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Benefit Planning & Tax Deductions

Earning Wages and SSI vs SSDI
Home Office Tax Deduction
Standard Mileage Rate
Energy-Efficient Improvements to Existing Homes
Clean Fuel Credit
Earned Income Tax Credit
Making Work Pay Credit (NEW)
Deduction for State Sales or Excise Tax on Motor Vehicle Purchase (NEW)
State Sales Taxes
First-Time Homebuyer's Credit
American Opportunity Tax Credit (Improvement of Hope Scholarship Credit) (NEW)
Tuition and Fees Deduction
Retirement Tax Credit
Student Loan Interest Deduction
Property Tax Deduction for Non-Itemizers
Medical Deductions
"Economic Recovery" Payments to Certain Individuals
Refundable Credit for Government Retirees

Earning Wages and SSI vs SSDI

SSDI: If never worked after receiving SSDI a beneficiary will have:

1) Trial Work Period (9 months20within 60/months earning $700/gross a month or more) keeping SSDI full benefit check.

2) Completed TWP enters into 36 month Extended Period of Eligibili ty; if earning less than $980/Substantial Gainful Activity number for 2009, keeps all SSDI . If able to earn SGA $980/gross per month will lose all of SSDI but will keep Medicare

3) There are a lot of work incentives that can protect both the cash payment and the Medicare

SSI: There is a formula—Example for a person receiving Federal Benefit Rate (FBR/2009) $674/month earning income:

$1085 Gross Wages - 20 - 65 = $1000 / 2 = $500/Countable Income

Subtract from $674 - $500 = 174.00 New SSI + $1085 gross wages = $1259 Always better to earn wages and get some SSI than to just live on SSI.

A person on SSI can earn more money using the SSI work incentives than a person on SSDI.

Home Office Tax Deduction
If you use a portion of your home exclusively for business purposes, you may be able to deduct home costs related to that portion, such as a percentage of your real estate taxes, mortgage interest, insurance, utilities, repair costs including painting, your mortgage or rent, and depreciation. Also, sole proprietors regularly meeting clients in a home office can deduct part of the costs of landscaping the property. The deductible portion is based on the percentage of the home that is used for business, according to the Tax Court. The Court also allows a deduction for part of the costs of lawn care and driveway repairs. In order to claim a deduction for that part of a home used for business, taxpayers must use that part of the home:

Exclusively and regularly as their principal place of business, as a place to meet or deal with patients, clients or customers in the normal course of their business, or in connection with their trade or business where there is a separate structure not attached to the home; or
On a regular basis for certain storage use such as inventory or product samples, as rental property, or as a home daycare facility.

In addition, taxpayers working as employees can claim this deduction only if the regular and exclusive business use of the home is for the convenience of their employer and the portion of the home is not rented by the employer. “Exclusive use” means a specific area of the home is used only for trade or business. “Regular use” means the area is used regularly for trade or business. Incidental or occasional business use is not regular use.

Standard Mileage Rate
If you claim the home office tax deduction and want to use the standard mileage rate for a vehicle, you must use it in the very first year you place it in service for your business. If you use the standard mileage rate method (set by the IRS and is adjusted annually), you calculate the fixed and operating costs of your vehicle by multiplying the number of business miles traveled during the year by the business standard mileage rate. The rate is set at 55 cents per mile for 2009.

Using the standard mileage rate takes the place of deducting almost all the operating and fixed business costs of your vehicle, such as maintenance and repairs, tires, gas, oil, insurance, and license and registration fees. However, you can still deduct parking fees and tolls that are directly related to business (i.e., not commuting) in addition to the standard mileage rate. For business owners, interest on loans for vehicles and taxes attributable to the operation of these vehicles are also deductible in addition to the standard mileage rate.
When you use the standard mileage rate method, the mileage rate includes a specific amount for depreciation. This means that you cannot claim an additional deduction for depreciation when you use the standard mileage rate.

Energy-Efficient Improvements to Existing Homes
Before the Stimulus Bill, individuals were allowed a tax credit equal to 10% of the amount paid or incurred for qualified energy efficiency improvements installed during the taxable year. This credit was capped at $50 for any advanced main air circulating fan, $150 for any qualified natural gas, propane, oil furnace or hot water boiler, and $300 for any item of energy-efficient building property.

