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10. Disaster-Related Personal Casualty Losses
Has the government officially declared our economy a disaster yet?
1 replies
10. Disaster-Related Personal Casualty Losses
Has the government officially declared our economy a disaster yet?
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Typo in the word \"incetive\". Should be \"incentive\".
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Am I reading #4 right? It says I can deduct sales tax. So if I live in Chicago (10.25% FTW), I can deduct all the crap I bought in this overtaxed city. I assume it's specific to some category of things. That can't be right.
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@ARP: \"The ability to choose to deduct state and local general sales tax instead of state and local income taxes\"
You'd have to buy a lot of crap to make even the Chicago sales tax worth more than deducting your 3% state income tax. (Also, oy, the recordkeeping!)
I think it's meant to give a deduction to folks in those few states that have no income tax, which tend to have higher sales taxes to compensate.
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@Eyebrows McGee: Buying a new car (the sales tax was easy to find a record of) plus the number from the table beat the income tax for me one year. IL was broken-up into three classes, I lived in the second highest sales tax area, Chicago would be in the highest. I don't know if the tables still work the same way now.
Also In Jan I did some work on the kitchen so I started saving receipts. Then in Feb I bought a used car. I have been keeping all of the receipts now. It took me less than five minutes to add-up all the receipts for the beginning of this year. You do not need to look up the actual sales tax, you just add to the total anything you did pay sales tax on. Then they have a percentage that you are supposed to apply when doing your taxes. At least that is how I remember it was supposed to work back when I used the table only. I'll see if that beats the table next year.
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@Eyebrows McGee: There's a standard table you can use to estimate your sales tax paid instead of keeping your receipts.
And yeah, I would wager most people who are taking a sales tax deduction are in Florida or one of the other states with no income tax. I know my dad in Texas generally just uses the table to take a sales tax deduction, unless he's recently bought a big ticket item like a car, in which case he'll try to keep receipts.
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@ARP: If you itemize your deductions you can deduct sales tax or property tax, but not both. If you don't itemize you would have to be paying a lot of sales tax to justify itemizing instead of taking the standard deduction.
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@Cletus: Correction - on Schedule A, you can deduct state/local income tax OR sales tax, but not both. Real and Personal Property Tax paid is still deductible on Sch A regardless of whether income tax or sales tax is deducted.
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@GretaDandradeine: Maybe Consumerist editors should consider using the Firefox browser to check spelling as they type? Could help. I found that it saves me plenty of comment regret.
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@geeky_cylon: I've found the firefox spellcheck misses a lot of errors. When I write emails, I depend on Gmail's built in spellcheck to catch whatever firefox misses.
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@GretaDandradeine: I think you need to check your spelling. Looks to me like you left out all of your vowels. =P
3. Real Property Taxes
Homeowners can claim up to $500 as an additional standard deduction for tax years beginning 2008, 2009.
This is 500 for single filers or 1000 for joint filers. Assuming you paid more than 500/1000 in property taxes for the year.
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@astraelraen: I was hoping for some clarification on this. They're saying that if you paid property taxes in 2008, and you're choosing to take the standard deduction rather than itemizing your deductions with your property tax, then you're entitled to an additional $500 on your standard deduction (filing single)? I intentionally paid my property taxes in January since that + interest was less than the standard deduction
@nataku83: Your understanding is basically correct. Property tax can now be taken as an additional above-the-line deduction *without* having to itemize. This qualifies for real property and personal property (property tax on cars being the most common).
So if you file single and own a house but your mortgage interest was only $4000, and you have no other itemized deductions, you can take the standard deduction ($5450) AND deduct real estate taxes paid on top of that up to $500.
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It wasn't always 10%.... and no, its all sales tax.
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When are they going to offer a tax credit for student loan payments? That would be a huge boost to the economy.
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@holocron: Interest accrued on student loans has been tax deductible for as long as I've been paying taxes.
@MichaelBrazell: Yes, but you can only deduct up to $2,500 (as EarlNowak pointed out). It's a shame they cap it at that, since a lot of people focusing on paying their loans quickly will go over that cap (given the large size of most student loans x interest rates higher than they've usually been).
