What should you claim if you want to reduce your refund, and what should you claim if you want to reduce the amount you owe at tax time?

Basically, the fewer exemptions you claim, the more taxes are withheld from your paycheck, and vice versa.

So if you need to increase the amount of taxes that are withheld, then you claim fewer exemptions; if you need to reduce the amount of taxes that are withheld, then you increase the number of exemptions you claim.

To change your withholding, you should complete and submit Form W-4 to your employer’s human resource or payroll department.

It’s also important to note that the number of exemptions that you claim on your W-4 may not (and doesn’t have to) be the same as the number of exemptions you claim on your tax return.  So, for example, on your tax return, if you are married and have two kids, your total exemptions claimed will be four (one for you, one for your spouse, and one for each child).  However, your exemptions on your W-4 may not be four.  The reason is that the exemptions on your W-4 are adjusted for things like higher itemized deductions, additional income (from business, investment or rental properties) and other factors.

The IRS has a withholding calculator you can use to determine the correct amount of exemptions to claim on your W-4 at www.irs.gov.

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The effect of these adjustments is that the tax brackets widen (so you can earn more income before you jump into the next tax bracket).

Here are a few of the changes in effect for 2009:

• The personal and dependency exemption, available to most taxpayers, increased $150 to $3,650.
  
• The new standard deduction is $11,400 for married couples filing a joint return (up $500), $5,700 for singles and married individuals
  filing separately (up $250) and $8,350 for heads of household (up $350). Nearly two out of three taxpayers take the standard deduction, rather than itemizing deductions (itemized deductions include mortgage interest, charitable contributions and state and local taxes).
• Tax-bracket thresholds increased for each filing status. For a married couple filing a joint return, for example, the taxable-income
  threshold separating the 15-percent bracket from the 25-percent bracket is $67,900, up from $65,100 in 2008.
• The maximum earned income tax credit for low and moderate income workers and working families with two or more children is $5,028, up from $4,824. The income limit for the credit for joint return filers with two or more children is $43,415, up from $41,646.

The amount you can contribute to retirement plans also increases for 2009:

• The amount you can contribute to your 401K or 457 plan is increasing $1,000 to $16,500
• The limitation for Simple IRA accounts is increased from $10,500 to $11,500
• The limitation for IRAs and Roth IRAs is the same as 2008: $5,000, plus a $1,000 catch up contributions for taxpayers age 50 and over

For other changes, including the income limitation for taxpayers who qualify for the retirement savings credit, please visit the IRS website.

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Attention bloggers, coaches, eBay sellers, affiliate marketers, and other online business owners…

* Do you worry that you’re paying too much in income taxes?
* Do you worry that you’re not getting all of the deductions you’re entitled to?
* Do you want to learn how to pay fewer taxes and keep more of your profits?

Announcing the Free teleseminar, ‘Your Top Tax Questions Answered’!

Join me on Thursday December 18th at 1:00 CST for this exclusive teleclass, to answer your top tax questions!

Click here for more information and to sign up today!

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Appropriately named The Dog Days of Summer, this week’s carnival features some great posts, such as…

Andrea of Queercents wonders, “Should we be able to claim pets as dependents?” Check out her thoughts in Reducing Pet Costs: Tax Deductible Pets?

Dave warns Donating Clothing? Beware For-Profit Drop Boxes. It’s posted at Money Under 30.

For your viewing pleasure, Overlooked Tax Deductions, A Photo Essay, presented by Silicon Valley Blogger and posted at The Digerati Life.

And Ebiz Tax Tip’s own contribution, IM Courses May Be Tax Deductible.

Enjoy!

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The Housing Act is intended to revamp the housing finance industry, encourage home ownership and help prevent foreclosures. Below is a summary of some of the tax provisions in the bill that will affect current and future home owners:

* The Hope for Homeowners Program: The Act creates a new Federal Housing Authority (FHA) program designed to help borrowers in danger of losing their homes to foreclosure. Eligible homeowners may be able to pay off their original (foreclosing) lenders with a fixed-rate, 30-year-term mortgage for up to 90 percent of the appraised value of the property. Eligible homeowners are those who originated their loans before January 1, 2008, spend more than 31 percent of their monthly income on their mortgage, and are currently in danger of foreclosure. Borrowers would have to share future equity with the FHA. The program is completely voluntary; banks may elect not to participate. The program begins on October 1, 2008 and ends in September of 2011.

* Temporary mortgage foreclosure protection for military members: The Act provides mortgage foreclosure protection for members of the U.S. Armed Services by temporarily increasing (through December 31, 2008) the maximum loan guarantee for VA loans. The period a lender must wait before initiating foreclosure proceedings after a service member returns from service is extended from 90 days to 9 months. Increases in mortgage interest rates above 6 percent are suspended during the period of service and for one year after a service member ends service. This provision will sunset on January 1, 2011.

* Temporary tax “credit” for first-time homebuyers: First-time homebuyers of a principal residence purchased after April 8, 2008 and before July 1, 2009 may take a refundable tax credit of 10 percent (up to a maximum of $7,500; $3,750 for married persons filing separate returns) of the purchase price of the property. The credit is phased out for individual taxpayers with adjusted gross incomes (AGIs) ranging from $75,000 to $95,000 ($150,000 to $170,000 if married filing jointly). However, taxpayers must repay the credit taken over 15 years in equal installments as a surcharge on their annual income tax return.

* Temporary standard property tax deduction for taxpayers who don’t itemize their deductions: For 2008 only, taxpayers who do not itemize their deductions will be allowed to take a real property tax standard deduction (in addition to the standard deduction) of up to $1,000 if married filing jointly ($500 for all other filers).

* Reduced homesale exclusion for nonqualified use: For sales and exchanges of a principal residence after December 31, 2008, the $250,000 ($500,000 if married filing jointly) homesale exclusion won’t apply to the extent the gain is allocated to periods (not including any period before January 1, 2009) during which the property is not used as the principal residence of the taxpayer or the taxpayer’s spouse.

These are just a few of the provisions in the new act. For more information, please visit ‘Housing Rescue Bill…’

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