Thursday, August 13, 2009

Tax Breaks from the "Stimulus": Are Taxpayers Taking Advantage?

The Economic Recovery and Rehabilitation Act of 2009 (popularly called the "Stimulus"--and even the "Porkulus" by sardonic Republicans) included a number of temporary tax incentives. The incentives include a first-time homebuyer credit (through the end of November) of up to $8,000; a deduction for certain state taxes (usually sales; itemizing not required) on the first $49,500 on a new car purchase; a 65% savings on COBRA insurance (businesses get a corresponding credit) for employees laid off during the 16 months starting September 1, 2008; one-time payments of $250 to Social Security recipients and certain other taxpayers; a $2,400 income exclusion of unemployment benefits received in 2009; the Making Work Pay credit against Social Security during 2009 and 2010 and a tax amnesty for foreign bank accounts available for about six more weeks. The future appears less tax-friendly, especially for high-income taxpayers with new higher tax brackets, adjustments in taxation of international income and a potential surtax to help pay for costs associated with health care reform proposals presenting being debated in Congress.

Specific steps to take: make sure that your tax preparer is aware of any new car purchases made this year (or home purchase if this is your first), contact your tax preparer if you or a family member is laid off and reduce tax exemptions on your W-2if you earn significant amounts in more than one job. High-income self-employed taxpayers may want to take income this year in view of potentially higher tax rates next year. Also, remember that next year (2010) is the final year for a number of provisions from tax cuts earlier this decade and it is likely that many such provisions will NOT be renewed after next year.


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