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January 15, 2010
INCOME TAX CHANGES FOR THIS YEAR
There are several tax changes for this year that will benefit almost everyone who files a tax return. Here is a sampling of things that you should know;
Sales Tax Deduction for New Vehicles – Sales tax on a new car is deductible, whether or not you itemize your deductions. For those who do not itemize, the amount of sales tax is added to your standard deduction. If you do itemize, there is a new line for deducting sales tax. In the past most Massachusetts residents were never able to deduct sales tax on an automobile because their choice was to either deduct sales tax or income tax. In Massachusetts the income tax was usually higher than the sales tax amount. For 2009, anyone who purchases a new car after February 16, 2009 may deduct the sales tax.
Unemployment Benefits – There is a little bit of good news for those of you who have been unemployed in 2009. For 2009, the first $2,400 of unemployment benefits received is not taxable.
Standard Deduction - Most people will see an increase in their standard deduction for 2009 due to the cost of living increase. For 2009 the Standard deduction for married couples filing a joint return is $11,400, up by $450 from 2008. Joint filers can increase their standard deduction as much as $1,000 for real estate taxes, if they do not itemize their deductions.
For single filers, the amount is $5,700 for 2009, up by $250 over 2008. Single taxpayers may also increase their standard deduction by up to $500 for real estate taxes paid.
If you had the misfortune to be in a presidentially declared disaster area, your losses may be added to your standard deduction.
Tax Rates – For tax year 2009, dividends and capital gains continue to have favorable treatments. For some, dividends and capital gains will be tax free. Rates on both dividends and capital gains are scheduled to increase for 2010.
The maximum tax rate on capital gains continues to be 15% as in 2008. If you are in the 10% or 15% tax bracket, your capital gains are tax free. Single taxpayers with taxable income below $33,950 and married taxpayers with taxable income below $67,900 (the maximum to be in the 15% tax bracket) will pay zero on their capital gains.
Dividends, like capital gains, can also be received tax free. If you are in the 10% or 15% tax bracket, qualified dividends are tax free. If your income is over the limits as shown above, then the tax rate jumps to 15% and stays there. The maximum tax rate on dividends, no matter how high your income, is 15%.
This tax year is not much different from tax years gone past. You still need to bring your tax preparer the tax forms that identify how much income you received in the past year as well as your tax deductions. The common deductions are medical, taxes, mortgage interest and charitable contributions. Seniors should also inform their tax preparer of the amount paid for water and sewer for calculating the Massachusetts Senior Circuit Breaker Credit.
This article gives general information and not specific advice on individual matters. Persons wanting individualized advice on matters discussed should contact an advisor experienced in those matters. To the extent this article provides information on legal matters, it is based on law in effect in Massachusetts on the date of posting (laws in effect in other states are often quite different).
Ronald H. Surabian is a CPA and attorney who works at the Elder Law Center in Saugus, Massachusetts. He also holds Masters in accounting and a Masters in tax law. He currently serves as the President of the Friends of the Saugus Senior Center and is an active member of the Massachusetts Chapter of the National Academy of Elder Law Attorneys. If you have any questions, please call me at the Elder Law Center, One Essex Street, Saugus, MA 01906 (781)233-4444. To view this or any prior article, please visit our web site at www.elderlawcenter.org