Economic Stimulus - Tax Issues

[Jeff In Milwaukee]

Howdy! As some of you know, I do taxes this time of year (which is why I've been AWOL for the past two months), but I wanted to pass along some tax-related information regarding the stimulus package. PM me if you have any specific tax-related questions. I PROMISE to get be on tomorrow and reply!

Here are the tax implications of the final legislation:

Home Buyers. If you’re a first-time homebuyer and wanted until 2009 to jump into the market, you’re one savvy customer. That’s because in addition to historic-low housing prices, you may also qualify for an $8,000 tax credit. Unlike the existing first-time homebuyer credit, this one doesn’t have to be repaid if you meet certain conditions (like living in the house for at least three years).

Now if you bought between April 9, 2008 and December 31, 2008, you’ll still qualify for a credit that has to be repaid – but with no interest, so it remains a pretty good deal. For both versions of the credit, you can elect to get your money on either your 2008 tax return or wait until your 2009 return.

Car Buyers. If you’re looking for a new set of wheels, now would be a good time to buy. The bill allows new car buyers to deduct state sales and excise taxes – and the best part about this tax break is that it’s an above-the-line deduction, so you don’t have to itemize in order to take advantage.

Bus Riders. Not into the whole personal-transportation thing? The package allows public transit commuters and those in van pools to set aside up to $230 in pre-tax dollars per month to cover their costs. That’s up from the current $120 per month. Employers can also provide up to $230 in tax-free transit benefits.

We Still Believe in A Place Called Hope. Bill Clinton’s signature tax break got a little sweeter. In addition to increasing the amount of the credit to $2,500 per child, the new version also dramatically raises the phase-out range, so married parents with incomes up to $160,000 can claim the full amount. The costs of books and other materials is now included in addition to the standard tuition costs.

Tax Free Unemployment. For those of you who have never collected unemployment, you might be surprised to learn that unemployment benefits are taxable. This usually comes as a surprise to those who receive unemployment come tax time. The package now exempts the first $2,400 of unemployment compensation from federal taxation, providing a little extra breathing room for folks who need it the most.

Increased Standard Deduction. If your house is paid off and you haven't filed the "long form" in years because you don't have enough deductions, remember that homeowners who don't itemize are eligible for an increase in their standard deduction. This provides an increase of up to $1,000 ($500 for single filers) in addition to their standard deduction.

Check Please? You won’t be getting another rebate check like you received last year. A tax cut of about $400 per person will come incrementally, via a slight decrease in your payroll withholding. So if you’re paid bi-weekly, you should see an extra $15-20 in your paycheck. Don’t spend in all in one place!

[midnight]

1. This is good to know. Do you know if anything for small

business deductions anything changed?

[Jeff In Milwaukee]

4. One thing that didn't change

is the $250,000 Sect. 179 deduction for capital investments by small business.

Business with gross receipts of <$15 million will be able to carry back losses for five years (rather than two). So if you took a beating this year, you could get some immediate relief by carrying those losses back to 2003-2005.

[mojowork_n]

2. And all of that goes into play...?

Just a little confused about the timeline.

When do these new rules start to apply?

Hypothetically speaking, if someone already filed their 1040-EZ, returned their 2008 W-2, and got back their taxes withheld/electronic refund -- but they turned around and bought a new car with that refund -- are they supposed to re-file an amended return to get back the state sales and excise tax credit?

Is there a FAQ webpage somewhere you'd want to check -- since the Instruction Books for tax forms already printed for this year, are now out of date? Or is all of this stuff applicable for next year?

[Jeff In Milwaukee]

3. As of this moment

Only the first-time homebuyer credit has an option of claiming the credit on 2008 or 2009. So if you buy a car this year, you would report that on your 200- return. However, if you bought a house, you have the option of claiming it right away (on your 2008 return) or waiting until 2009. If you already failede a 2008 return, you can file an amended return to claim the credit.

For FAQ I would suggest the IRS website -- www.irs.gov