BENEFICIAL CHANGES on TAX LAW for the FISCAL YEAR of 2009

So, it is of importance for us to know how we can make the most out of filing our income taxes; by being able to maximize deductions and credits that could give us bigger and better refunds.

In 2009, numerous new and expanded deductions and credits were created for a broad cross-section of taxpayers, which to name some are college tax benefits for parents and students; energy credits for homeowners who are going green; and even tax breaks for home buyers and car buyers, according to the Internal Revenue Service.

Below is the summary of the key changes on our Tax Law that will truly benefit us taxpayers.

American OpportunityCredit Helps Pay for First Four Years of College

Parents and students can utilize a federal education credit to offset part of the cost of college education under the new American OpportunityCredit.

This credit modifies the existing Hope credit for tax years 2009 and 2010, making it available to a broader range of taxpayers.

Income guidelines are also expanded and required course materials are added to the list of qualified expenses. Many of the ones eligible will qualify for the maximum annual credit of $2,500 per student.

And, in most cases, the American Opportunity Credit offers greater tax savings than existing education tax breaks.

Tuition, related fees and required course materials, such as books, to name a few that generally qualify. Previously, books usually were not eligible for education-related credits and deductions.

The credit is equal to 100 % of the first $2,000 spent and 25 % for the next $2,000, which means the full $2,500 credit may be available to a taxpayer who pays $4,000 or more in qualified expenses for an eligible student.

The full credit is also available for taxpayers whose modified adjusted gross income (MAGI) is $80,000 or less ($160,000 or less for filers of a joint return). The credit will either be reduced or eliminated for taxpayers with incomes above these levels. For these income limits are actually higher than under the existing Hope and lifetime learning credits.

What's even better, is 40 % of the American opportunity credit is refundable, which means that even people who owe no tax can get an annual payment of the credit of up to $1,000 for each eligible student. Existing education-related credits and deductions do not provide a benefit to people who owe no tax. The refundable portion of the credit is not available to any student whose investment income is taxed, or may be taxed, at the parent's rate, commonly referred to as the Kiddie Tax.

Though most taxpayers who pay for post-secondary education qualify for the American Opportunity Credit, some actually do not. The limitations as set in the new law include a married person filing a separate return, regardless of income, joint filers whose MAGI is $180,000 or more and, finally, single taxpayers, heads of household and some widows and widowers whose MAGI is $90,000 or more.

There are some post-secondary education expenses that do not qualify for the American Opportunity Credit. They include expenses paid for a student who, as of the beginning of the tax year, has already completed the first 4 years of college. That's because the credit is only allowed for the first 4 years of a post-secondary education.

And, students with more than 4 years of post-secondary education may still qualify for the lifetime learning credit and the tuition and fees deduction.

Energy Improvements that Qualify for Expanded Tax Credits

People who weatherize their homes or purchase alternative energy equipment may qualify for either of two Home Expanded Tax Credits; and these are the non-business energy property credit and the Residential Energy Efficient Property Credit.

Non-business Energy Property Credit: This credit equals 30 % of what a homeowner spends on eligible energy-saving improvements, and up to a maximum tax credit of $1,500 for the combined 2009 and 2010 tax years, which means that a homeowner can get the maximum credit by spending at least $5,000 on qualifying improvements.

Improvements must be done to an existing principal residence because this tax credit is not available for new construction. Due to limits based on tax liability, other credits claimed by a particular taxpayer and other factors, actual tax savings will usually vary. But, the cost of certain high-efficiency heating and air conditioning systems, water heaters and stoves that burn biomass all qualify, including all labor costs for installation. Also, the cost of energy-efficient windows and skylights, energy-efficient doors, qualifying insulation and certain roofs are likewise eligible for credits, but take note that the cost of installing these items does not count.

Residential Energy Efficient Property Credit: Homeowners going green should also check out a second tax credit designed to spur investment in alternative energy equipment. The residential energy efficient property credit, equals 30 % of what a homeowner spends on qualifying property such as solar electric systems, solar hot water heaters, geothermal heat pumps, wind turbines, and fuel cell property. Qualifying property purchased for new construction or an existing home is also eligible for the credit. Labor costs must be included when calculating this credit. Also, no cap exists on the amount of credit available except in the case of fuel cell property.

Homeowners should also take note that not all energy-efficient improvements qualify for these tax credits. The important key is for them to check the manufacturer's tax credit certification statement before purchasing or installing any of these improvements. The certification statement can be found on either the manufacturer's web site or the product packaging.

Please take note that the Internal Revenue Service (IRS) will only honor manufacturer's tax credit certification, which is different from the Department of Energy's Energy Star label, for not all Energy Star labeled products do qualify for tax credits.

