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How to Negotiate Your Personal Bailout
Anna Hennings / HRGuru
February 10, 2009
Bail Yourself Out: Tax Breaks for Individuals
The $700 billion bailout of the U.S. financial system (also known as the Emergency Economic Stabilization Act) didn’t just have to do with capital injections into crisis-facing banks. These bailout bills also included a bundle of income tax breaks — yes, breaks that can help you save money on your 2008 tax return.
Stuffed inside the bailout are more than 100 tax provisions worth $150 billion in tax benefits. Including:
• Middle-class protection from higher tax bills thanks to the alternative minimum tax (AMT) patch.
The AMT was conceived in 1969 as an alternative tax to ensure that the wealthiest taxpayers, even with their big deductions and loopholes, didn’t avoid paying income taxes. But because the tax was not adjusted for inflation, it has increasingly reached down into the middle class.
Recently Congress has passed a series of one-year fixes, rather than overhaul the AMT itself. But with the AMT patch and other tax changes included in the bailout bill, taxpayers should now be able to file as usual.
• Disaster relief for 2008 Midwest storm victims. Victims of the tornadoes, storms and flooding that hit the Midwest this year between May and August, similar to those given to Hurricane Katrina victims, may receive benefits for demolition and clean up, as well as education and housing.
The bill also offers more limited tax assistance to victims of Hurricane Ike.
• Tax breaks for teachers. Teachers who buy out-of-pocket classroom supplies can take a $250 deduction. This deduction is “above-the-line,” meaning that teachers and educators can qualify for it even if they don’t itemize their deductions. Allowable expenses include classroom supplies, books and software.
• $2,000 – $4,000 deduction for those with higher-education tuition and related fees. This above-the-line deduction allows married couples with incomes of $130,000 or less ($65,000 for individuals) to deduct up to $4,000 in higher education expenses. Couples earning $130,000 to $160,000 ($65,000 to $80,000 for individuals) can deduct up to $2,000.
• Option to deduct state and local sales taxes from federal taxes, instead of state income tax. This can mean big savings for taxpayers who itemize and live in states with no state income taxes: Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming.
• Tax-free distributions to charities. IRA owners who have reached age 70½ — and who must therefore begin to withdraw money from their retirement accounts — can contribute up to $100,000 of otherwise taxable payouts directly to charity.
The new law contains many changes to taxes for individuals and businesses. More details will be added at TurboTax.com as they become available.
Updated for tax year 2009. Content provided by Kiplinger, courtesy of TurboTax, a registered trademark of Intuit Inc.
