Tips to use as tax time nears Published Dec. 30, 2009 By Myra Barnum Cannon Tax Office manager CANNON AIR FORCE BASE, N.M. -- Doing taxes is not everyone's favorite pastime; however, the more you know, the better prepared you will be to handle this unpleasant task. The Cannon Tax Office is going to be providing free services again this year. We want to provide you with some tips to help you prepare. There were many tax law changes that may affect your return and it is important to educate yourself beforehand. Unemployment Compensation - For 2009, you do not have to pay tax on up to $2,400 of unemployment compensation per recipient. Making Work Pay Credit - You may be able to take this credit if you have earned income from work. Even if your federal income tax withholding was reduced during 2009 because of the credit, you must complete Schedule M (Form 1040A or 1040) and claim the credit on your return to benefit from it. You cannot take the credit if your modified adjusted (AGI) is $95,000 ($190,000 if married filing jointly) or more, you are a nonresident alien, or you can be claimed as a dependent on someone else's return. Government Retiree Credit - You may be able to take this credit if you get a government pension or annuity, but it reduces any Making Work Pay Credit. Divorced or separated parents - If the decree went into effect after 2008 the noncustodial parent claiming an exemption for a child can no longer attach certain pages from a divorce decree or separation agreement. The noncustodial parent must attach Form 8332 or a similar statement signed by the custodial parent who's only purpose is to release a claim to exemption. Standard deduction increased - The standard deduction for most taxpayers who do not itemize their deductions on Schedule A of Form 1040 is higher in 2009 than it was in 2008. The amount depends on your filing status. In addition to the annual increase due to inflation adjustments, your 2009 standard deduction is increased by: · any state or local real estate taxes you paid that would be deductible on A if you were itemizing deductions, up to $500 ($1,000 if married filing jointly), · any state or local sales or excise taxes you paid on the purchase of a new motor vehicle after February 16, 2009, and · any net disaster loss from a federally declared disaster during the year. You must use Schedule L (Form 1040A or 1040) and attach it to your return. Education Credits American Opportunity Credit This new education tax credit (a modification of the Hope credit) is available for 2009 and 2010. The maximum credit per student is $2,500 (100% of the first $2,000 and 25% of the next $2,000 of qualified education expenses). The credit is available for the first 4 years of postsecondary education and 40 percent of the credit is refundable for most taxpayers. Qualified education expenses include amounts spent on books, supplies, and equipment needed for a course of study. These qualified expenses are not conditioned upon payment directly to the educational institution as part of required material for attendance/enrollment. The threshold at which this credit is reduced is higher than that for the Hope and Lifetime Learning Credits. For 2009, the amount of credit is gradually reduced (phased out) if your modified adjusted gross income (MAGI) is between $80,000 and $90,000 ($160,000 and $180,000 if you file a joint return). Hope and Lifetime Learning Credit - The income limits increased. For 2009, the amount of your Hope or Lifetime Learning Credit is gradually reduced (phased out) if your MAGI is between $50,000 and $60,000 ($100,000 and $120,000 if you file a joint return). You cannot claim a credit if your MAGI is $60,000 or more ($120,000 or more if you file a joint return). This is an increase from the 2008 limits of $48,000 and $58,000 ($96,000 and $116,000 if filing a joint return). Qualified education expenses are conditioned upon payments to the institution as part of required material for attendance/enrollment. These expenses include books, supplies, and equipment. Qualified Education Expenses Generally, qualified education expenses are amounts paid in 2009 for tuition and fees required for the student's enrollment or attendance at an eligible educational institution. It does not matter whether the expenses were paid in cash, by check, by credit card, or with borrowed funds. Only certain expenses for course-related books, supplies, and equipment qualify. Qualified expenses differ depending upon the credit taken. Qualified education expenses do not include amounts paid for: · Room and board, insurance, medical expenses to (including student health fees), transportation, or other similar personal, living or family expenses, · any course or other education involving sports, games, or hobbies, or any non-credit course, unless such course or other education is part of the student's degree program. Residential Energy Credits - The nonbusiness energy property credit has been reinstated for qualified property placed in service in 2009. The credit is limited to $1,500. First Time Homebuyers Credit - The credit increases to a maximum of $8,000 ($4,000 if married filing separately) for homes bought after 2008 and before May 1, 2010 (before July 1, if you entered into a written binding contract before May 1, 2010). If you bought the home after November 6, 2009, you may be able to claim the credit even if you already owned a home but, in that case, the maximum credit is $6,500 ($3,250 if married filing separately). You can choose to claim the credit on your 2009 return for a main home you bought in 2010 if you use it as your main home for the entire 36-month period beginning on the purchase date. These are just a few of the changes that could affect you. More detailed information can be found on the IRS web site. Be prepared research and know how these and many other changes are going to affect your return. Keep looking in the Cannon Connections, base web site www.cannon.af.mil, IRS.gov Web site, and base bulletins for more information.