A gentle reminder in case you’ve forgotten: tax time is just around the corner, and Uncle Sam is waiting to collect his annual fee. Like a trip to the dentist, completing your taxes before the mid-April deadline is an unwelcome but necessary task, and avoidance only makes things worse. You may owe less than you think, however, or even be entitled to a refund. To avoid overpaying the IRS, make sure you know about these easily overlooked federal tax break options.
First-time Homeowners Credit A temporary tax break that was signed into law last year for first-time homeowners now has an extended deadline and improved terms. In its original form, this limited-time incentive provided a $7,500 tax credit to first-time homeowners who purchased a house between April 9, 2008 and June 30, 2009, plus a repayment requirement with a 15-year time limit. Under the new terms, the first-time home purchase deadline has been extended to Dec. 1, 2009 and the tax credit amount has been increased to $8,000. The repayment requirement has also been waived, as long as the home isn’t sold for at least 3 years. In addition, first-time buyers in 2009 are allowed claim this credit ahead of time by including it on their 2008 tax returns.
Job-Search Costs Deduction Tax deductions often play a secondary role to credits and exclusions, but they are far from being worthless. One lesser-known deduction option that can help trim your tax bill involves job-hunting expenses. If you lost your job in 2008, you may be able to deduct the expenses of searching for a new one, but only under the following conditions:
1. Job-search expenses are deductible if you looked for new employment within the same line of work. If you searched for your first job or for one that was in another line of work, you’re out of luck in terms of deducting job-search expenses.
2. You must itemize deductions on your 2008 tax return in order to deduct job-hunting expenses. In addition, these expenses must exceed 2 percent of your 2008 adjusted gross income to qualify as a deduction.
Health Savings Account Funds Exclusion As the term implies, the beauty of an exclusion is that qualifying funds are literally excluded from being taxed. For example, this applies to health savings account (HSA) funds, which provide an alternative to traditional health care coverage and supplement a corresponding high-deductible health insurance plan. All HSA funds are tax-free, and unlike other types of investment accounts, there are no penalty taxes for early fund withdrawals when it comes to HSAs.