Updated: May 3, 2013 12:14PM
It's always tough to think about income taxes, but lately it's even more annoying. Those are your tax dollars being given away to bail out the banks, the auto companies, and even some housing speculators.
I'm always amused when I remember that Election Day and Income Tax Day are spaced just about as far apart on the calendar as possible. This is no coincidence.
But enough complaining. If you're among the 40 percent of Americans who haven't filed their 2008 taxes yet, it's surely time to get started. And there's a lot that's new this year.
FIRST-TIME HOME BUYER CREDIT. If you have not owned a home in the last three years, and you purchased a home after April 8, 2008, and before Jan. 1, 2009, you get a tax credit for 10 percent of the purchase price, up to $7,500. That credit must be repaid over a 15-year period.
(There's a more generous provision for first-time home buyers who purchase a home in 2009 before Dec. 1. When you file your 2009 return next year, you may be eligible for an $8,000 tax credit, which does not have to be repaid.)
In both years, the credit phases out for those with income over $75,000 on a single return, and $150,000 on a joint return.
DEBT RELIEF. The Mortgage Forgiveness Debt Relief Act has been extended until 2013. That means if your lender forgives a portion of your loan when you sell at a loss, or if your home is foreclosed and the lender forgives the remaining debt, you do not owe income tax on the amount forgiven, as was previously the case.
RECOVERY REBATE CREDIT. Remember the "stimulus" check you received last spring. It was really an advance payment for this rebate credit, which is claimed on your 2008 return. The amount was based on your 2007 tax return, filed last April. But if you lost your job last year, or took a pay cut, you may now be eligible for a portion of that rebate, which you can claim when you file this return.
TAX DEALS ON COLLEGE COSTS. The deduction for higher education expenses has now been extended for the 2008 and 2009 years, allowing those with income under $80,000 on a single return, or $160,000 on a joint return, to deduct up to $4,000 in tuition and fees. Other credits, including Hope and Lifetime Learning, have also been slightly expanded. And income limits have been expanded for those deducting interest paid on qualified student loans. Singles with incomes of less than $70,000 and married filing jointly with incomes under $145,000 may be able to get at least a partial student-loan interest deduction.
DEDUCT CAPITAL LOSSES. If you sold stocks or mutual funds (except for those inside a retirement plan) at a loss before year-end, you can deduct up to $3,000 against your ordinary income. Any additional losses can be carried forward to future years. That $3,000 deduction hasn't been increased in many years, and should be expanded in the next tax bill. Unfortunately, you can't deduct losses on sales of collectibles -- or your residence.
USE CAPITAL GAINS. Many retirees who are selling stocks or mutual funds to pay for living expenses should be aware of special treatment of gains for those in the 15 percent bracket. According to H&R Block: "In 2008, 2009, and 2010, taxpayers in the 15 percent or lower tax brackets will pay no tax on their net long-term capital gains and qualified dividends." That presumes you still have capital gains!
(And by the way, if you have extra money to "give away" this year, you're allowed a gift tax exemption of $13,000 in 2009, up from $12,000 in 2008.)
It's a good bet that Congress will get around to rearranging the tax code this year -- after it deals with the bank bailouts and economic woes. Everything from income taxes to estate taxes to bankruptcy forgiveness will be on the table. Odds are, you'll be paying more next year -- in spite of all those campaign promises.
Meanwhile, get going on your 2008 return. If all these changes confuse you, try popular tax programs like TurboTax and TaxCuts. They've been updated to easily guide you through all the new programs. And they'll help you file online to get any refund more quickly.
If you happen to get a refund, you can join the 48 percent of respondents to a CRI survey who say they will use it to pay off debt. At these rates, it's better to owe the government than the credit card issuers. And that's the Savage Truth.
Terry Savage is a registered investment adviser. Distributed by Creators Syndicate.