New Vehicle Purchase Incentive

When filing, taxpayer should deduct the state or general excise tax paid on purchasing a brand new cars, or light trucks, motorcycles, or home motors, regardless on the quantity, or if it is paid on multiple purchases. However, the deduction is limited to the tax only up to $49,500 of the purchased price of each qualifying new vehicle. Take note that qualifying new vehicles must be purchased and not leased after Feb. 16, 2009, and before Jan. 1, 2010.

Taxpayers who buy a new vehicle may deduct state or local fees or taxes that are similar to a sales tax whether or not their state imposes a sales tax. To qualify, the fees or taxes must be assessed on the purchase of the vehicle and must be based on the vehicle's sales price or as a per-unit fee.

The amount of the deduction is reduced for taxpayers with modified AGI (adjusted gross income) between $125,000 and $135,000 for individual filers; and between $250,000 and $260,000 for joint filers. This deduction is available regardless of whether a taxpayer itemizes deductions on Schedule A. Itemizers claim the deduction on either Line 5 or Line 7 of Schedule A. Non-itemizers claim the deduction on new Schedule L, Standard Deduction for Certain Filers.

Tax Credits Increased for Low and Moderate Income Workers

More workers and working families are eligible for the Earned Income Tax Credits (EITC). In particular, expanded benefits are now available for those with 3 or more qualifying children and married couples.

The EITC helps taxpayers whose incomes are below certain income thresholds, which in 2009 is up to $48,279 for families with 3 or more qualifying children; $45,295 for those with 2 or more children; $40,463 for people with a single child and $18,440 for those with no children at all.Individuals can get EITC even if they owe no tax and even if no tax is withheld from their paychecks.

In addition, the earned income formula for the additional child tax credit is revised for tax years 2009 and 2010. It is expected that because of this more low and moderate income families qualify for the full $1,000 child tax credit.

Standard Deduction Increases for Most Taxpayers

Nearly 2 out of 3 taxpayers choose to take the standard deduction rather than itemizing deductions such as mortgage interest and charitable contributions or donations.

The basic standard deduction is: $11,400 for married couples filing jointly and qualifying widows and widowers, a $500 increase compared with 2008; $5,700 for singles and married individuals filing separate returns, up $250; and $8,350 for heads of household, up $350.

Higher amounts apply to the handicapped and elderly, which in particular are the blind people and senior citizens.

In addition, eligible taxpayers can further increase their standard deduction by listing any of the following three deductions: state or local real estate taxes paid in 2009; a net disaster loss reported on Form 4684; and state or local sales or excise taxes on the purchase of a qualifying new motor vehicle. Use new Schedule L, Standard Deduction for Certain Filers, to claim these additional deductions.

AMT Exemption Increased for One Year

For the fiscal year 2009, United State Congress raised the alternative minimum tax exemption to the following levels: $70,950 for a married couple filing jointly and qualifying widows and widowers, up from $69,950 in 2008; $35,475 for a married person filing separately, up from $34,975 ; $46,700 for singles and heads of household, up from $46,200.

Under the current law, these exemption amounts will drop to $45,000, $22,500 and $33,750, respectively, in 2010.

Other Changes Taxpayers Should Watch-Out For

The standard mileage rate for business use of a car, van, pick-up or panel truck is 55 cents for each mile driven. The standard mileage rate for the cost of operating a vehicle for medical reasons or as part of a deductible move is 24 cents per mile. The rate for using a car to provide services to charitable organizations is set by law and remains at 14 cents a mile.

The value of each personal and dependency exemption is $3,650, up $150 from 2008. Most taxpayers can take personal exemptions for themselves and an additional exemption for each eligible dependent.

The amount of taxable investment income a child can have without it being taxed at the parent's rate is from $1,900, up $100 from 2008.

And, there are several modifications to the definition of a qualifying child. For example, the child must be younger than the taxpayer, unless the child is totally and permanently disabled. These changes affect who can claim various tax benefits including the dependency exemption, child tax credit, credit for child and dependent care expenses, head of household filing status and the EITC.

A new rule applies to the non-custodial parent in situations where a couple is divorced or legally separated after 2008. To claim a child as a dependent, the non-custodial parent must attach Form 8332 or a similar statement to his or her tax return. For pre-2009 divorces and separations, the non-custodial spouse still has the option of attaching certain pages from the divorce decree or separation agreement, instead of Form 8332.

A $3,500 or $4,500 voucher or payment made for such a voucher under the CARS "cash for clunkers" program is not taxable to the consumer buying or leasing a new car.

Unemployment benefits up to $2,400 received in 2009 are tax free. Every person who receives unemployment benefits can exclude the first $2,400 of these benefits on their return. Unemployment benefit amounts over $2,400 must be taxed.

Read the 1040 publication thoroughly or visit the IRS's website prior to filing your taxes. Check what credits and deductions you could be entitled to and get the most out of filing your income tax.

For more details on these key changes on tax law and all other tax information, please visit www.irs.gov