Following a flurry of tax legislation that enacted changes for tax years beginning in 2009, this tax, season requires heightened attention to make sure your clients don't miss any of the new and extended deductions and credits to which they're entitled.
Most of the changes for 2009 were directed at stimulating the economy and providing incentives and relief for individuals and businesses. Thus, it's important for return preparers to double-check taxpayer materials as they come in. They should make sure organizers, client letters and other guides and checklists have covered the full gamut of considerations and that their contents were heeded and understood by clients. The biggest single source of these changes is the American Recovery and Reinvestment Act of 2009 (ARRA), PL 111-5, enacted in February A comprehensive guide to all the changes for 2009 is beyond the scope of this article, but the following highlights are intended to provide a reminder of provisions that could easily be overlooked. It is accompanied by a tear-out "Filing Season Quick Guide" with many of the most commonly encountered return items, with changes and inflation-adjusted amounts for 2009.
NEW PROVISIONS FOR INDIVIDUALS
Some stimulus provisions could affect almost anyone, depending on basic applicability relating to adjusted gross income (AGI).
Making work pay credit. One such item affecting lower- and middle-income taxpayers is the making work pay credit. This refundable personal credit is equal to 6.2% of earned income (with some modifications) up to a maximum credit of $400 for single filers and $800 for joint returns. Intended to offset a limited portion of an employee's share of FICA tax withholding, the credit phases out beginning at modified AGI of $75,000 for single filers and $150,000 for joint returns. Taxpayers eligible for the credit must file the new Schedule M with Form 1040 and claim the credit as a tax payment on line 63 of Form 1040 (line 40 on Form 1040A). The IRS has revised wage withholding tables to reflect the credit, but according to the Treasury Inspector General for Tax Administration, common taxpayer situations the tables don't take into consideration could have caused an estimated 15.4 million taxpayers to withhold too little federal tax. The IRS disputes that number, but your clients could be among taxpayers with an unexpected tax liability or smaller refund than anticipated and may need to revise their withholding for 2010. Recipients of Social Security and certain other benefits who received a one-time $250 economic recovery payment in 2009 must reduce the making work pay credit by that amount.
Alternative minimum tax (AMT) patch. The basic AMT exemption amount is $46,700 for single taxpayers and heads of households and $70,950 for joint fliers. The ARRA also extended to 2009 the rule allowing nonrefundable personal tax credits to reduce the AMT.
Taxpayers with a child in college will no doubt have questions about the Hope credit, reconfigured by the ARRA for 2009 and 2010 and redubbed the American opportunity tax credit. Besides a significant increase in the amount of the credit (up to $2,500) and phaseout range (starts at $160,000 for joint filers), a welcome new feature is what might be called relief from college bookstore sticker shock: Course textbooks are included in qualified tuition and related expenses covered by the credit. Best of all, it now covers up to four years of post-secondary education, up from two years previously
The ARRA also added computers to the qualified expenses eligible for payment by distributions from a qualified tuition program under IRC [section] 529.
HOMEOWNER INCENTIVES AND RELIEF
Homebuyer credit. Clients who may have thought they would be out of luck for the first-time homebuyer credit if they didn't close on a home before Dec. …