Don't Miss These Tax Breaks

Unemployment benefits

Unemployment benefits up to $2,400 received in 2009 are tax free for unemployed workers. Every person who receives unemployment benefits can exclude the first $2,400 of these benefits on their return. All benefit amounts over $2,400 are taxed.

Relief for cancellation of debt

If you foreclosed on or reduced the mortgage on your principal residence through restructuring in 2008, the reduction in your debt is excluded from your gross income in determining your federal tax. In the past, it had been subject to federal tax. See IRS Form 4681.

Standard property-tax deduction

Nonitemizers can take an additional standard deduction for property taxes paid: $500 for single filers and $1,000 for joint filers.

First-time homebuyer credit

The Worker, Homeownership and Business Assistance Act of 2009, extended and expanded the first-time homebuyer credit. Under the new law, to claim the credit on Form 5405, an eligible taxpayer must buy, or enter into a binding contract to buy, a principal residence on or before April 30, 2010 and close on the home by June 30, 2010. The full credit, up to $8,000 is available only to first-time homebuyers. The new law also provides a "long-time resident" credit of up to $6,500 for buyers who have owned and used the same home as a principal or primary residence for at least five consecutive years of the first eight The credits begins to phase out when adjusted gross income reaches $125,000 for singles and $225,000 for joint filers.

State sales tax deduction

Itemizers can deduct either state and local sales tax or state and local income tax, whichever is greater. Residents of Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming, which have no income tax, stand to benefit the most.

Educator expense deduction

Teachers, administrators, and other professionals working with grades K through 12 can deduct up to $250 for out-of-pocket job expenses, even if they don't itemize.

Tuition and fees deduction

Itemizers can deduct up to $4,000 used toward college. To be eligible, modified adjusted gross income can't exceed $80,000, or $160,000 for joint filers. See IRS Publication 970.

Child tax credit

The earned income generally required for this credit has been reduced to $3,000 for 2009. You may be eligible for up to $1,000 for every child under age 17 that you can claim as a dependent. For joint filers, the credit is reduced when modified adjusted gross income hits $110,000 ($75,000 for singles and heads of household). See Publication 972.

Earned Income Tax Credit (EITC)

This credit is for low-income working individuals and families. It’s a refundable credit, meaning you can get it even if you owe no tax, and even if no tax is withheld from your paycheck. But you must file a return to be eligible. For 2009, single workers with earned and adjusted gross income (AGI) of up to $35,463 with one or more qualifying children are eligible. For married couples filing jointly, the qualifying AGI is $40,463. The maximum EITC to be paid this tax season is $5,028 for people with three or more qualifying children, up from $4,824. For more information, go to the EITC Assistant at www.irs.gov.

source - consumerreports.org