Under the Stimulus Bill, for 2009 and 2010 only, the credit percentage is increased to 30% of the amount paid or incurred for qualified energy efficiency improvements installed during the taxable year. In addition, for those years, the Bill eliminates the property-by-property dollar caps on the credit and instead provides for an aggregate $1,500 cap on all property qualifying for the credit. The Bill also updates the energy-efficiency standards for property qualifying for the credit. Eligible property includes insulation materials, exterior windows and doors, central air conditioners, natural gas, propane or oil water heaters and furnaces, hot water boilers, electric heat-pump water heaters, certain metal roofs and stoves, and advanced main air-circulating fans.

Clean Fuel Credit
If you bought a new hybrid gas-electric car or truck, you can get a conservation tax credit from $250 to $1,000 and an additional fuel economy credit of from $400 to $2,400, depending on the make of the vehicle and its fuel economy. (A hybrid car combines an electric motor with a gas fueled internal combustion engine.) The credit starts to phase out when the auto manufacturer sells its 60,000th hybrid vehicle. That's the total per manufacturer, not 60,000 per model. Once the cap is reached, the phase-out starts at the beginning of the second subsequent calendar quarter. A credit can no longer be taken on a Toyota Prius or Honda Civic Hybrid. A number of cars still qualify, though, including models from Ford, Chevrolet, Mazda, Saturn, Nissan and Volkswagen. Once those 60,000 cars are sold, buyers over the next two quarters can claim only half the credit. In the six months after that, 25% of the full credit. After that, zero. You get the deduction in the year you start using the car, and you must be the original owner. Take it on your Form 1040 by writing in "clean fuel."

Consumers must do some homework in order to understand what kind of tax savings they might get if they are buying a specific hybrid car or truck. Check with a dealer or tax preparer.

Even though a manufacturer has certified a vehicle, a taxpayer must meet the following requirements to qualify for the credit:

The vehicle must be placed in service after 12-31-05 and purchased on or before 12-31-10.
The original use of the vehicle must begin with the taxpayer claiming the credit.
a. The credit may only be claimed by the original owner of a new, qualifying, hybrid vehicle and does not apply to a used hybrid vehicle.
The vehicle must be acquired for use or lease by the taxpayer claiming the credit.
a. The credit is only available to the original purchaser of a qualifying hybrid vehicle. If a qualifying vehicle is leased to a consumer, the leasing company may claim the credit.
b. For qualifying vehicles used by a tax-exempt entity, the person who sold the qualifying vehicle to the person or entity using the vehicle is eligible to claim the credit, but only if the seller clearly discloses in a document to the tax-exempt entity the amount of credit.
The vehicle must be used predominantly within the United States.

Earned Income Tax Credit
The earned income credit is a special credit which lower income workers can deduct on their tax return. The earned income credit can be claimed on a tax return not only by workers with qualifying children, but also by workers with no children under certain circumstances. The earned income credit reduces the amount of tax you owe (if any) on your tax return and is intended to offset some of the increases in living expenses and social security tax. The earned income credit is not a tax deduction; it is subtracted directly from the amount of tax you owe on your tax return, so you end up paying less tax and you may get some money back from the government. Even if you had no tax withheld or do not owe any tax to the IRS on your tax return, you might still get some money back because the earned income credit is a "refundable credit".
In 2008, 24 million taxpayers used the EITC program to claim more than $48 billion, or an average of $2,000. The Internal Revenue Service estimates 25% of taxpayers who are eligible for the earned income credit failed to claim it (numbering in the millions). Some people miss out on the EITC because the rules are complicated, while others are not aware that they even qualify. The EITC is a refundable tax credit ranging up to $5,028. The credit is designed to supplement wages for low-to-moderate income workers. But the credit does not just apply to lower income people. Tens of millions of individuals and families previously classified as "middle class" are now considered "low income" because they lost a job, took a pay cut, or worked fewer hours last year. The exact refund you receive depends on your income, marital status and family size. To get a refund from the EITC you must file a tax refund, even if you do not owe any taxes. Moreover, if you were eligible to claim the earned income tax credit in the past but did not, you can file any time during the year to claim an EITC refund for up to three previous tax years. Another feature is that you can get the credit sooner rather than later. If you expect to qualify for the credit in 2009 and you have at least one dependent child, you can request part of that credit immediately under the "Advance EITC Program" by filling out a Form W-5.

