If you’re getting ready to buy your first home or are a new homeowner, here’s what you need to know—in plain English—about the home mortgage interest deduction.

Who Can Take the Home Mortgage Interest Deduction?

In order to deduct your mortgage interest, you must:

• File Form 1040 and itemize deductions on Schedule A.
• Be legally responsible for the loan. You cannot deduct payments you make for someone else if you are not legally liable to make them. (For example, if you are splitting the mortgage with a live-in partner and the mortgage is only in his/her name, you can’t take the deduction). Also, you cannot deduct interest you’re paying a family member for a home unless you have established a legal debtor-creditor relationship.
• Have a mortgage secured by a qualified home. A qualified home must be your first or second home. The IRS states that “A home includes a house, condominium, cooperative, mobile home, house trailer, boat, or similar property that has sleeping, cooking, and toilet facilities.”

To simplify even further, if you took out a mortgage from a bank in your name to buy your first home, you qualify for the deduction. In other circumstances, check with a tax pro.

• Thinking of Buying? Get Mortgage Pre-Approval Online →

What You Need

Claiming the home mortgage interest deduction is fairly simple. You’ll need:

• Form 1098, Mortgage Interest Statement from your mortgage lenders. They should mail this to you just like your employer mails you a W-2. The mortgage interest statement shows how much you interest you paid during the tax year.

• HUD-1 Settlement Statement (if you bought or sold a home within the tax year). This form usually comes from your escrow company and is used to itemize all the charges paid by both borrower and seller during a real estate transaction.

Limitations

There are some limitations on the home mortgage interest deduction. You cannot deduct interest on more than $1,000,000 used to purchase your first and/or second home(s). (Or $500,000 if married filing separately). In addition, you cannot deduct interest on more than $100,000 of home equity debt. If you deduct interest paid on home equity debt, it will affect the calculation for paying the Alternative Minimum Tax (AMT), so it is a good idea to understand the tax consequences before borrowing against your home.

If you have a joint mortgage, you can only deduct the interest you actually paid, regardless of who receives the 1098 Mortgage Interest Statement.

• TurboTax: Start Your Return Online for Free →

Mortgage points on a home purchase are fully deductible in the tax year in which they are paid (points are interest payments you make up-front, in a lump sum, to reduce your lifetime loan cost). If you pay points on a mortgage refinance, however, you must amortize the deduction over the life of the loan.

Should You Get Help?

Most of the time, taking the home mortgage interest deduction is straightforward. You add up the interest you paid listed on your mortgage interest statement forms and take the deduction. Things get tricky when you buy or sell property or start to carry multiple mortgages.

If you feel like some self-study, all of the rules are available in IRS Publication 936. But in most cases, tax preparation software like TurboTax will calculate your actual deduction for you. Finally, if your situation is more complicated, you might consider talking to a tax professional.

Related posts:

1. 2008 Tax Deductions You Don’t Want to Miss
2. Itemized Deductions: A Beginner’s Guide
3. Don’t Miss These Important Tax Deductions

If you claim a great deal of tax deductions, beware of this silent killer. The alternative minimum tax can come out of nowhere and require you to pay more tax than you ever thought possible.

Here are some facts on the alternative minimum tax so you know what to look out for if your deductions start stacking up this year:

What Is The Alternative Minimum Tax?

The AMT was designed to prevent wealthy taxpayers from using tax deductions as loopholes to get out of paying income taxes. The AMT is a system that is set up very similarly to our regular tax system, except many deductions that you can normally under the regular system take aren’t allowed for the AMT.

The AMT follows a complex formula of adding and subtracting certain adjustments and income items back to your gross income. A tax is finally assessed on the “Alternative Minimum Taxable Income”. If this tax is greater than your tax liability under the regular tax system, then you’ll have to pay the difference.

When the AMT was first put into law, it only affected a small number of people. Now, millions of taxpayers must pay the AMT. The reason? The AMT is not yet indexed for inflation. So while the AMT only taxed the very highest incomes in 1970 ($100,000 and up), it is now taxing the middle-class because our median income has risen over the years.

