Standard Deduction and Personal Exemptions Increased For 2009

The IRS adjusts key tax numbers each year, including personal exemptions and the standard deduction amounts.  These are cost of living adjustments required by law.

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.
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Savers Credit Helps Low to Middle Income Taxpayers Save for Retirement

Not many people are aware of the saver’s credit, which helps offset part of the first $2,000 that taxpayers contribute to IRAs , Roth IRAs, 401K and other retirement plans.  This credit is also known as the retirement savings contributions credit.

The saver’s credit is available in addition to other tax deductions and credits that a person may qualify for, so taxpayers who take a deduction for contributions made to IRAs, 401Ks and other tax-deferred retirement accounts, and who also qualify for the saver’s credit, essentially get a double tax break.

You still have time to make contributions to your retirement accounts and get the saver’s credit, if you qualify.  The deadline for setting up or adding money to IRAs and still get credit for 2008 is April 15, 2009.  But if you’re planning on contributing to your 401K or other employer sponsored plan, you need to get your contributions in by the end of the year.

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Max Out Your Retirement Plan (Year-End Tax Tips)

One of the most common tax planning strategies is to max out your contributions to your retirement plans to reduce your taxable income.

For IRAs, you have until the tax filing deadline (April 15) to do this, but for 401K, 403B and other employer sponsored retirement plans, you have to do this by the end of the calendar year.

The maximum amount you can contribute to 401K, 403B and 457 plans is $15,500 in 2008 (in 2009 you’ll get to contribute an extra $1,000 as the limit is increasing to $16,500).

You may be wondering if you should contribute more to your retirement plan given the stock market this year.  Actually, since stock and mutual fund prices are off by an average of 40% this year, you should be contributing to your retirement accounts.  Remember ‘buy low, sell high’?  Well now is a great time to buy low.

So not only can maxing out your retirement plan be a great tax planning strategy, for this year, it’s also a great investing strategy.

Year End Tax Tips

It’s hard to believe we’re almost at the end of the year already.  As I write this, there are only a few weeks left in 2008.

Most people probably aren’t thinking about taxes yet, but the time to do tax planning is before the year ends.  Once December 31 has passed, there’s very little you can do to help reduce your 2008 taxes.

The first step in tax planning is to determine where you are for the year.  Pull out last year’s tax return for a reference.  You also need your most current profit and loss statement, so if your books aren’t up to date, now’s the time to get caught up.

Compare your income and expenses to last year’s tax return.  Is your income up?  Do you have the same amount of deductions as last year?  If your income is up, or if your expenses were down, you may owe more taxes than you did last year.

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