2009 Inflation adjustments to tax brackets and benefits

The personal exemption will increase to $3,650 in 2009 (an increase of $150 from 2008)

The standard deduction for married couples filing a joint return will increase to $11,400 in 2009, to $5,700 for singles and to $8,350 for heads of households.

The tax brackets increase in 2009 for each filing status.  For married couples filing jointly the taxable-income threshold separating the 15% bracket from the 25% bracket is $67,900, up from $65,100 in 2008.  The threshold for singles separating the 15% bracket from the 25% bracket is $33,950.

The annual gift tax exclusion rises to $13,000 in 2009 from $12,000 in 2008.

The 2009 threshold for phase out of itemized deductions starts at $166,800 for joint filers and at $83,400 for singles.

The Emergency Economic Stabilization Act of 2008

Congress recently passed the Emergency Economic Stabilization Act of 2008 (better known as the $700 Billion Bailout).  Included in this Act are some changes to the IRS code that benefit taxpayers. 

The AMT exemption was extended for 2008.  Without this extension the exemptions would have reverted back to much lower exemptions.  The exemptions for 2008 are now $46,200 for single taxpayers and $69,950 for joint taxpayers and surviving spouses.

The law also extends certain individual tax provisions through 2009.  These include the itemized deduction for state and local sales taxes, the qualified tuituion  deduction, the limited addition to the standard deduction for real property taxes paid by non itemizers, and the $250 deduction for adjusted gross income of the teachers' classroom expenses.

Other provisions include credit of up to $500 for residential insulation, storm doors, etc. is extended through 2009.

Brokers' statements will arrive later beginning this filing season.  The Act allows brokers to furnish statements on or before February 15 as opposed to the old due date of January 31.

Social Security Rates for 2009

Social Security benefits will increase by 5.8% in Januay 2009 as announced by the Social Security Administration.  This is the largest increase since 1982.

The Social Security maximum wage base for 2009 is $106,800, up from $102.000 in 2008.  The monthly medicare premium for 2009 is $96.40  Taxpayers with income above $85,000 in 2009 or above $170,000 for joint tax filers will see higher medicare premiums from $134.90 to $308.30 per month in 2009.  For current social security information go to my favorites section of this web site and click on Social Security.

On July 30, 2008 the President signed the Housing and Economic Recovery Tax Act of 2008.  This act has a few items that may affect you in planning your income taxes for 2008 and beyond.  The act provides an additional deduction for state and local real property taxes for 2008 for those taxpayers that claim the standard deduction.  The maximum amount that may be claimed for real estate taxes paid is the lesser of the real estate taxes paid or $500 for single taxpayers and $1,000 for joint filers. 

The act also provides a new refundable tax credit for first-time homebuyers.  The refundable credit is equal to the lesser of $7,500 of 10% of the price of a first home purchased between April 8, 2008 and July 1, 2009.  The credit phases out at adjusted gross income levels over $150,000 for married filing joint returns and $75,000 for singles.  The cred must be repaid over 15 years in equal installments (or entirely repaid if sold earlier.)

The Housing and Economic Recovery Tax Act provides beginning in 2011 that financial institutions will have to annually report the gross amount of credit cards processed for businesses.

Beginning in 2009, the taxpayer exclusion from gain on the sale of principal residence would not apply to any gain allocated to periods of "nonqualified use".  Such use is defined as when the taxpayer is not the principal resident of the dwelling (such as when the taxpayer used the home as a vacation home or rental.)

IRS raises optional standard mileage rates

The IRS has raised the optional standard mileage rates for auto use starting July 1, 2008.  The new rate is 58.5 cents per mile for business and 27 cents per mile for medical and moving expenses.  The charitable contribution rate remains at 14 cents per mile.  For the year 2008 there will two rates for business use of vehicles, 50.5 cents from January 1, 2008 to June 30, 2008 and 58.5 cents from July 1, 2008 to December 31, 2008. 

New depreciation rules for 2008 (see the information under depreciation)

Forclosure debt forgiveness (see the information under Housing)

Vehicle Donations

The American Jobs Creation Act of 2004 changed the rules for charitable donations of vehicles.  The low now only allows a charitable deduction for the amount of the proceeds received by the charity from the sale of the vehicle.  The charity must send written notification to the taxpayer of the amount received at the sales.  If you claim a value of the car of more than $500, you must have a written acknowledgement of your donation from the organization and must attach it to your return.

Capital Gains tax rates and Dividends

Capital gains are taxed at 0% and 15%.  The 0% rate applies to taxpayers otherwise in the tax bracket of 15% or less for regular tax purposes.  This rate applies to the years 2008 through 2010.  Taxpayers in the regular tax brackets of 25% or greater have a 15% capital gains tax rate.  These lower capital gains tax rates expire after 2010 and revert back to the previous rates of 10% and 20%.

Dividends received by an individual shareholder from domestic and qualified foreign corporations generally are taxed at the same rates that apply to capital gains. This effectively taxes dividends received at the current 0% and 15% rates through the end of 2010. 

Kiddie Tax

The kiddie tax previously applied to a child under the age of 18.  With the passage of the 2007 Small Business & Work Opportunities Tax Act the kiddie tax is expanded to apply to children who are 18 years old or who are full-time students over age 18, but under age 24.  The expanded provison applies only to children whose earned income does not exceed one-half of the amount of their support.  This change is effective for the year 2008.

Estate and Gift Tax

The annual gift tax exclusion is currently $12,000 per person.  The Estate Tax exemption is $2,000,000 for 2007 and 2008.  The Estate Tax exemption increases to $3,500,000 for the year 2009.  Under current law, the Estate Tax is completely repealed for the year 2010, but returns in 2011 with an exemption of  $1,000,000.