Will The AMT Affect You?

The makers of TurboTax estimate that over 29 percent of taxpayers earning between $75,000 and $100,000 will pay the AMT in 2010. Don’t worry, though, you’ll only be eligible for the tax if you take a very large number of tax deductions. If you only took a handful of tax deductions, you’ve got nothing to worry about. If, however, you’re taking almost all of the available itemized deductions and some other deductions, then you might get hit with the AMT.

To find out if you might have to pay the AMT, ask yourself if you will take or did take a high number of deductions this year that included:

• State, local, and foreign income tax deductions
• Miscellaneous itemized deductions
• Home equity loan interest deductions
• Medical deductions
• Net operating loss deduction
• Passive activity loss deduction
• Property tax deduction

Unfortunately, all of the deductions listed above are not allowed under the AMT tax system. There are a couple other situations that could make you eligible for the AMT. A couple popular ones are if you had a high amount of Private Activity Bond Interest Income (which usually isn’t taxed under the normal system) or if you exercised Incentive Stock Options through your employer.

Another tax perk that isn’t allowed under the AMT system? The standard deduction and personal exemptions are not allowed. The AMT does, however, have its own fairly high set of exemptions. For example, the 2009 AMT exemption for single taxpayers is $46,700.

In Conclusion

Tax prep software like TurboTax is great for simple returns and will even alert you if you may have to pay the AMT. If so, you’ll find that the AMT system is very confusing and you might need some professional help if you need to pay it. If you think you may have to pay the AMT, check out IRS Form 6251. It will show just you just which deductions aren’t allowed in more detail than I can list here.

The AMT is one example of where the tax law needs to be updated and improved. What once started as a tax law with good intentions to make all taxpayers pay at least some tax is now hurting more and more middle class taxpayers. Talk with your financial advisor or professional tax preparer if you have more questions about the AMT. The AMT is becoming more and more prevalent, so it’s definitely not something we can just ignore anymore.

As always, good luck with your tax journey this tax season!

About the Author: Carrie is in her mid-twenties and currently studying for the CPA exam, so she can give us some desperately-needed tax advice. She blogs about her journey to financial independence at Carrie…On the Cheap from her home in Kansas City, Missouri. You can also find her on Twitter: @CarrieCheap.

Related posts:

1. Itemized Deductions: A Beginner’s Guide
2. Changes to Tax Law in 2008
3. How to Avoid an IRS Audit

What Does It Mean To “Itemize Deductions”?

When you’re filling out your federal tax return this year, you’ll be asked to either calculate your itemized deductions or to take the standard deduction—an amount predefined by the IRS and based upon your filing status (e.g., single or married filing jointly). If you don’t qualify to itemize deductions, you will choose the standard deduction.

To find your taxable income, you must subtract the standard or itemized deduction from your Adjusted Gross Income (AGI). To be blunt, these deductions are our friends because they lower the amount of taxes that we have to pay.

Itemized deductions are comprised of various types of certain expenses that you incur throughout the year (things that are—surprise, surprise—“tax-deductable”). If the total amount of these expenses is greater than the standard deduction amount, you should itemize instead of taking the standard deduction.

For example, the 2009 standard deduction for single taxpayers is $5,700. If the amount you spent on qualified itemized deductions (see below) is greater than $5,700, then you should itemize on your tax return.

Do you qualify to Itemize Deductions?

The most common expenses that qualify for itemized deductions include:

• Home mortgage interest
• Property, state, and local income taxes
• Investment interest expense
• Medical expenses
• Charitable contributions
• Miscellaneous deductions

Home Mortgage Interest

If you took out a mortgage to purchase a home, the interest on that mortgage is deductible as an itemized deduction. Most people qualify for this deduction because it is allowed on up to the first $1,000,000 borrowed on a mortgage. This deduction is allowed for two residences per taxpayer. You can also deduct interest on a home equity loan as long as that loan is less than $100,000.

