Costs for creating, printing and mailing a resume
-- Costs for a headhunter or job placement agency
-- Transportation costs such as a bus, taxi, train or plane to an
-- Meals and lodging if out of town for an interview
-- Parking and tolls when driving to an interview
-- Long distance or mobile phone call charges directly associated with a
job search
-- Business research services
-- Physical exam expenses if required by a potential employer

If a taxpayer accepted a new job which required relocation, he or she may be able to deduct qualified moving expenses not reimbursed by the new employer. Taxpayers should keep receipts related to all moving expenses in order to substantiate these expenses.

For more information, including a list of the most commonly overlooked deductions, credits and updates on recent tax changes, visit www.jacksonhewitt.com.

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