Sensible Tax Change Would Bring in $450 Million, Avoid Additional Service Cuts

The General Assembly is poised to slash the budget more in light of another month of declining revenues caused by the Great Recession and Georgia's structural deficit.

"This problem is too large to solve with budget cuts alone," said Sarah Beth Gehl, deputy director of the Georgia Budget & Policy Institute. "We should seek a balance of cuts and new revenues through sensible tax changes such as repealing the deduction of state income tax."

One concrete way to bring in $450 million* is to repeal the bizarre state tax deduction, which almost all states do not allow. The deduction not only costs nearly a half-billion dollars, but it unfairly lowers the effective tax rate for taxpayers who itemize.

"This tax change would not affect the vast majority of taxpayers with incomes less than about $50,000, since they do not itemize," said Gehl, "but for those who do, about 15 percent of filers, the average tax increase would be $85. (The total amount will still be deductible on the federal income tax.)

"Another $1 billion cut to state services will have an immediate negative impact on Georgia's economy, as
well as devastating effects on the education and healthcare infrastructure," said Executive Director, Alan Essig. "This sensible tax change should be part of a balanced solution going forward, along with the proposed increase in the cigarette tax."

* $450 million is an estimate calculated by the Institute on Taxation and Economic Policy, March 2010.

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Tax Reminder: A Big Portion of Your Long Term Care Insurance Premiums May Be Deductible

/PRNewswire/ -- Want to keep more of your money in these challenging times? Then check with your tax advisor if you have long term care insurance. You may be able to deduct a big chunk of your 2009 premiums. What if you don't have long term care insurance? Then consider getting it NOW to lock in tax benefits next year. Uncle Sam may in effect pick up the tab for much of your premiums for 2010. This reminder comes from LTC Financial Partners LLC (LTCFP), one of the nation's most experienced long term care insurance agencies.

"For the 2009 tax year, an individual with a qualified policy may be able to deduct up to $3,980, depending on age," says Cameron Truesdell, CEO of LTCFP. "For a couple, the maximum amount doubles, to nearly $8,000." According to the Internal Revenue Service, for individuals the amounts of long term care insurance premiums that are deductible as medical expenses in 2009 can be as high as --

-- $3,980 if you're 70 or over
-- $3,180 if you're over 60 but not over 70
-- $1,190 if you're over 50 but not over 60
-- $600 if you're over 40 but not over 50
-- $320 if you're 40 or under



"Those who don't have policies, but want them, can set themselves up for substantial deductions next year," Truesdell says. For individuals, the amounts deductible as medical expenses in 2010 can be as high as --

-- $4,110 if you're 70 or over
-- $3,290 if you're over 60 but not over 70
-- $1,230 if you're over 50 but not over 60
-- $620 if you're over 40 but not over 50
-- $330 if you're 40 or under



"These deductions are not a one-time thing," Truesdell says. "They recur. You can take them each and every year that you pay premiums; and the deductible limits have been increasing annually."

Truesdell strongly urges individuals and companies to investigate ALL the tax advantages that may be available to them. Additional potential benefits, beyond the above federal deductions, include --

-- If your state offers tax deductions or rebates, and you qualify, these
are additive to your federal deduction, if you qualify.
-- When a policy is designed to pay on a per-diem basis, a limited
portion of the benefits may be excluded from taxable income.
-- When a policy is paid for out of a Health Savings Account (HSA), there
can be tax advantages.
-- For businesses, there are tax breaks that can be especially
attractive. For example, opportunities exist for some business owners
to deduct premiums without having to satisfy the 7.5% medical expense
threshold amount.



"With so much government support, we often wonder why more people don't get LTC policies," says Truesdell.

LTCFP does not offer tax advice but teams up with accountants and other tax experts to help their clients get all the deductions or other benefits available to them. "We've formed strategic alliances with banks, accountants, other financial advisors and tax preparers, and organizations such as the National Association of Estate Planning Attorneys," says Truesdell.

How can you make sure you don't miss out? "Ask your tax expert to check into every deduction that may apply in your case," Truesdell advises. "We're glad to help. We'll consult with anyone's accountant, tax attorney, or other advisor -- now or closer to the tax deadline." In Truesdell's national organization, hundreds of experts are available by phone or Internet. Requests for help, at no charge, may be made at http://www.ltcfp.us/ltcfp/taxbreaks.htm.