Taxes

If you own a home, you can deduct the real estate taxes that you pay on your home. However, you cannot deduct prepaid taxes; you can only deduct those taxes which are allocated to the year in which you are filing your taxes for. You can also deduct any state and local taxes (sometimes referred to as city tax) that you paid on your income during the year. This is a huge perk of itemizing (because most taxpayers pay state income tax but you can only deduct those taxes if you itemize deductions).

Investment Interest Expense

When you start investing, you may incur expenses like broker or advisor fees or safe deposit box fees. You can deduct these as itemized deductions. Just be careful: You can only deduct up to the amount that you earn through your investments. So, if you had a bad year and didn’t earn anything, you cannot deduct these expenses. (However, you may be eligible for Capital Loss treatment.)

Medical Expenses

Medical expenses are deductible as itemized deductions, but in a very limited way. You can only deduct the amount of medical expenses that exceed your AGI by 7.5 percent. For example, if your AGI was $50,000 and you spent $4,000 in medical expenses during the year, you could only deduct $250 ($50,000 * .075 = $3,750). Some qualifying medical expenses include: prescriptions, doctor’s fees/co-pays, insurance premiums, necessary surgery (not cosmetic), physical handicap costs, and transportation to a medical facility.

Charitable Contributions

If you were generous during the tax year and gave money or property to your favorite charity, you can deduct these gifts as an itemized deduction. Tithing to your church is included in this deduction. Contributions to political campaigns or needy families are NOT included in this deduction. (You must donate to a qualified organization to claim the deduction). The deduction is only limited to 50 percent of your AGI for cash donations and 30 percent of your AGI for property donations.

Miscellaneous Deductions

There are some miscellaneous deductions that you can claim, but you can only deduct these expenses by the amount that they exceed two percent of your AGI. These expenses include: unreimbursed business expenses, qualified educational expenses, expenses for uniforms, tax preparation fees, business use of your home, subscriptions to professional journals, and job-hunting expenses. These are just a few, so consult the IRS Website if you have a question about one of your expenses.

How Do You Claim The Itemized Deduction?

When you are filing out your 1040, you will see a question asking you to itemize or take the standard deduction towards the top of page two. You will need to use a separate form – Schedule A – to calculate your itemized deductions. This form can be found on the IRS website along with your 1040 form. The Schedule A form will walk you through the steps and calculations of each expense that I listed above. You will take the final amount on the Schedule A form and put it into your 1040 form where it asks for itemized deductions.

Things To Remember

Here are some helpful tips to summarize the itemized deductions process:

• Choose one or the other: Itemized deductions or the standard deduction
• If your itemized deductions are greater than $5,700 for 2009, you should itemize
• If your itemized deductions are less than $5,700 for 2009, you should take the standard deduction
• If you cannot itemize, you might be able to file a form 1040-EZ which is a shorter and simpler version of the traditional 1040 form. You may also be able to file your federal tax return using TubroTax absolutely free.
• If you bought a house this year, there is a good chance that you will now be eligible to itemize

Remember that no matter which deduction you choose, these deductions are your friend—they help you by allowing you to pay fewer taxes. Once you get the hang of itemizing your deductions, start to keep detailed records of all your eligible expenses. This will help to make the tax process that much less painful.

Remember that the IRS Website is chock full of really helpful tax advice. Don’t be afraid to take some time to investigate your tax questions on their website. Good luck in your tax journey this year!

About the Author: Carrie is in her mid-twenties and currently studying for the CPA exam, so she can give us some desperately-needed tax advice. She blogs about her journey to financial independence at Carrie…On the Cheap from her home in Kansas City, Missouri. You can also find her on Twitter: @CarrieCheap.

Related posts:

1. 2008 Tax Deductions You Don’t Want to Miss
2. Don’t Miss These Important Tax Deductions
3. Home Mortgage Interest Deduction: What You Need to Know

These stats are taken and simplified from the Internal Revenue Services’ Fiscal Year 2009 Enforcement Results, their fuzzy way of saying audits.