@EarlNowak: Definitely asinine. Seems like a bit of an incentive, but when you look at the contradictions it starts to fall apart. My parents were happy to claim the credits for my undergrad studies, but I don't think it's realistic to assume that most students are dependents or that their parents will be subsidizing them.
They should offer the credits to be used either while in school or within a certain time after (5 or so years). Give you a little boost when you're earning some money but trying to pay back education-related debt.
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@MichaelBrazell: there used to be a sunset though (i think under the old rules, you could only claim the interest for ~5 years), but i believe they dropped that restriction.
@stevejust: Hope credit is for tuition payments and can only be taken while the student is in school. Most people pay off student loans for many years after graduation..
If you make under $55k, you can deduct $2500 of the student loan interest you've paid (tax savings of about $625), but it phases out above that level. If you make $70k or more, you can't deduct any student loan interest.
I think it's a little lame- students above half-time get a huge break while they're in school, but most students who are more than half time don't have time to work full time. Neither credit is refundable so to fully use the credit you need enough income that after your standard deduction and personal exemption you have $2000 of tax liability. That's between $18k and $30k depending on your situation, and I don't know many college or grad students pulling that kind of cash in school.
Then once you graduate, you can make student loan payments on par with a mortgage payment (say, $1000 per month), but only get to deduct $2500 of interest, and only if you're making under $55,000 dollars. Even if you're paying $12000 after tax dollars a year towards your federal student loans- and oh, by the way, if you default on those the government is on the hook for paying back the banks. I mean, we incentivize home ownership- shouldn't we incentivize higher education?
Didn't mean to rant. I just think it's a little asinine.
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What I think is asinine is that these things aren't taught to highschool kids who are preparing to *go* to college. They have no idea the amount of debt they can burden themselves with and they have no concept as to how it will affect their life post-graduation.
I see kids who have attended private schools and accumulated HUGE amounts of debt. Many of them are going to be broke for many years after they graduate.
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@EarlNowak:
Well the Hope/Lifetime Learning Credits can be for any dependent; in my case I work and my wife is in graduate school, so I get the full Lifetime Learning Credit taken out of my tax owed based on her tuition and fees. When I was in grad school I had a stipend of $20,000 a year (which is avg. for science/engineering grad students) that I had to pay taxes on, so I could use the credit then as well. And remember the credits can also be claimed by parents who have dependent children in college, which is a lot of people; I was an undergrad I know my parents used the Hope credit to get a tax credit on my tuition... it seems there are lots of opportunities to take advantage of the credits.
@stevejust: Errr, student loan interest payments - which usually become due *after* a student has completed/stopped pursuing their education - don't qualify for a tax credit. Hope/Lifetime credits are for current, qualified postsecondary expenses.
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Cool, I hope my tax software knows about all of these :)
AMT must die.
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@Eyebrows McGee: Lol. On the back burner of my dim brain I was trying to puzzle out \"AMT,\" but it wasn't till I read your post that it clicked: \"Oh, a hated bit of tax code. Bingo! Alternative Minimum Tax!\" Thank you, E.McG.
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AMT must at least be pegged to inflation instead of being raised on an adhoc basis each and every year. Congress critters, take note.
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@yagisencho: The Republicans are against this common-sense change because - sigh - they want to get middle-income earners anxious about being thus taxed. That is, they create the problem, then peddle the line to their media dupes that we're all equally threatened by this horrible, horrible, loophole-closing scheme.
So, sure, you, I and Rupert Murdoch are totally sharing the same boat.
Despicable. Email your Congress critter to fix this once and for all. :)
@Trai_Dep: There's some speculation that since it hits blue states harder than red states (blue states tending to have higher state income taxes), it's good for the GOP in elections if they're able to rail against the AMT; might help them pick up blue-state votes.
