New and Old Favorite Deductions Extended

The Economic Stability Legislation that was passed into law on October 3, 2008 included several individual bills that Congress had before them.  One of the bills was the 2008 Extenders Act that reinstated and extended several popular tax benefits.  Among those items were the following three popular deductions, which have been retroactively reinstated for 2008 and extended for 2009.

• Deduction for State and Local Sales Taxes – With this provision, a taxpayer may elect to claim an itemized deduction for state and local general sales taxes instead of  deducting state and local income taxes.  It primarily benefits taxpayers in states with no income tax.  However, this deduction can also be beneficial to taxpayers whose sales tax deduction exceeds their state and local income tax deduction.  The sales tax deduction can be based on actual receipts OR the amount from the IRS income-based table PLUS sales tax paid when purchasing motor vehicles, boats, aircrafts, homes (including mobile and prefabricated homes), and materials to build a home.  When using the IRS income-based tables, the income is based upon spendable income which includes income that is not included in the adjusted gross income such as; worker’s compensation, public assistance payments, tax exempt military compensation tax-exempt interest, nontaxable portions of Social Security, railroad, or veterans retirement benefits, etc.

• Deduction of Qualified Tuition & Related Expenses - This above-the-line deduction (can be claimed without itemizing) allows a taxpayer to claim a deduction for qualified tuition and related expenses for higher (post-secondary) education.  The maximum deduction is $4,000 for an individual whose adjusted gross income (AGI) for the tax year does not exceed $65,000 ($130,000 in the case of a joint return), or $2,000 for other individuals whose AGI does not exceed $80,000 ($160,000 in the case of a joint return).  No deduction is allowed for an individual whose AGI exceeds the relevant AGI limits, for a married individual who does not file a joint return, or for an individual whose personal exemption deduction may be claimed by another taxpayer for the tax year.

• Educator Above-the-Line Expenses - The above-the-line deduction for educators (kindergarten through 12th grade) permits eligible educators to claim an above-the-line deduction for up to $250 annually for expenses paid or incurred for books, supplies (other than nonathletic supplies for courses of instruction in health or physical education), computer equipment (including related software and services) and other equipment, and supplementary materials used by the eligible educator in the classroom.  To be eligible for this deduction, the expenses must be otherwise deductible as a trade or business expense.  Generally, an eligible educator includes a teacher, instructor, counselor, principal, or aide who works in a school for at least 900 hours during a school year.

• Additional Standard Deduction for State and Local Property Taxes – Although this deduction is new for 2008, it was also extended through 2009.  This tax provision allows taxpayers who claim the standard deduction, instead of itemizing deductions, to claim an additional standard deduction for state and local property taxes paid.  The deduction cannot exceed the lesser of state and local property taxes actually paid or $500 ($1,000 for joint return filers).  No taxes deductible in computing adjusted gross income are taken into account in computing the increased standard deduction.  Taxpayers who marginally itemize their deductions may find it more beneficial to use the standard deduction with the added standard for property taxes.

If you have questions related to these deductions, please give this office a call.

---