Welcome to my annual tax post. I’m feeling pretty confident heading into this year’s tax season as it appears the average person will pay less tax and have more credits/deductions than last year. I wish I could say that trend is likely to continue in the future but it’s quite clear at this point that tax rates will be rising in 2010. The government must take action to counter the massive spending binge it’s been on of late. With Obama in the hot seat its pretty clear tax rates will be moving up, particularly for higher income earners. Combine that with the expiration of Bush’s tax cuts and future tax seasons start to look real ugly. In light of that, let’s focus on the positive for now.
On the upside, the personal exemption has jumped in 2009 to $3,650, up $150 from 2008. For married couples filing joint tax returns the personal exemption amount is $7,300. The standard deduction (used by those who don’t itemize deductions) has jumped $250 to $5,700 for single individuals or $11,400 for married couple filing joint tax returns.
We’re also seeing an upward adjustment (roughly 5%) in tax rates from 2008. What that basically means is that you may not jump into a higher bracket if you earned slightly more income in 2009. For a person who earns $100,000 per year, they would pay roughly $258 less in 2009 than they did in 2008. I like this change because it benefits all taxpayers, not just those with low adjusted gross incomes.
What won’t help some wealthier individuals is the increase on the exemption for the alternative minimum tax. This will subject more people to this nasty tax. What will help low and moderately-low income earners is that more people will qualify for the earned income tax credit in 2009. Those with three or more children will also see an additional credit.
What could help a variety of taxpayers is the plethora of new credits, ranging from cash-for-clunkers to the popular homebuyer credit and the credits related to energy efficiency in the home. Education credits have also been expanded with the American Opportunity Credit expanding upon the Hope and Lifetime Learning credits.
All things said this year won’t be that different from last year. Most people will probably save a few bucks but like most things in the financial world, it varies on a case by case basis.
If you have any questions about your individual tax situation please don’t hesitate to contact me. Attached is a list of new limits and changes for easy reference: Download file
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The opinions expressed are for general information only and are not intended to provide specific tax advice for any individual. To determine which tax strategies may be appropriate for you, consult with your financial or tax adviser.