@yagisencho: Or that. But you still have the problem where AMT is \"dumb\" about tagging deduction limits, so if you've got six children driving up your deductions or live in a high-state-income-tax state or pay high property taxes, you get dinged for AMT the same as the guy with dubious tax-manipulating schemes it's MEANT to catch. AMT won't work right until it differentiates deductions in a way that's in line with its stated policy goals.
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7. Allowable Child Tax Credit
NOW I understand why someone wanted 8 children!
@backbroken: The interesting thing about the Child Tax Credit is that, like many credits, it gets phased out as a filer's income increases. Prior to become OctoMom, Nadya did not have reportable income to claim the CTC/ACTC (she was living off of disability payments, which, unless combined with significant earnings, would not be taxable).
This year, any donations she receives are not reportable (ergo, donation will not generate any tax credit). If she earns any interest/dividends/capital gains from investing the proceeds of cash donations, those will be taxable but probably not significant. If the rumored $300k appearance fee she received for her first interview is real, any Child Tax Credit for which she'd be eligible would be reduced due to the amount of that reportable income - from $14,000 (the base amount) to a whopping $3,250.
Compared to the $75,000 or so she would owe in federal income tax on $300,000 in reportable income (once eligible deductions are accounted for), $3,250 is a rather laughable pittance, don't you think?
@Shrew2u: Yeah, she doesn't strike me as a shrewd tax accountant. The large amount of benefits she's getting from the California government seems to be from being in the right place at the right time and falling through the cracks just so.
Plus, the legislation was written for people who behave rationally and not people who want to have over a dozen children for \"unconditional love\" alone.
I think it's not so much a failure of the tax system as a failure of the American mental healthcare system. She could probably have gotten long term therapy for the same price as the IVF, and everyone would probably be a lot better off if she did. The people at the fertility clinic should have referred her, and culturally we should try to make it clear that therapy is helpful and isn't just for \"crazy\" people. It's a legit form of treatment, like going to the eye doctor to get glasses.
Does #9 include plug-in hybrids? Would it pay for the conversion of a stock Prius to a plugin (a process costing around $6000-8000) and/or the purchase of a modified Prius with plugin charging added? That's a pretty good incentive if it works, and many states have incentives on top of that.
Otherwise, it's currently just a subsidy for a product that scarcely exists (there's the Tesla, but that' $100,000. A $2000 subsidy isn't going to make that cheap).
I also wonder how wise it is to offer a subsidy for battery capacity without regard to chemical composition. A big, heavy electric SUV would get a bigger subsidy than a small electric sedan with equal range. And a cheaper, but also more environmentally detrimental battery, would be better at gaming that system. I think range as found in an EPA-certified test would be a better metric for subsidy-worthiness.
I appreciate things like this not just because of potential use this year, but because for some you can make better choices next year (or thereafter)
Mind clarifying what exactly \"Allowed to the full limit of your regular tax and AMT liability, for tax years beginning in 2008.\" means?
Can I get some info on number 3 please?
\"What big, scary, scary teeth you have, Mr Ex-President,\" said Little Red Riding Hood.
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@oneandone: I never understood why you'd rush to pay off a student loan, especially if it put you in a position where you couldn't deduct all of the interest.
It could be different for some people, but for me and most other people I know your rate was so low that interest wasn't really an issue. On top of that since you do get to deduct it you're biggest reason to quickly pay off a loan (decrease the interest paid) doesn't matter since you're going to get it back. Like I said I guess it will vary from person to person. When I've had friends who are making the min payment on credit cards or cars so that they could make bigger student loan payments I ask what the hell they're thinking.
@tande04: If you make more than $70,000, you can't deduct any student loan interest. It's a phased out deduction based on income level. And the deductable interest is capped at $2,500, which provides a tax savings of $625 at marginal rates. I don't know about choosing student loans over credit cards, but in general it's a better move to pay them off quickly if you can (unlike, say, a house, which is theoretically an appreciating asset, and where you can usually deduct 100% of the interst).
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I think consumerist.com needs to provide links to where we can get more detail. I'm sure irs.gov, but if you wanted to get a bit more specific than that, that'd be awesome.