Making Work Pay Credit (NEW)
The Stimulus Bill has created a refundable income tax credit which is available in both 2009 and 2010 to eligible individuals. The amount of the credit is the lesser of: (i) 6.2% of an individual’s earned income or (ii) $400 ($800 for joint returns).

This credit uses the same definition of “earned income” as the Earned Income Credit, except that the Making Work Pay Credit’s definition of earned income does not include net earnings from self-employment which are not taken into account in computing taxable income, but does include combat pay excluded from gross income.

The credit will be received by taxpayers in increments over the year through the adjustment of the withholding tables. The credit is phased-out for higher income taxpayers by reducing the amount of the credit by an amount equal to 2% of the amount by which the taxpayer’s gross income exceeds $75,000 (or $150,000 for joint filers). As a result of this phase-out, the credit is not available to individuals whose gross income exceeds $95,000 ($190,000 for joint filers).

Deduction for State Sales or Excise Tax on Motor Vehicle Purchase (NEW)
The Stimulus Bill creates a deduction for state and local sales and excise taxes paid on the purchase of newcars, light trucks, recreational vehicles and motorcycles in 2009. The deduction is an above-the-line deduction, so it is available to all taxpayers, whether they take the standard deduction or itemized deductions on their tax returns.

The deduction is limited in that only the tax paid on the first $49,500 of the vehicle’s cost may be deducted. The deduction also phases out quickly for taxpayers with adjusted gross income in excess of $125,000 ($250,000 for joint filers). Once the taxpayer’s adjusted gross income reaches $135,000 ($260,000 for joint filers) the deduction is no longer available.

In order to qualify for this deduction, the new automobile must be purchased after February 16, 2009, and before January 1, 2010.
Taxpayers who make qualifying new vehicle purchases this year can estimate the deduction with the help of IRS Publication 919.

State Sales Taxes
This write-off makes sense primarily for those who live in states that do not impose an income tax. You must choose between deducting state and local income taxes, or state and local sales taxes. For most citizens of income-tax states, the income tax deduction usually is a better deal. IRS has tables for residents of states with sales taxes showing how much they can deduct.
If you purchased a vehicle, boat or airplane, you get to add the state sales tax you paid to the amount shown in IRS tables for your state, to the extent the sales tax rate you paid does not exceed the state’s general sales tax rate. The same goes for home building materials you purchased. The IRS even has a calculator on its Web site to help you figure out the deduction, which varies by your state and income level.

First-Time Homebuyer’s Credit
Before the Stimulus Bill was enacted, first-time homebuyers were allowed a refundable tax credit equal to the lesser of $7,500 ($3,750 if married filing separately) or 10% of the purchase price of a principal residence. The credit was allowed for qualifying home purchases made on or after April 9, 2008, and before July 1, 2009, and was shown on the tax return for the tax year in which the home was purchased. This credit was essentially an interest-free loan which would be repaid ratably over 15 years, beginning in the second taxable year after the year in which the credit was taken. The loan was repaid through the recapture of the ratable amount on each tax return filed during the 15-year repayment period. This credit phased out for taxpayers with modified adjusted gross incomes between $75,000 and $95,000 ($150,000 and $170,000 for joint filers) in the year of purchase.

The Stimulus Bill extended the availability of this credit to home purchases made before December 1, 2009. In addition, for homes purchased between January 1, 2009, and December 1, 2009, the Bill increased the maximum credit amount to $8,000 ($4,000 for married filing separately) and waived the recapture of the credit (provided the home remains the taxpayer’s main home for 36 months after the purchase date).

For the purposes of this credit, a taxpayer is considered to be a first-time homebuyer if they, and their spouse if they are married, did not own any other main home during the 3-year period ending on the date of purchase.