• Total 2009 IRS enforcement employees: 21,059
• Total revenue collected from enforcement: $48.9 billion

• Total individual taxpayer returns filed in 2009: 138,949,670
• Field audits: 326,249
• Correspondence audits: 1,099,639
• Percentage of returns audited: 1.03 percent

For comparison, in 2000, only 0.49 percent of individual returns were audited by 20,832 enforcement employees. An increase in electronic filing is probably making it possible for the same number of employees to audit more returns. But I wonder if it’s also safe to assume that when economic times get tougher, so does tax enforcement. The less Americans earn, the more Uncle Sam needs to squeeze from those who are earning.

But here’s where this gets interesting. The more you earn, the more likely you will face an audit.

Audits on Taxpayers earning less than $200,000

• Returns: 133,924,956
• Field audits: 269,865
• Correspondence audits: 1,280,735
• Percentage of returns audited: 0.96 percent

Audits on Taxpayers earning $200,000-plus

• Total returns: 5,024,714
• Total field audits: 56,384
• Total correspondence audits: 88,769
• Percentage of returns audited: 2.89 percent

Audits on Taxpayers earning $1 million-plus

• Returns: 441,715
• Field audits: 15,730
• Correspondence audits: 12,619
• Percentage of returns audited: 6.42 percent

The bottom line? You have about a one percent chance of being audited. If you earn $200,000 or more, that chance triples, and if you earn $1 million or more, you’re six times more likely to face an audit.

Finally, ever wonder how many people go away every year for tax crimes? In 2009, the IRS recommended 1,269 cases for prosecution and got a conviction rate of 87.20 percent. Those convicted served an average sentence of 24 months behind bars.

These figures can be scary, but your chances of facing IRS enforcement are still pretty low. And though some returns are selected for audit completely at random, others are selected because they contain big red flags like unusual deductions; the more ordinary your tax return, the less likely you’ll be audited. Still, the best prescription for peace of mind is to do your taxes thoroughly and honestly with the help of tax prep software like TurboTax or a professional tax preparer. Good luck!

Related posts:

1. How to Avoid an IRS Audit
2. $400 or $800 Making Work Pay Tax Credit
3. First-time Home Buyer Tax Credit Provides up to $7,500

Filing taxes and decoding IRS lingo may be some people’s idea of a good time, but for the rest of us, it may make more sense to hire a professional tax preparer or accountant to take care of our 2009 tax returns.

But how do you know if you really need the help of a professional tax preparer? Ask yourself the following questions before deciding to hire a professional to prepare your taxes.

Do you understand the tax process well enough?

However mundane, everybody should understand the basics of the tax return process. Whether you prepare your return yourself or get help, you’ll need to collect all of your relevant tax forms: W-2s, 1099s, and other forms stating your wages and income for the year. Your employers, vendors, and financial institutions should mail them to you by the end of January, but you’re responsible for tracking them down if they don’t arrive.

But tax forms are just the beginning.

You’ll also need information about any deductible expenses you paid throughout the year like home mortgage interest, charitable contributions, and student loan interest (among many other things). If you started a business during the year, you’ll need detailed records of income and expenses. On top of all this, you’ll need to know which forms and schedules you need to file for each tax transaction.

If you’re a full-time employee, don’t have many additional sources of income, and don’t own a home or have kids, chances are your tax return should be fairly straightforward. You are probably fine to you’re your tax return by hand or with the help of free or inexpensive tax preparation software like TurboTax.

If you have one or more situations that complicates your taxes, however, and any of this makes you uncomfortable or confused, consider consulting a professional tax preparer or accountant.

Did you buy and/or sell stock this year for a gain or loss?

The sale or exchange or stocks, securities, bonds, or any other investments is classified as a capital asset transaction. The phrases capital assets and capital gains tax scare a lot of people, but they’re not that bad. Capital transactions are actually taxed at a lower rate than your ordinary income, but handling capital transactions does get tricky.

The tax basis of these assets is determined by a long list of rules. Taxpayers must also declare capital assets on a separate form. Many people know that you can deduct up to $3,000 in capital losses from your income, but what many do not know is that some limitations to this deduction apply when it is taken as the result of trading securities.

