Financial Planner
Home : Financial Planner

‘The Tax Man Cometh’

by James G. Mentzer D’99

This article represents the personal views of the author and should not be considered either professional tax or legal advice. If you have questions concerning your own situation, please consult a personal adviser.

Mentzer

The Christmas decorations have been put away, the thank-you notes are written, and the credit card bills are just now coming due. Wondering how to while away the hours until the next Duke-Carolina basketball game? How about reviewing ways to reduce your federal income taxes?

Yes, I realize that dealing with income taxes ranks right down there with watching paint dry. Still, since the day Ben Franklin observed that death and taxes were two great certainties in this life, we have searched for ways to limit Uncle Sam’s reach. And there is some good news: for tax years 2009 and 2010, there are several new tax credits and deductions. Are you interested?

Many Americans are taking advantage of the tax credits available for energy-efficient home improvements made in 2009 and 2010. It’s possible to recover 30 percent, up to $1,500, of the cost for upgrades that meet federal guidelines. Included are exterior doors and windows, skylights, roofs, insulation, heating and cooling systems, and water heaters. (These deductions do not apply to new-home construction.) For more information, go to www.energystar.gov and click on the box for “tax credits for energy efficiency.”

The first-time home buyers credit of up to $8,000 has made headlines, but did you know that sales tax paid on new vehicles is also deductible? If you purchased a new car, motor home, light truck, or motorcycle between Feb. 16, 2009, and Jan. 1, 2010, you can simply add the vehicle sales tax on the first $49,500 of cost to your federal income tax standard deduction calculations. (If you itemize and choose to deduct state sales taxes, there’s no benefit: this tax will already be included in your calculations.) And if you purchased this vehicle using the “Cash for Clunkers” benefit program, the value of the federal support payment is not treated as taxable income.

Standard deductions have also changed. For the 2009 tax year, married couples filing jointly can claim up to $11,400, an increase of $500. For single filers, the maximum is $5,700, up $250 from 2008. Plus, non-itemizers who paid real estate taxes last year can claim a larger standard deduction: joint filers can claim up to $1,000 of property taxes paid; single filers up to $500.

If you paid college tuition, either for yourself or your family, you’ll be pleased to know that in 2009 and 2010 the Hope educational credit has been replaced by a new credit. Students may claim up to $2,500 per year for four years of college, and the cost of textbooks can now be added to tuition charges. As with many of the credits and deductions, this benefit phases out at higher income levels.

If you volunteer for a charitable organization, don’t forget to itemize deductible expenses. Did you work at the local food bank and purchase supplies or needed equipment for this charity? Perhaps you volunteered in a hospital where a uniform was required. The cost of all donated supplies, the uniforms, even the cost to clean such apparel, can qualify as a charitable deduction. And personal mileage driven in support of such ministries can also often be deducted at a rate of 14 cents per mile.

Confused yet? You’re not alone. One could argue that the government’s stimulus program is also a guaranteed employment opportunity for accountants and CPAs. To determine if any of these new deductions apply to your tax situation, be sure to seek the advice of a qualified federal income tax preparer. While the savings may not prove enormous, every little bit does help. After all, wasn’t it Ben Franklin who also said, “A penny saved is a penny earned?”

James G. Mentzer, CLU, ChFC, has been a financial planner since 1986. He is currently director of planned giving for the United Methodist Foundation of Raleigh, N.C.