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New Bill Signed by President Obama Allows Taxpayers to Claim Haiti-Related Contributions on 2009 Tax Return

/PRNewswire/ -- Taxpayers wishing to lend their support to relief efforts in Haiti now have an additional incentive to do so, thanks to new legislation signed into law by President Obama.

Through the new bill, H.R. 4462, taxpayers have two options regarding monetary contributions for Haitian Earthquake Relief. They can either deduct contributions made after January 11, 2010 and before March 1, 2010 on their 2009 return or can wait and claim the deduction on their 2010 return. In addition to allowing the contributions to be deducted on a 2009 tax return, the bill also includes a provision that recognizes donations made to a charitable organization via text message, provided that a copy of the phone bill showing the date, time, organization name, and donation amount is available.

"The nation of Haiti is suffering a devastating humanitarian crisis, and millions of Americans have already been moved to donate money to charities that are taking part in relief efforts," said Mark Steber, Chief Tax Officer, Jackson Hewitt Tax Service Inc. "Having the President specifically designate that Haiti-related monetary contributions may be acknowledged on a 2009 tax return, even though the calendar year has passed, is a powerful way to encourage this kind of giving - while also reminding taxpayers of the financial benefits of charitable contributions."

Here are some tips from Jackson Hewitt on how to make and record charitable donations and claim them on a 2009 tax return:

-- There are several ways to make a tax-deductible contribution to a
qualified charitable organization: through a cash payment, a check, a
credit card charge or by making a payroll deduction to a charity. The
Internal Revenue Service allows taxpayers to search for a qualified
organization on its Web site at http://www.irs.gov/app/pub-78/

-- Keep records of your donations. Acceptable records include a receipt
from the organization that states the date, name, address, location,
and amount of the donation; a cancelled check; or other bank documents
that provide the same information.

-- Don't forget to claim all the household items and clothing you donated
to your church, school, or other local charity during the year. The
fair-market value of all items in good or better condition that are
donated to a qualified organization are deductible. Make sure you
keep a list of all items donated and their value when you contributed
them.

-- If you volunteer, you can also deduct out-of-pocket expenses you have
that are directly related to your volunteer work.

-- Out-of-pocket expenses include mileage related to charitable work
(at present, 14 cents per mile), the cost of uniforms required
while doing the volunteer work (such as for scout leaders, EMTs,
firefighters, etc), and any supplies needed to do this work.
Remember to keep your receipts with the date and the
organization's name for your records.

-- If you are claiming mileage, make sure you have a record of the
miles driven, the date, and the organization's name. You should
also indicate starting point and destination.


"Charitable contributions claimed on a 2009 tax return must have been contributed in the 2009 tax year," notes Steber. "The new Haiti legislation is an exception."

More information about charitable contributions can be found on the Jackson Hewitt web site at www.jacksonhewitt.com. To find a nearby office or speak with a local tax preparer, call 1-800-234-1040.

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A Dozen New Items to Consider When Filing Your 2008 Return

/PRNewswire/ -- First Quarter, 2009 - While the process of filing your return each year is pretty much the same, it will be important to watch the details and consider new options when rounding up your statements of income, figuring out your standard or itemized deductions, subtracting your credits, and making your choices on payment. According to William E. Massey, Senior Tax Analyst for the Tax & Accounting business of Thomson Reuters, "If you just ease into the same routine when doing your 2008 taxes, you may miss out on big tax savings that could result from a number of key changes that first apply for the 2008 tax year."

To help you take advantage of the new tax saving opportunities, he has put together this list of a dozen key items to consider when filing the form 1040 for 2008:

1. Economic stimulus payment. You may have received an economic stimulus payment in 2008, based on your 2007 taxes. If so, don't include it as income on your return. It's not taxable. If you didn't receive a payment, you may be eligible for the recovery rebate credit, as explained below. You may even qualify for that credit if you did receive an economic stimulus payment.

2. Recovery rebate credit. This credit is figured like last year's economic stimulus payment, except that the amounts are based on tax year 2008 instead of tax year 2007. The maximum credit is $600 ($1,200 if married filing jointly) plus $300 for each qualifying child. You may be able to take this credit only if you did not get an economic stimulus payment, or your economic stimulus payment was less than $600 ($1,200 if married filing jointly for 2007) plus $300 for each qualifying child you had for 2008.