The bottom line? If you need to report capital asset transactions on your tax return, hire a professional tax preparer or accountant.

Do you have freelance or consulting income?

If you worked for payment during the year without paying taxes, you will need to pay self-employment taxes come tax time. Even though you may have a full-time job where you do pay income taxes throughout the year, you’re still considered self-employed if you have side income – commonly referred to as freelance income.

For example, if you agree to design a Website for a company as a freelancer, chances are they will pay you as a contractor, not an employee. That means they won’t withhold taxes from your pay. Don’t rejoice just yet; they’re not paying you “under the table”. They’ll report your pay to the IRS as a deduction using form 1099-Misc., and you need to report that income—and pay taxes on it.

Not only will you have to pay federal income taxes, you’ll also have to pay self-employment taxes of just over 15 percent. That self-employment tax goes to Social Security and Medicare.

But wait, you say, “when I get a paycheck the Social Security and Medicare deductions are way less than 15 percent!” You’re right; they’re about half that amount. That’s because employers pay the other half. When you earn self-employment income, you pay the whole thing.

Self-employment does have its perks, however. A big perk is you can deduct expenses related to your business. For example, you may be able to deduct all or a portion of the computer that you use to design client Websites. That said, the deduction game gets complicated, and filers with long lists of business deductions may run a higher risk of being audited.

So if you earn self-employment income and want to take more than a few small business deductions, hire a tax preparer or an accountant. Not only can a tax pro limit your audit risk, they may also help you reduce the taxes you do owe by finding legitimate deductions you might have missed.

Do you provide financial support for someone?

If you support someone financially, nine times out of ten, that person counts as a dependent and you can claim them on your taxes. The exception? If you support a friend or a relative that isn’t your direct descendant, you might not be able to claim him or her. (This is basically the government’s way of preventing freeloading). For example, if a friend of yours has a job, but still needs extra financial assistance that you provide, there is a good chance you won’t be able to claim them on your taxes. If you’re uncertain, check with a professional preparer or accountant.

What’s the difference among tax professionals?

There are many types of tax professionals and their training and qualifications can vary greatly. Pros don’t need any particular education or certification to prepare somebody’s tax return, although they do need to be a Federally Authorized Tax Practitioner (FATP) to be able to represent you in dealings with the IRS. The most common FATPs are enrolled agents, certified public accountants (CPAs) and attorneys.

• Enrolled agents must pass a certification exam or have qualifying experience as a former IRS employee and should be more than competent to handle most tax returns.
• CPAs meet extensive educational and experience requirements, pass a comprehensive exam and stay current on tax issues. You may want to work with a CPA if you have an especially complicated return. If you choose to have your taxes done at a reputable accounting firm, chances a CPA will at least review your return before it is filed.
• Tax attorneys generally handle the most complicated of tax issues such as business partnerships, estate planning and tax violations.

If you’re still unsure…

Follow this rule of thumb:

Hire a professional tax preparer or accountant if you have a tax situation that confuses you or you think you might make a mistake on your taxes.

Don’t be afraid to ask for help; many people hire someone to do their taxes. If your taxes are very simple, it’s possible that you could get away with a fee of less than $100. More complicated returns may cost a few hundred dollars, but your tax pro may also be able to save you five or ten times that much on your tax bill. Ask around and see who you friends and family go to for their taxes or stop by a nearby H&R Block.

There are still other options: do you have a tax guru in your family? See if they’ll help you with your taxes and offer to pay them something in return for their time. Sometimes it just takes a couple hours to learn the tax process and then you’ll be set for life. My dad taught me how to do taxes when I had my first job at the age of 15. I’ve since taught several of my friends how to do taxes and they are always so surprised at how easy it really is.

Also remember that the IRS Website is chockfull of instructions and guidance on how to file your taxes.

• Going It Alone? Start Your Return for Free with TurboTax

This article covers a few of the most common reasons you may not want to prepare your own taxes. But I can’t stress enough how important it is to do some research before embarking on your taxes solo. Having a professional tax preparer on your side can provide a lot of peace of mind for a small cost.

