Tax saving tips for 2009

The best strategy for tax planning is staying informed on changes to the tax law.

However, in these times of sweeping changes to the current tax law, new legislation and regulations, and continuing economic uncertainties, doing so can be a challenge. Tax law changes range from tax credits for employee and undergraduate students to tax breaks for first-time home buyers and unemployment assistance for workers involuntarily terminated. Checking with a tax professional is always wise to verify how these changes might affect your tax picture.

Tax breaks are still with home ownership; first-time homebuyers may qualify for an $8,000 tax credit, depending on when you purchased your home, January 2009 to May 2010. Home interest on mortgage is usually a taxpayer’s largest deduction when itemizing deductions.  Property taxes are also deductible on your primary home when itemizing deductions.

In the case of a short sale or foreclosure on a home, mortgage debt forgiveness may be an issue for the taxpayer. If a lender forgives any funds, after a foreclosure or short sale outstanding, these forgiven amounts are considered ordinary income. However, on debt discharged on or after January 1, 2007, and before January 1, 2013, the debt forgiveness is treated as tax free if the property is your primary residence.

Recent tax law changes include Making Work Pay credit, providing employees with a tax credit of $400 for single individuals and $800 for couples. State unemployment compensation benefits paid to workers are usually 100 percent taxable. In 2009, laid off workers received an exclusion of the first $2,400 of unemployment compensation paid.

Other important common deductions to gross income: teacher classroom expenses, student loan interest, alimony expenses, one-half of self-employment tax, IRA contributions, health savings account contributions, moving expenses, penalties on early withdrawals from savings accounts, tuition and fees deductions. For tax payers who itemize, mortgage interest including interest on equity loans, points paid for mortgage or refinancing, state and local income taxes and personal property taxes (value portion of auto registration), state sales taxes in states with no income taxes, health insurance costs and medical expenses (limited on federal taxes to 7.5 percent of adjusted gross income but 100 percent deductible on Arizona state income tax returns) are all approved deductions. Medical mileage, charitable contributions – cash and property, mileage for volunteer work, income tax preparation software and fees, unreimbursed casualty and theft losses, job-search expenses, investment expenses, unreimbursed employee business expenses and professional investment advisory fees are all deductible.

An interesting allowance with the state of Arizona is the Parent /Ancestor Exemption. This is a special exemption for a qualifying parent or grandparent living with you for full tax year. The parent must be 65 or older, and the taxpayer must provide more than 50 percent of their support. This exemption provides a $10,000 exemption rather than the customary $2,300 for the state of Arizona only. Arizona respects its heritage.

When in doubt, always call the IRS or Arizona Department of Revenue — or your local tax professional.

Corrine Wilcox-Cornn, MBA, has over 25 years in the accounting profession. Southwest Accounting & Tax Services, Inc. is her newest endeavor, providing accounting and tax services for small to mid-size companies in Pinal County. Cornn can be reached at 480-734-1409 or [email protected].

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