American Opportunity Tax Credit (Improvement of Hope Scholarship Credit) (NEW)
The Hope Scholarship Credit is available to taxpayers as a method of offsetting the costs of post-secondary education; however it cannot be used by a child unless the child provides greater than 50% of their own support. It is available for up to 4 years of post-secondary study per student. In 2008, the maximum Hope Scholarship Credit available was $1,800.

The Stimulus Bill created the American Opportunity Tax Credit (“AOTC”) which effectively replaces the Hope Scholarship Credit for any taxable year beginning in 2009 or 2010. Under the AOTC, the benefit of the Hope Scholarship Credit is expanded by increasing its maximum benefit to $2,500 – calculated as 100% of eligible expenses up to $2,000 plus 25% of up to the next $2,000 of eligible expenses. The AOTC also expands the definition of “eligible expenses” by allowing “course materials” to be included.

The phase out limits applicable to the AOTC are also higher than those for the Hope Scholarship Credit - the AOTC phases out for taxpayers with modified adjusted gross income between $80,000 and $90,000 for single filers, or $160,000 and $180,000 for those filing jointly. Finally, the AOTC is 40% refundable; meaning that this portion may be applied against a taxpayer’s alternative minimum tax liability.

Tuition and Fees Deduction
You may be able to deduct qualified higher education tuition and required enrollment fees up to $4,000 that you pay for yourself, your spouse, or a dependent. You do not have to itemize to take this deduction. However, a taxpayer cannot take both the tuition and fees deduction and either the Hope or Lifetime Learning education credits for the same student in the same year.

But since the Hope or Lifetime Learning education credits have income limits, this deduction is important to taxpayers who don't otherwise qualify for either credit.

Retirement Tax Credit
This credit is designed to give moderate and low-income taxpayers an incentive to save for retirement, and may also come with a deduction.
If a contribution is made into your retirement account, the money is not taxed currently. It is as if you get a deduction off your income. In addition, you get a credit of as much as 50% of the first $2,000 invested. This may be up to a $1,000 reduction in your tax.

Student Loan Interest Deduction
Until recently, if parents paid back a student loan incurred by their children, no one got a tax break. To get a deduction, the law held that you had to be both liable for the debt and actually pay it yourself. But now there is an exception. If the parents pay back the loan, the IRS treats it as though they gave the money to their child, who then paid the debt. A child who is not claimed as a dependent can now qualify to deduct up to $2,500 of student loan interest paid by their parents.

Property Tax Deduction for Non-Itemizers
If you do not itemize your deductions yet paid property taxes, you qualify for an additional standard deduction of up to $500 (up to $1,000 if married filing jointly). While this benefit was initially good only for 2008, Congress extended it into 2009. There are no income limits to claim this extra deduction. The deduction may be claimed as an addition to your regular standard deduction on Form 1040 or Form 1040A.

Medical Deductions
The Tax Court allows a deduction for the cost of a swimming pool (to the extent the cost exceeded its added value to the property) as a medical expense if the primary purpose is for medical care (need documentation). Also, the cost of heating the pool, pool chemicals and a proportionate part of insuring the pool area were treated as medical expenses.

“Economic Recovery” Payments to Certain Individuals
The Stimulus Bill provides for a one-time payment of $250 to taxpayers that were eligible for any of the following benefits during November or December 2008 or January 2009: social security, railroad retirement, veterans’ disability compensation or pension, and supplemental security income.

These payments will be sent to eligible individuals throughout the month of May 2009. It is not necessary for eligible individuals to take any action to claim this payment; they will be sent out automatically, separate from recipients usual benefit checks.

Receipt of this payment will reduce any Make Work Pay Credit received by the same taxpayer.

Refundable Credit for Government Retirees
The Stimulus Bill also provides for a refundable tax credit available to retirees who receive a government pension or annuity from work not covered by Social Security and who are not eligible to receive the one-time “Economic Recovery” Payment. This credit is available for the 2009 tax year only, and is in the amount of $250 ($500 for married persons filing jointly if both spouses are otherwise eligible).

IRS PUBLICATIONS, FORMS & LINKS

IRS 2009 tax forms in PDF format, please click on the link below to download form or use IRS urls listed below to go directly to IRS.gov website for further information.