About the Author: Carrie is in her mid-twenties and currently studying for the CPA exam, so she can give us some desperately-needed tax advice. She blogs about her journey to financial independence at Carrie…On the Cheap from her home in Kansas City, Missouri. You can also find her on Twitter: @CarrieCheap.

Related posts:

1. Five Tips for Preparing to File Your Taxes
2. Watch Out For The Alternative Minimum Tax
3. How to Avoid an IRS Audit

What should you do with a windfall of money?

You may be inclined to spend it; to buy a new ride or take the trip you’ve been longing for. The urge to splurge is normal; people are more likely to spend unanticipated money (i.e., a windfall) than anticipated money, like wages (Arkes, Joyner, et. al., 1994). Unfortunately, spending your windfall—or at least all of it—probably isn’t the best move.

Here’s a prioritized list of arguably the best ways to use a windfall. Your individual situation may dictate deviating from this list slightly, but this is solid foundation for planning how to use unexpected money. (Note: You may decide to split your windfall among a few of these goals; that’s fine.)

1. Account for Taxes

Most likely, your windfall is taxable. Before you spend a dime, figure out what taxes (if any) have been withheld, and if it was enough. If the windfall is especially large (say, equal to or more than your regular annual income), it would be wise to hire a tax professional to help you minimize your tax liability.

2. Pay Down High Interest Debt

Once you are confident that Uncle Sam is paid-in-full, put high-interest credit card debt in your crosshairs. If you have debt and your windfall can repay it in one chunk, do it. Be sure to have plan for handling your credit cards after the debts are paid. Can you resist using them to dig a hole again? If not, get rid of them.

3. Check On Your Rainy Day Fund

If you don’t have debt or have windfall money left over after paying debts, it’s a good time to give your emergency fund a check-up. As a bare minimum, do you have at least $1,000 in a savings account set aside for emergencies? What about between three and six month’s living expenses? If not, use your windfall to pad this ever-important account. Don’t worry too much about the interest rate you are getting. This money is not an investment, it’s your safety net.

4. Max Out a Roth IRA

Next, consider funding a Roth IRA up to the annual maximum allowed contributions. A Roth IRA grows tax-free for retirement; it’s the absolute best way to make today’s windfall turn into tomorrow’s nest egg. You can contribute up to $5,000 to a Roth if your income falls below defined limits. You have until April 15 each year to contribute to a prior tax year’s Roth IRA. For more, read Why You Need a Roth IRA.

If you have money left over and have a 401(k) or 403(b) plan at work, you may also want to increase your contributions to that account, which are tax-deferred. The money going to your 401(k) comes out of your paycheck, but you can use your windfall to supplement your earnings.

5a. Invest

The next step is to invest remaining funds as you see fit. You may choose to open an account with an online broker and pick up some ETFs or no-load mutual funds, lend money to others using a social lending network, or use the money to see a new business venture. Whatever you do, your goal should be to make the money work for you today so it can provide for you tomorrow.

5b. Pay Down Other Debts

Some people would rather be completely debt-free before using extra money for anything else. Personally, I would rather invest money in the stock market before repaying student loans and mortgages with interest rates under six percent, but I understand why some people would want to get rid of these debts first, no questions asked. If your goal is to be 100 percent debt-free as soon as possible, then by all means, pay down student loan or mortgage debt now.

6. Buy Yourself Something

Have some fund, spend a little. Life is short, and it’s stupid to be young, broke and miserable just to grow old and rich! (Just don’t blow all of your windfall redneck-lotto-winner-style.)

Related posts:

1. Roth IRA or Traditional IRA: What Do You Do?
2. 401(k) With Company Match or Roth IRA?
3. Open Your First IRA

Here are six tax adjustments that could save you big bucks this year:

If you contributed to a retirement plan…

Certain taxpayers may qualify for a retirement saving credit to reduce their tax liability if they contribute to a traditional IRA, Roth IRA, or other retirement plan. This credit is very limited, however, and only those with a low enough Adjusted Gross Income (AGI) will qualify. Married couples that file jointly must have an AGI below $55,550 and single taxpayers must have an AGI below $27,750. If you qualify, the maximum credit would be $1,000 for singles and $2,000 for married couples. This credit is only available for those people who are over 18, not a dependent of someone else, and not a full time student.

