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Sorting through some of the new deductions

Wednesday, February 18, 2009

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With a little less than two months before Tax Day, residents who have yet to file are searching for as many deductions as they can utilize.

Because of the June 2008 floods, Midwest taxpayers have additional opportunities to write things off.

"Those who opened their residence to people whose homes were lost in the flood may be able to receive a $500 credit for each individual," Tony Smiley, Manager of Stadler & Co., Brazil, said. "To get this deduction, the flood victims must have stayed with you at least 60 consecutive days, and was not charged during their stay."

Smiley added those who lost income because of the flooding in 2008 could have the chance to have a larger Earned Income Credit (EIC).

"If your earned income was less this past year than 2007, you may qualify to use the amount of earned income in 2007, depending on which could provide a bigger benefit," he said. "However, it is on a case-by-case scenario, so it is important to have the correct information."

New homeowners may also receive an extra benefit this tax season.

In the past, the First Time Homebuyer Credit was treated like a loan and had to be repaid. However, with the recently passed stimulus package, the credit can be as much as 10 percent of the price of the home or $7,500 this tax year, which ever is less, and does not have to be paid back.

"To qualify for this credit, an individual or family would have to had purchased a home between April 9, 2008 and July 1, 2009," Smiley said.

On the other end of the spectrum, there are cases where individuals may be able to receive a cancellation of debt if their home was lost due to foreclosure. When a lender cancels or forgives a debt, the amount may have to be included on a return for tax purposes.

"There are times, like if bankruptcy and certain farm debts, where the debt cancellation is not taxable," Smiley said. "However, once again, this is on a case-by-case basis."

Those who did not receive a stimulus check in 2008 may have the opportunity to receive one this year.

"What the Recovery Rebate Credit boils down to is that those who were not included in the Economic Stimulus Act of 2008 can get a check this year," Smiley said.

Smiley also said more people have been coming in to file their taxes earlier this year and the filing season typically runs in three phases.

"From January until about mid-February, there is a tendency to get the quick refund rather than wait for the mail, mainly because it is needed to pay bills," he said. "It's a good mix of both from then until about mid-March, and those filing their taxes from the first part of April on tend to be willing to wait on their refund."

He added refunds by mail are also moving faster this year because the IRS has hired about 4,000 extra examiners which is allowing for quicker processing.

Smiley understands many people like to put together their own tax returns, but wants to encourage those taking their taxes to professionals to bring along all the necessary paperwork.

"Obviously, they need to bring in their W-2 and other tax papers, but they also need some form of identification, along with their social security card," he said. "The IRS will reject any return if all of that information is not correct."

For more information about new and changed tax laws, as well as tax forms, visit www.irs.gov.



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