Massey notes, "Many individuals may have received a zero or reduced economic stimulus payment because of the phase out rules. Under those rules, the amount of an economic stimulus payment (both the basic and the child's amount) was reduced by 5% of a taxpayer's adjusted gross income (AGI) above $75,000 ($150,000 for joint returns). Since the time when IRS first started sending out economic stimulus payments, economic conditions have drastically worsened. As a result, many individuals who lost all or a portion of their economic stimulus payment because of the phase out rules may now be in a position to claim a recovery rebate credit on the 2008 return they file in 2009. This would be relevant to a taxpayer who, for example, experienced a job layoff, cutback in hours or reduction of salary. A recovery rebate credit may also be allowed on account of a child being born in 2008 or to someone first entering the workforce in 2008."

3. Withdrawal of economic stimulus payment from certain accounts. You may have opted to have your economic stimulus payment directly deposited to a tax-favored account, such as an IRA, and you now realize you need the money. Don't worry about being penalized for taking the payment back. If you withdraw it by the due date of your return (including extensions), the amount withdrawn will not be taxed and no additional tax or penalty will apply. For stimulus payments deposited into a Coverdell education savings account (CESA), the withdrawal can be made by the later of the above date or May 31, 2009.

4. Alternative minimum tax (AMT) exemption amount increased. For 2007, you may have owed AMT or come close to owing it. That's the added tax that arises when your income is refigured in a special way to tax you on certain items that aren't taxed under the regular rules and to deny certain deductions that are allowed under the regular rules. Some individuals may not be hit with the tax for 2008 because the AMT exemption has increased to $46,200 ($69,950 if married filing jointly or a surviving spouse; $34,975 if married filing separately).

5. Standard deduction increased by real estate taxes. Suppose you own a home and pay real estate taxes but don't have enough total deductions to be able to itemize. There is good news for you. You can increase your standard deduction by the state and local real estates taxes you paid, up to $500 ($1,000 if married filing jointly).

6. Standard deduction increased by net disaster loss. There have been many natural disasters in 2008. If you were one of the unfortunate individuals who was victimized by a hurricane, flood, fire or other natural disaster last year, there is some new tax help for you. You can increase your standard deduction by your net disaster loss. This amount is your personal casualty losses from a federally declared disaster in a disaster area less any personal casualty gains from it.

7. First-time homebuyer credit. There's a new credit for "first-time" homebuyers. Actually, that term is misleading because, as we demonstrate below, you may qualify even if you previously owned a home. Qualified homebuyers can subtract the credit amount from their federal income tax when they buy the home and even get a refund if the credit exceeds the tax. However, they are then required to pay the credit back over 15 years. The result is that the credit resembles an interest-free loan that must be repaid to the government. Here are the details:

-- The home must be located in the U.S. and must be your principal
residence (main home). You (and if married, your spouse) must not have
owned another principal residence in the U.S. in the three-year period
before purchasing the new home. Thus, the home doesn't literally have
to be your first home.
-- The home must have been purchased from April 9, 2008 through June 30,
2009, inclusive.
-- A special rule allows taxpayers who purchase a principal residence in
the first six months of 2009 to treat the purchase as if made on
December 31, 2008. This allows the taxpayer to claim the credit for
2008 rather than 2009.
-- The credit is equal to 10% of the price paid for the home, up to a
maximum of $7,500. The $7,500 maximum credit applies both to
individuals and married couples filing a joint return. A married
individual filing separately can claim a maximum credit of $3,750.
-- The credit is phased out for individual taxpayers with modified
adjusted gross income (AGI) between $75,000 and $95,000 ($150,000 and
$170,000 for joint filers) for the year of purchase. Taxpayers with
modified AGI over $95,000 ($170,000 for joint filers) can't claim the
credit.
-- In the second year after purchase, taxpayers who took the credit must
start paying back the credit in equal installments over 15 years, with
no interest charge.
-- No credit is allowed if: the taxpayer or the taxpayer's spouse was
ever entitled to a D.C. homebuyer credit; the home purchase was
financed through tax-exempt mortgage revenue bonds; the taxpayer is a
nonresident alien; or the taxpayer disposes of the residence (or it
ceases to be a principal residence) in the year of purchase.