If you bought a home…

By now, most of us are familiar with the newly popular home buyer tax credit created in 2008. Don’t count yourself out if you’re not technically a first-time home buyer: the credit only requires that you haven’t owned a residence during the previous three years. It’s important to note that the credit isn’t a flat $8,000, rather 10 percent of the purchase price, up to $8,000. Most residences cost well over $80,000, but some condos or lofts with lower price tags might qualify for less than the $8,000 ceiling. The credit is 100 percent refundable (which means the credit could reduce your tax liability below zero and result in a refund). But beware: If you sell your residence within 36 months, be prepared to pay the credit back to the IRS.

• Need More Info? Read This Home Buyer Tax Credit FAQ

If you bought a new car…

In addition to the first-time home buyer credit, another perk of the (ARRA) is the new motor vehicle deduction. One of the biggest advantages of this deduction is that you do not have to itemize deductions to claim it. Most twenty-somethings aren’t able to itemize before they purchase a house, so this is definitely something to jump on if you bought a new car this year. The purchase must have been made after February 16, 2009 and income limitations apply ($135,000 max for singles, $260,000 max for married couples).

If you work at a school…

If you’re a teacher or hold another position at an elementary or secondary school (principal, aide, counselor, etc.), you can deduct up to $250 of your educational expenses from your income. You do not have to itemize to claim this educator expense deduction. To claim it, you must work at least 900 hours during the year at the school. Qualified expenses vary; gym teachers, for example, can deduct expenses for athletic equipment.

If you moved for your job or business…

If you had to pack up and move sometime during 2009 for a new job or to start your own business, you can deduct certain unreimbursed moving expenses from your income. You do not have to itemize for this deduction. The two biggest rules are: your new gig must be at least 50 miles further from your old residence than your old job was, and you must stay employed at the new job for at least 39 weeks of your first working year (78 weeks of the next two years for self-employed individuals). Be sure to keep track of expenses like transportation of household items (including cars and pets) and travel and lodging while moving to the new residence. Just don’t expect to write off meals at fancy restaurants along the way; meals aren’t deductible.

If you attended training required by your job…

If you had to attend mandatory training for your job this year, you can deduct most expenses related to the training. To be able to claim the deduction, the purpose of the training or class must be to maintain or improve current job skills. You cannot write off training or classes to qualify for a new position. Supplies, books, and travel to the classes are all deductible expenses. You must itemize to claim this deduction, so this excludes all taxpayers who take the standard deduction.

Finally…

Come tax season, be sure to examine your tax forms closely. If you use a tax preparer, don’t be afraid to ask how well he or she researched your particular situation. There could be many deductions or credits that you qualify for that you don’t even know about. Tax season is a time to use the current recession to your benefit—take advantage of all the tax breaks you can get!

About the Author: Carrie is in her mid-twenties and currently studying for the CPA exam, so she’ll be soon be qualified to give us some desperately-needed tax advice. She blogs about her journey to financial independence at Carrie…On the Cheap from her home in Kansas City, Missouri.

Related posts:

1. 2008 Tax Deductions You Don’t Want to Miss
2. Itemized Deductions: A Beginner’s Guide
3. $6,500 Home Buyer Tax Credit

The Senate voted 98-0 Wednesday to extend and expand the tax credit and the House could vote on the bill as early as today. If passed, the $8,000 tax credit would remain in effect for first-time home buyers — or anyone who hasn’t owned a home in the last three years.

• Going to Buy? Get Mortgage Pre-Approval Online

Buyers who have owned their current homes at least five years would also now be eligible for tax credits of up to $6,500. To claim the credit, both groups of buyers would have to sign purchase agreements before April 30, 2010 and close before June 30. The tax credit would be extended until June 30, 2011 for servicemen and women serving overseas for at least 90 days.

