New Tax Breaks: Congress passed several new Tax Laws to help taxpayers struggling in this economy. Knowledge of some of these Tax Breaks can save you money on your 2009 taxes. Here's Five Little Known Tax Tips to Follow for this Tax Filing season.
Tip 1: Watch The Making Work Pay Credit
The American Recovery and Reinvestment Act passed the Making Work Pay Credit. Instead of giving taxpayers a separate rebate check, this credit began to show up in paychecks last April. At the end of 2009, those eligible may have received up to $400 for this credit.
This is a good thing, but you need to watch out. Some of you got more than you should have. This could have easily happened if you had two jobs and got the $400 credit at both jobs. The same scenario applies to husband and wife who each ad jobs- they might have received excess credit.
What to do: Fill Out Schedule M to reconcile any credit overages. Simply fill out the form to see what you might need to pay back to the IRS. Also, consider adjusting your withholding now for 2010 to prevent this issue in the future.
Tip 2: Convert Your Traditional IRA to a Roth
New tax laws allow anyone to convert their traditional IRS to a Roth retirement account. Before, shifting tax-deferred traditional money into a tax-free Roth plan wasn't available if you had an adjusted gross income of $100,000 or more. The income limit is now removed.
If you decide this is the right retirement move for you, note that you'll be required to pay taxes on the previously untaxed amounts you convert. The good news is you can opt to pay half the conversion costs on your 2011 taxes, with the remainder in 2012.
Tip 3: Take Advantage of Home’s Energy Efficiency Credits
Thanks to another portion of last year’s stimulus bill, the tax savings for energy-efficient home improvements were improved.
The bill was greatly simplified, now homeowners can claim up to 30 percent of the first $5,000 spent on qualifying residential energy upgrades, or up to $1,500 in tax credits. Going Greener and installing bigger items, like a solar home heating system, can result in even biggest tax credits.
The new credit format took effect last year, but is running through 2010. We don't know if this will be the last year, so if you're in the market for home improvements, consider energy-efficient upgrades that could pay off at tax-filing time.
Final Tip: If you're unsure of which direction to take when filing your taxes, you might want to consult with a reliable professional. Do your research and make sure you don't make matters worse by trying to claim a credit you don't qualify for.