What's New for Tax Year 2008?
by Elizabeth Smith, JD
March 27, 2009
Whether you kept accurate records throughout 2008 or just tossed your pay stubs and receipts into a shoebox, be advised that it’s time to impress Uncle Sam again with
another timely and accurate tax filing. April 15th is just around the corner.
The following information highlights some changes to the IRS code that affect 2008 returns. Hopefully, it will help you maximize your deductions and avoid making some basic errors in the preparation of your 2008 return.
- Standard Deductions. Single filers are now entitled to $5,450 and joint filers are entitled to $10,900. Higher deductions are available to taxpayers age 65 or older and to those who are blind or who experienced losses due to a federally declared disaster.
- Deduction for Property Taxes. If you don't itemize your deductions, you may deduct up to $500 ($1,000 for joint filers) for real estate taxes paid during 2008.
- Personal Exemption. Each taxpayer's personal exemption has now risen to $3,500.
- Tuition and Fees Deduction. For the year 2008, Congress reinstated the deduction for up to $4,000 in college tuition and fees.
- Changes to ''Kiddie Tax.'' For the year 2008, the unearned income of children under 19, such as capital gains and dividends, is taxed at the parents' marginal tax rate for any income over $1,800.
- Alternative Minimum Tax. Individual taxpayers are now allowed an AMT exemption of $46,200, and married joint filers are entitled to an AMT exemption of $69,950.
- Mileage Rates. Mileage rates increased for deductions of business and medical travel after June 30, 2008. For travel prior to that date, the deduction rate for business travel is 50.5 cents per mile and 19 cents per mile for medical travel. For travel after June 30, 2008, the rate for business travel is 58.5 cents per mile and for medical travel it's 27 cents per mile. However, the standard mileage rate for travel related to charitable work remained 14 cents per mile for all of 2008.
- Reduction of Tax Rate on Certain Dividends and Long-term Capital Gains. What was once a five percent (5%) tax rate on the dividends and long-term capital gains of taxpayers in the 10 or 15 percent tax brackets is reduced to zero percent for 2008. Taxpayers in higher tax brackets remain subject to the 15 percent maximum tax rate on long-term gains.
- The Nonbusiness Energy Property Tax Credit Expired. This credit is not available for the tax year 2008; thus, taxpayers will receive no tax benefit for installing high-efficiency heating and cooling systems, water heaters, windows, doors, and insulation during the year 2008. The credit—renamed the Residential Energy Efficient Property Credit—will be available next year for installations made during 2009.
- Homebuyers. If you have bought your first home since April 8, 2008, you may qualify for a tax credit. The IRS defines a first-time homebuyer as an individual (or an individual and his or her spouse) who ''did not own any other main home during the three-year period ending on the date of purchase.'' We recommend that you consult with a tax professional if you think you might qualify for this credit.
- New Physical Addresses for Some Tax Returns. If you're not e-filing, be sure to check the proper IRS filing address for submitting your return. The IRS has changed some of these addresses. If you can't find this information in your 2008 tax filing booklet, you can visit the IRS website at www.irs.gov.
Once you’ve finished crunching the numbers, we hope you'll find you're among the lucky ones who will be getting a sizeable tax return this year.
Elizabeth Smith is a freelance writer and former attorney based in Dallas, Texas.