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For 2009, personal exemptions and standard deductions will rise and tax brackets will widen because of inflation adjustments announced by the Internal Revenue Service
By law, the dollar amounts for a variety of tax provisions must be revised each year to keep pace with inflation.
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As a result, more than three dozen tax benefits, affecting virtually every taxpayer, are being adjusted for 2009. Key changes affecting 2009 returns, filed by most taxpayers in early 2010, include the following:
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The value of each personal and dependency exemption, available to most taxpayers, is $3,650, up $150 from 2008.
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The new standard deduction is $11,400 for married couples filing a joint return (up $500), $5,700 for singles and married individuals filing separately (up $250) and $8,350 for heads of household (up $350). Nearly two out of three taxpayers take the standard deduction, rather than itemizing deductions, such as mortgage interest, charitable contributions and state and local taxes.
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Tax-bracket thresholds increase for each filing status. For a married couple filing a joint return, for example, the taxable-income threshold separating the 15-percent bracket from the 25-percent bracket is $67,900, up from $65,100 in 2008.
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The maximum earned income tax credit for low and moderate income workers and working families with two or more children is $5,028, up from $4,824. The income limit for the credit for joint return filers with two or more children is $43,415, up from $41,646.
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The annual gift exclusion rises to $13,000, up from $12,000 in 2008.
Bailout law contains tax provisions
On October 3, 2008, President Bush signed the "Emergency Economic Stabilization Act of 2008" (H.R. 1424).
The main thrust of this new law is to make funds available to the credit market and keep the economy going. In addition to the $700 billion bailout provisions, the law includes some tax law changes that could affect your tax planning.
The law provides relief from the alternative minimum tax (AMT) for 2008, includes energy and disaster relief provisions, temporarily increases FDIC insurance on bank accounts, and extends many tax breaks that had expired or were due to expire.
Among the tax breaks that were extended through 2009 were the following:
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The optional itemized deduction for state and local sales taxes.
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The deduction for qualified higher education expenses.
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The above-the-line deduction for classroom supplies purchased by
teachers.
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The additional standard deduction for property taxes paid by
those who don't itemize.
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Tax-free contributions from IRAs to charities by older
taxpayers.
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The business research and development credit.
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15-year straight-line cost recovery for qualified leasehold,
restaurant, and retail improvements.
The law increased the 2008 AMT exemption amounts to $46,200 for singles and $69,950 for couples.
Year-end assistance
Are you aware that you must provide form 1099-MISC to each person or unincorporated entity to which you paid at least $600 for services or rents in 2008?
Annual 1099-Series returns must be furnished to recipients by February 2, 2009, and to the IRS by March 2, 2009. If you would like Parker & Riddick to prepare your 1099 forms, please contact our office in early January in order to meet the deadlines.
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