Home About Archives RSS Feed

The Independent Investor: It's That Time Of The Year — Again

Bill Schmick

We all waited with bated breath until the end of last year, only to see Congress extend the Bush tax cuts for another two years. Although the legislation passed, it did create some issues that you should be aware of in filing your taxes this year.

Let's start with property taxes; something most of us have learned to despise. Until last year, if you owned a home you were able to deduct a portion of your state property taxes in the form of an enhancement or an addition to your standard deduction. The deduction was worth between $500 and $1,000 depending on whether you were married or single. This provision was not extended, but you can still claim the deduction providing you itemize your deductions. The problem with this new wrinkle is that many Americans do not have a sufficient amount of deductions to make itemizing worth doing.

Given the vast number of workers who lost their job during this last recession, if you were unemployed in 2009, the government granted an exemption in unemployment income up to $2,400 per person. That meant you only had to pay taxes on earned income above that amount. That exclusion has been eliminated as well.

So if you were unemployed at any time last year and collected unemployment compensation you owe taxes on 100 percent of that income. The problem here is that few of these jobless taxpayers withhold taxes from this income, so now they will need to come up with the cash they owe the IRS.

The first-time home buyer credit and the follow-on home buyer tax credit on primary residences provided a tax credit ($8,000 for first-time buyers and $6,000 for other buyers) but require that you keep your new residence for at least 36 months. That means if you bought and sold that new home you must repay that tax credit to the government this year.

The American Opportunity tax credit was a bit of new legislation that replaced the Hope credit that allows taxpayers earning $80,000 ($160,000) for joint filers) to claim $2,500 tax credit for tuition, fees, books, supplies and equipment required for educational studies paid in 2010. There is some confusion about this tax credit because the government already allows a deduction of up to $4,000 for the same items. You can't claim both the deduction and the credit.

People become confused between a credit and a deduction. Simply put, a deduction reduces your income while a tax credit reduces your tax bill. If you earned $60,000, for example, and took the $4,000 education deduction that would reduce your adjusted gross income to $56,000. If you were in the 20 percent tax bracket, then the tax savings for you would be ($4,000 X 20 percent) or $800. However if you selected the tax credit, your tax bill would be reduced by $2,500, a dollar-for-dollar tax savings.

Because Congress acted so late in the year, the IRS said it would need until mid-February to reprogram its systems. As a result, they advised that those who plan to itemize their deductions wait until after March 1 to file their taxes. Since most of us wait until the very last second (or longer) to file, this delay should not have a major impact on us taxpayers. In any case, the coast is clear for filing your taxes. I bet you just can't wait.

Note: You've got some extra time. Tax day is Tuesday, April 19, this year because the 15th falls on a Friday holiday in Washington and Monday falls on Patriots Day in Massachusetts.

Bill Schmick is an independent investor with Berkshire Money Management. (See "About" for more information.) None of the information presented in any of these articles is intended to be and should not be construed as an endorsement of BMM or a solicitation to become a client of BMM. The reader should not assume that any strategies, or specific investments discussed are employed, bought, sold or held by BMM. Direct your inquiries to Bill at (toll free) or e-mail him at wschmick@fairpoint.net. Visit www.afewdollarsmore.com for more of Bill's insights.

Tags: taxes, IRS, deductions      

Support Local News

We show up at hurricanes, budget meetings, high school games, accidents, fires and community events. We show up at celebrations and tragedies and everything in between. We show up so our readers can learn about pivotal events that affect their communities and their lives.

How important is local news to you? You can support independent, unbiased journalism and help iBerkshires grow for as a little as the cost of a cup of coffee a week.

News Headlines
Wells Presented Superintendent's Award at Mount Greylock
Pittsfield Looks to Adopt Alternate Side Parking
How Do You Cook a Turkey?: From the Mouths of 5-year-olds
Greenagers Offers Youth Nature-Based Work Amidst Pandemic
Sheriff's Office Delivers Thanksgiving Turkeys to Christian Center
North Adams Fire Chief Meranti to Retire
Financial Moves for the Recently Divorced
Adams to Begin Preliminary Interviews for Police Chief
North Adams Council OKs Mohawk Trail Property as Surplus
Mount Greylock 'Snow Days' Will Be Remote Days
 
 


Categories:
@theMarket (350)
Independent Investor (450)
Retired Investor (22)
Archives:
November 2020 (7)
November 2019 (1)
October 2020 (7)
September 2020 (6)
August 2020 (6)
July 2020 (10)
June 2020 (7)
May 2020 (9)
April 2020 (9)
March 2020 (5)
February 2020 (7)
January 2020 (10)
December 2019 (7)
Tags:
Stock Market Selloff Retirement Bailout Debt Ceiling Energy Economy Congress Greece Federal Reserve Japan Housing Currency Markets Rally Recession Euro Stimulus Debt Taxes Election Metals Crisis Wall Street Europe Pullback Banks Deficit Fiscal Cliff Stocks Interest Rates Jobs Oil Commodities Europe
Popular Entries:
The Independent Investor: Don't Fight the Fed
@theMarket: QE II Supports the Markets
The Independent Investor: Understanding the Foreclosure Scandal
The Independent Investor: Does Cash Mean Currencies?
@theMarket: Markets Are Going Higher
The Independent Investor: General Motors — Back to the Future
@theMarket: Economy Sputters, Stocks Stutter
The Independent Investor: How Will Wall Street II Play on Main Street?
The Independent Investor: Why Are Interest Rates Rising?
The Independent Investor: Will the Municipal Bond Massacre Continue?
Recent Entries:
The Retired Investor: Pandemic Has Been Good to Pet Industry
@theMarket: Markets Are in a Tug of War
The Retired Investor: The Rise of RCEP
@theMarket: Vaccine Hopes Send Stocks Higher
The Retired Investor: Small-Town America Is in Vogue
@theMarket: Markets Enjoy a 'Biden Bounce'
The Retired Investor: Polling Business Takes a Body Blow
The Retired Investor: Food Faces Escalating Prices
@theMarket: Politicians Play Cat & Mouse With Investors
@theMarket: Investors Reduce Risk as Stimulus Talks Fail