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Tax season is upon us. And while nobody likes shelling out their hard-earned dollars to the IRS, this year the government is offering up some new opportunities that could save you big money.
As part of the American Recovery and Reinvestment Act, or stimulus bill, Congress introduced several new tax goodies that could help millions of Americans save -- as long as they know to claim them.
"The purpose of these credits is to give back the maximum amount of money to taxpayers so that Americans spend a little more and help the economy," said Jerry Morphis, CPA and owner of Accutax & Accounting, "but the new credits are not common knowledge."
Even as the IRS seeks to collect every penny it can in tax revenue, you can still come out on top and stimulate your own economy by taking advantage of these five new tax breaks.
Homebuyers: If you're getting ready to buy a home, not only are there some great steals in the market right now, but the government will help you afford the home of your dreams with a new expanded version of the homebuyer credit.
While you used to be able to receive up to $8,000 in credit only if you bought your first house in 2009, the law has been expanded to include any new homes purchased by April 30, 2010.
The new law also includes a credit for those people who don't qualify as first time home buyers, offering up to $6,500 to people who have lived in a home for five years but are buying a new house.
Income limits were raised as well, allowing homeowners with modified adjusted gross incomes of up to $125,000 to receive the full credit. If your income falls between $125,000 and $145,000, you are eligible for a reduced credit.
"It's not too late to buy a house and get that credit," said Amy McAnarney, executive director of The Tax Institute at H&R Block. "Even if you buy a home on April 30, you have the choice of claiming the credit on your 2009 return, and this could get dollars into the hands of the taxpayer a lot faster."
If you've already filed your 2009 tax return, you can still file an amended return along with a separate form showing proof of purchase that must be mailed to the IRS.
Students: With tuition at some schools rising in the double digits, it's a crucial time to help students and parents handle the escalating costs.
To help soften the blow, the IRS is offering the American Opportunity credit, which can be claimed for 2009 or 2010 college tuition, text books and even computers.
The credit temporarily replaces the existing Hope Credit in order to help more taxpayers, including people who don't owe tax and those with higher incomes. If you're a student and your income is $80,000 or less, you can qualify for a credit of up to $2,500 a year, an increase of $700 from the previous Hope Credit.
"This is a great credit, especially with the cost of college so high today," said CPA Jerry Morphis. "It really helps lower income people, giving more Americans the opportunity for higher education."
In addition, students and parents can now claim the credit for four years of post-secondary education tuition instead of just two, and the credit can be applied to required course materials.
Energy savers: The government is paying you to go green with its new Residential Energy Property credit, increasing the incentives it gives to homeowners who make energy-efficient upgrades to their homes.
The original credit was set to expire at the end of 2007, but it has been extended through 2010. And the new law allows you to claim up to 30% of improvement costs, up from 10% under the previous law.
The credit cap was also raised to $1,500 this year for upgrades made in 2009 and 2010. Qualifying improvements include adding insulation, energy conserving windows and efficient heating and air-conditioning systems.
The Tax Institute's McAnarney said the credit is mainly for heating and cooling efficiency items, and therefore appliances such as energy conserving refrigerators are not included.
To find out which of your upgrades qualify for the tax break, McAnarney recommends checking with Energy Star (www.energystar.gov), a government-backed program that determines energy efficiency.
Workers: If you have a job, the Making Work Pay credit provides a refundable tax credit of up to a maximum of $400 or $800 for married couples, phasing out as adjusted gross income exceeds $75,000 or $150,000 for joint filers.
While most people already received the refund in their paychecks because of adjustments in federal income tax withholding tables, you will still need to claim the credit on schedule M. If you don't, your reduced withholdings could end up costing you.
The Tax Policy Center estimates that 75% of all taxpayers filing their returns this year will benefit from the credit and see a savings of $375 on average, said Roberton Williams, a senior fellow at the Tax Policy Center.
"This is great because it gives people money in their pockets and it's refundable, so you get the full impact of $400 or $800 off your taxes right away," said Matt Woolsey, director of the tax department at Liberty Tax.
"But you've got to be careful," Woolsey added. "For some people it's a double-edged sword because you could end up owing money at the end of the year or getting less money back than you expected."
The danger comes if you're single and work two jobs or are married, filing jointly and reporting two incomes, because you may be underwithholding and could end up paying the IRS rather than receiving a refund.
In order to avoid owing money to the taxman, Woolsey suggests figuring out your withholding using the calculators available online at the IRS Web site (www.irs.gov), and then updating your W-4 form.
Car buyers: This year, you can deduct state and local taxes paid on new vehicles bought from Feb. 17, 2009 through the end of last year.
Qualifying vehicles include passenger automobiles, motorcycles, motor homes and trucks weighing less than 8,500 pounds. The deduction is available for the taxes and fees paid on up to $49,500 of a purchase.
"We've seen a lot of people come in with this credit," said Woolsey. "Cash for Clunkers last year was a tremendous jumpstart for the auto industry, and now people are taking deductions for cars they purchased through that program."
The IRS is also encouraging taxpayers to conserve energy by offering a new credit of up to $7,500 this year for certain electric plug-in vehicles purchased after Dec. 31, 2009.
A separate tax credit for choosing hybrid, fuel cell, alternative fuel and advanced lean-burn technology vehicles has been offered since 2005.