8. Rollovers to Roth IRAs. Subject to conditions, you can roll over distributions from an eligible retirement plan to a Roth IRA. The rollover is not tax-free. But with lowered account values, the tax may not be onerous. Also, you may be able to use other available tax breaks to eliminate or reduce the tax arising from the rollover. "You may be thinking, why would I want to do something that causes me to pay tax? You would do this to gain the advantages of a Roth IRA," says Massey.

9. Standard mileage rates. The 2008 rate for business use of one's vehicle is 50 1/2 cents a mile (58 1/2 cents a mile after June 30, 2008). The 2008 rate for use of one's vehicle to get medical care or to move is 19 cents a mile (27 cents a mile after June 30, 2008).

10. Personal exemption and itemized deduction phaseouts reduced. Taxpayers with adjusted gross income above a certain amount may lose part of their deduction for personal exemptions and certain itemized deductions. The amount by which these deductions are reduced in 2008 is only 1/2 of the amount of the reduction that otherwise would have applied in 2007.

11. Tax rate on qualified dividends and net capital gain reduced. The 5% tax rate on qualified dividends and net capital gain that applied for 2007 is reduced to zero for 2008.

12. Tax on child's investment income. Form 8615 is required to figure the tax for a child with investment income of more than $1,800 if the child: (1) was under age 18 at the end of 2008; (2) was age 18 at the end of 2008 and did not have earned income that was more than half of the child's support; or (3) was a full-time student over age 18 and under age 24 at the end of 2008 and did not have earned income that was more than half of the child's support.

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College Students, Parents May Reduce Taxes Based on College Expenses

/PRNewswire/ -- USA Funds(R), the nation's leading education loan guarantor, advises families that paid college expenses during 2008 that they may qualify for deductions or credits when they file their federal income tax returns.

"In recent years the U.S. Congress has enacted and extended measures to provide federal income tax benefits for families that pay tuition, fees and other higher education expenses," said Carl C. Dalstrom, USA Funds president and CEO. "USA Funds urges taxpayers to consider potential tax benefits that may apply to them as they prepare their 2008 income tax returns."

Among changes in the higher education tax benefits for the 2008 tax year are the following items:

Deduction for higher education expenses. Late last year Congress extended for the 2008 and 2009 tax years this deduction, which was scheduled to expire. Taxpayers may qualify to deduct from their taxable income up to $4,000 in tuition and fees that they paid during the year. Taxpayers do not have to itemize deductions to claim this benefit, but their modified adjusted gross income must be $80,000 or less -- $160,000 or less for married taxpayers filing joint returns -- to qualify for this deduction.

Hope and Lifetime Learning credits. The maximum Hope credit has increased to $1,800, up from $1,650 for the previous tax year. In addition, the maximum income permitted to qualify for the Hope and Lifetime Learning tax credits has been increased by $1,000 for single taxpayers and by $2,000 for joint filers. Single taxpayers with modified adjusted gross incomes of less than $58,000, and married taxpayers filing jointly with incomes of less than $116,000, now qualify for at least a partial credit. The Hope credit permits taxpayers to reduce their taxes for out-of-pocket tuition and fees for each of the first two years of postsecondary study. The Lifetime Learning credit provides a maximum $2,000 credit based on qualified tuition and related expenses paid for any year of postsecondary study. Taxpayers in portions of 10 Midwestern states that were declared federal disaster areas last summer may quality for higher Hope and Lifetime Learning credits.

Higher income limits for joint filers to qualify for student loan interest deduction. Taxpayers who paid interest on qualified student loans during 2008 may be eligible to deduct up to $2,500 from their taxable income. The income limits for married couples filing joint returns to qualify for this deduction have increased by $5,000. Single taxpayers with modified adjusted gross incomes of less than $70,000, and married taxpayers who file joint tax returns reporting modified adjusted incomes of less than $145,000, may qualify for at least a partial deduction.

Other higher education tax benefits. Taxpayers also should consider potential tax savings based on earnings from so-called 529 college savings plans and Coverdell Education Savings Accounts, as well as employer-paid education benefits.

To help students and parents take advantage of these benefits, USA Funds offers a summary of these higher education tax benefits on its Web site at www.usafunds.org/taxbenefits. USA Funds also provides a brochure "Higher Education Tax Benefits - Expanded Taxpayer Savings," which is available free of charge from many colleges, universities and private career colleges.

USA Funds recommends that taxpayers consult with a qualified tax adviser or the Internal Revenue Service to determine their eligibility for any of these tax benefits.

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