This might be the tax season where even die-hard do-it-yourselfers break down and hire a preparer, or at the very least invest in some tax software. n Taxes are more complicated than usual with all the new deductions and credits created last year to stimulate the economy. And in some instances, Congress went back to revise and expand the tax breaks. The popular home buyer credit, for instance, is on its third version. n "You can't just sit down with last year's return and make sure you fill in the same lines and think you got everything coming to you," says Harris Abrams, a senior tax analyst with Thomson Reuter's Tax & Accounting. n Fortunately, many of the new tax breaks are credits, which are better than a deduction because they reduce your bottom-line tax bill dollar-for-dollar. So before you fill out your return, here's a refresher on some of the key tax breaks this season:
Donations to Haiti
If you made a charitable donation for earthquake relief in Haiti, you can deduct it on your 2009 itemized return instead of waiting until next year. This applies to cash gifts - not clothes or other property - made by check, text message or credit cards before March 1. As usual, donations must go to qualified charities, and you'll need a receipt. For donations made via text message, a phone bill with the name of the charity and details of the gift will suffice.
Making Work Pay credit
This credit is worth up to $400 a year for singles and $800 for joint filers within certain income limits. It was designed to put money quickly into consumers' hands by having employers reduce the amount of taxes withheld in paychecks.
Even though you got some or all of the money last year, you will need to fill out the new Schedule M if filing a Form 1040 or 1040A to officially claim the credit.
That said, more than 15 million taxpayers are in for an ugly surprise, according to an estimate by the Treasury Inspector General for Tax Administration. Their refunds may be reduced or they might owe more in taxes because their employers wound up taking out too little for taxes. This can happen to workers with multiple jobs, two-income couples or dependents with wages, says Melissa Labant, technical manger for the American Institute of Certified Public Accountants.
For example, an employer reduced withholdings for a married worker by $600 last year, with the couple expected to recoup the remaining $200 when they filed their tax return, Labant says. But if both spouses worked, their combined tax withholding was lowered by $1,200, giving them $400 more than the credit allows, she says.
Something similar can happen to workers with multiple employers reducing withholdings, Labant says. And dependents don't qualify for the credit, so they may have to make up for a shortfall in tax withholdings, she says.
The Making Work Pay credit is in effect for this year, too. If you didn't have enough taxes withheld last year, adjust your W-4 now so your employer increases your tax withholdings.
Home buyer credit
Originally, the $8,000 credit was only for first-time home buyers. Now longtime homeowners can get a credit of up to $6,500 if they bought a new principal residence after Nov. 6 and lived in their old homes for at least five years in a row in the past eight years. The income limits for eligibility also were raised late last year and the deadline extended. You now must have a house under contract by the end of April, and close the deal by the end of June, and you can claim the credit on your 2009 return.
But you won't be able to file a return electronically when claiming the credit. Blame all the fraudulent home buyer claims last year - some in the name of toddlers who obviously didn't own homes - that cost taxpayers millions of dollars. To fight fraud, the IRS requires that you file a paper return and submit proof that you bought a house. If you're claiming the $6,500 credit, you'll need to document that you meet the five-year residency requirement.
The IRS will start processing these paper returns in mid-February, and the earliest refunds will go out toward the end of March. If you don't provide full and accurate information, count on your refund taking longer.
Car sales tax deduction
If you bought a new car, motorcycle or mobile home between Feb. 17 and the end of 2009, you may be able to deduct the sales tax paid on the first $49,500 of the purchase price. You don't have to itemize to get this deduction. The tax break starts phasing out once income hits $125,000 for singles and $250,000 for joint filers.
Congress expanded these for energy-conscious homeowners. For 2009 and this year, claim a credit worth up to 30 percent of the cost - not to exceed $1,500 over the two years - of adding energy-efficient windows, doors, heaters, air conditioners, water heaters and heating systems. Add a solar water heater, wind turbine, geothermal heat pump, solar electric systems, and the credit is worth 30 percent of the cost with no dollar limit.