Every year brings changes to the already complicated Internal Revenue Code. New credits become available, others expand or expire; amounts for credits and deductions also can vary from one year to another. To help you prepare your 2009 return, we’ve compiled a list of items that are most likely to impact the filing of the average visual artist. After all, this is a tough time to be an artist, and we want you to receive every credit, deduction, exemption and other tax benefit to which you are entitled.
American Opportunity Credit: Modifies the existing Hope credit. This tax credit can be claimed for qualified tuition and related expenses you pay for higher education in 2009 and 2010. The scope of “related expenses” has been expanded to include course materials such as books, supplies and equipment needed for a course of study. The maximum credit is $2,500 and 40 percent of the credit is refundable. However, the credit is only allowed for the first four years of post-secondary education.
The standard mileage rate is: $.55 per mile for business use; $.24 per mile for medical miles or to move; and $.14 per mile for charitable use.
Cash for Clunkers: The $3,500 or $4,500 voucher for the CARS “cash for clunkers” program is not taxable to the consumer buying or leasing the car.
New vehicle purchase incentive: Buyers of new motor vehicles may deduct the state or local sales or excise taxes paid on the purchase of new cars, light trucks, motor homes and motorcycles. Leased vehicles do not qualify. Multiple vehicle purchases qualify, but the credit can only be claimed on the first $49,500 of purchase price. Qualifying vehicles must be purchased after February 16, 2009 and before January 1, 2010.
Electric vehicle credits: If any of following scenarios apply to you, you may be eligible for a credit: You placed a plug-in electric drive motor vehicle in service in 2009; you purchased a plug-in electric vehicle after February 17, 2009; you converted a vehicle to a plug-in electric drive motor vehicle and placed it in service after February 17, 2009.
Non-business Energy Property Credit: The credit equals 30 percent of the cost to the homeowner on eligible energy-saving improvements made in 2009, up to a maximum credit of $1,500. Qualifying expenditures include the cost of high-efficiency heating and cooling systems, water heaters and stoves that burn biomass. Installation costs qualify for the credit. The taxpayer must receive supporting documents from the installer.
Residential Energy Efficient Property Credit: The credit equals 30 percent of amounts spent by the homeowner on qualifying property such as solar electric systems, solar hot water heaters, geothermal heat pumps and related property. Generally, there is no cap on the amount of the credit. This is not the same as Energy Star-rated property.
First-time Homeowner Credit: This credit, which maxes out at $8,000, has been extended to principal residence purchases made after 2008 and before May 1, 2010 (or a purchase closed before July 1, 2010 if a written binding contract is entered into before May 1, 2010). For sales occurring after November 6, 2009, income limits are $125,000 for single taxpayers and $225,000 for married couples filing joint returns; income limits for sales occurring on or after January 1, 2009 and on or before November 6, 2009, are $75,000 for single taxpayers and $150,000 for married taxpayers filing joint returns.
Also, the Worker, Homeownership and Business Assistance Act of 2009 authorized a tax credit of up to $6,500 for qualified move-up or repeat homebuyers purchasing any kind of home. To qualify, a person must have owned and resided in the same home for at least five consecutive years of the eight years prior to the purchase date. For married taxpayers, both spouses must qualify as long-time residents, with at least five years of principal residency for each. Repeat home buyers do not have to purchase a home that is more expensive than their previous home to qualify for the tax credit. A residence cannot exceed $800,000.
Other Deductions, Credits, Exceptions and Benefits
Standard deduction: The standard deduction for 2009 has increased by $500 to $11,400 for married filing jointly. It is now $5,700 (up $200) for singles and married individuals filing separately. You should itemize deductions if your total deductions are more than the standard deduction amount and/or if you do not qualify for the standard deduction. Some of the most common allowable expenses include mortgage interest, property taxes, state and local income taxes, charitable contributions and medical expenses that exceed 7.5 percent of your adjusted gross income.
Earned Income Credit: A refundable federal income tax credit for low to moderate income wage earners. The EIC has increased for people with three or more qualifying children and for some married couples filing jointly. The 2009 threshold is $48,279 for families with three or more qualifying children.
Personal and dependency exemption: Individuals are entitled to claim a personal exemption for themselves and any dependents they support. The personal and dependency exemption for 2009 is $3,650, an increase of $150 from 2008. You cannot claim your own personal exemption if someone else can claim you as a dependent.
Child Tax Credit: The formula to compute the credit has been revised so that more low and moderate income families qualify for the full $1,000 credit per child. The child tax credit is reduced or eliminated if your adjusted gross income is above the following thresholds: $110,000 on a joint return, $75,000 for an unmarried individual and $55,000 for a married individual filing a separate return. The credit amount is reduced by $50 for each $1,000 (or fraction thereof) by which the taxpayer’s modified adjusted gross income (AGI) exceeds the threshold amount. The credit does not affect the $3,650 exemption you take for each dependent in 2009. (See “Personal and dependency exemption” above.) This tax credit is in addition to that exemption.
AMT Exemption: For 2009 only, the Alternative Minimum Tax (AMT) exemption has been raised. For married filing joint, the exemption is now $70,950; the exemption for single taxpayers is $46,700 and $35,475 for married filing separately.
Unemployment benefits: Normally unemployment benefits are taxable. However, for the 2009 filing, the first $2,400 of unemployment benefits that an unemployed worker received in 2009 is tax-free. Amounts higher than $2,400 per recipient are taxable.
Net Operating Loss carryback: Qualifying small businesses (with average gross receipts of $15 million or less) with deductions that exceed income for the 2008 tax year can use a new net operating loss tax provision to offset the loss against income earned up to five prior years instead of the typical two years. In addition, the five-year NOL carryback has been extended to include 2009 losses. However, there is a 50 percent income limit on NOL offsets in the fifth carryback year. For more details, read IRS publication Revenue Procedure 2009-26.
For more information, visit the IRS Web page, www.irs.gov. You’ll also find more helpful articles about filing taxes and hiring a tax preparer in the March 2010 issue of Art Calendar, on newsstands in early February.
Everyone’s tax scenario is unique. For questions about your particular situation, we encourage you to speak with your tax advisor, seek assistance from your nearest volunteer lawyers and accountants organization or contact the IRS.AC
Special thanks to Nancy Starnes, a former senior tax manager at Ernst & Young who currently works as a private consultant and serves as president of the St. Louis Volunteer Lawyers and Accountants for the Arts, for her help with this article.
Contributing writer and communications consultant Ligaya Figueras specializes in business writing, marketing and media relations for visual and performance artists, writers, nonprofit organizations and specialty service providers. Follow Ligaya on Twitter at twitter.com/LigayaFigueras, or friend her on Facebook at facebook.com/ligaya.figueras.