The actual credit amount home buyers are eligible for is ten percent of their home purchase price up to a maximum of $8,000 for first-time home buyers and $6,500 for buyers who already own homes.

Who is Eligible for the Tax Credit?

To qualify for either credit, you must be purchasing a primary residence of less than $800,000 and cannot be purchasing the property from a direct relative.

You are eligible for the first-time home buyer tax credit if you:

• Have never owned a home
• Have not owned your primary residence for the last least three years

You are eligible for the $6,500 home buyer tax credit if you have lived in a home you own for five consecutive years out of the last eight years. Unfortunately, it does look like these new provisions still exclude some buyers from the credit. Buyers who have owned a home within the last three years, but did not own it for at least five years, cannot take the new credit.

Income Limits

The amount of the tax credit you can claim will be phased out for single taxpayers who earn more than $125,000 and joint taxpayers who earn more than $225,000.

• Read More: How to Claim the $8,000 Home Buyer Tax Credit

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1. $15,000 Home Buyer Tax Credit?
2. How to Claim the $8,000 Homebuyer Tax Credit
3. $8,000 First-Time Home Buyer Tax Credit

Isakson’s proposed legislation would make available up to a $15,000 tax credit for any home buyer of any home over the next year. It would also remove the income limits that currently apply to the first-time home buyer tax credit. In a press release on the Senator’s Website, he says:

“If we do this, home values will return, unemployment will go down, our economy will turn, and consumer price confidence will go up. I would submit it is a part of the main solution we need to take an economy that is on the bottom and move it back toward equilibrium and prosperity for America.”

Another bill recently introduced would extend the $8,000 first-time home buyer tax credit for another six months. If this bill passes, first-time home buyers would have more time to claim the existing credit, although the rules would remain the same. (The tax credit would only apply to first-time home buyers and income caps would remain in place).

I predict that the first-time home buyer tax credit will be extended but Congress debates expanding the program to a $15,000 home buyer tax credit for a long time. If the expansion passes, I would bet it will include limitations (or even be for less than $15,000). What do you think? Is expanding the credit a good idea, or has the first-time home buyer tax credit run its course?

PS: If you’re looking for answers on the existing tax credit, visit my FAQ on the first-time home buyer tax credit or brief guide on how to buy your first home.

Related posts:

1. $6,500 Home Buyer Tax Credit

The cash-for-clunkers bill would give a $4,500 credit to anybody who trades in an old car for a new(er) vehicle that gets at least ten miles per gallon more, or a $3,500 credit for new cars that get between four and up to 10 MPG better fuel economy. According to the current version of the bill, to qualify, the trade-in vehicle must be model year 1985 or newer, be drivable, and must be destroyed upon trade-in (it cannot be resold). Additionally, the new car purchased must get at least 22 MPG or, if it is a light-duty truck, at least 18 MPG.

Obviously, the cash-for-clunkers bill is intended to eliminate less fuel efficient cars and create an incentive to buy a car (and presumably give a boost to the flagging auto industry). Critics of the bill say that we’re over-incentive people to spend money in certain struggling industries (this program would be akin to the $8,000 first-time home buyer tax credit designed to stimulate the housing market).

Personally, I think the cash-for-clunkers bill is a great idea. (And not just because I want to see my dad get some new wheels!) Even if the economy (and auto industry, in particular) weren’t in such dire straights, I believe it’s partially our government’s responsibility to begin to find ways to reduce our dependence on oil. Although moving towards more fuel-efficient vehicles isn’t a big a step as, say, developing alternatives to fossil fuels; it’s a start. Plus, this bill pushes for greater fuel efficiency in a model that is true to our free-market economy: Drive a more fuel-efficient car, get a financial incentive. Makes sense to me.

What do you think about the cash-for-clunkers bill? A good idea or too much government involvement? Would you take advantage of the incentive? Let us know!

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1. How to Trade In Your Car With Cash for Clunkers
2. Would You Buy a New Car to Get Better Gas Mileage?
3. Want to Know Why Gas Prices Are so High?