Sales Tax Deduction
In certain states, taxpayers can take a Sales Tax Deduction if they itemize deductions.  Those who live in a state without a state income tax may deduct their state sales tax when they itemize.  Taxpayers in states with state income taxes can choose to deduct their state income taxes or state sales tax.

Child Tax Credit
The Child Tax Credit remains at $1000 for a qualifying child. The credit is non-refundable and can reduce the taxpayer's income tax.  To get the credit, the child must meet the following criteria:

- The child must be your:  son, daughter, stepchild, eligible foster child who is a dependent, brother, sister, stepbrother, stepsister, grandchild, niece or nephew

- must be younger than 17 at the end of the year

- must live with you for more than half the year

- must not have provided for more than half of his or her own support

- must be a U.S. citizen, U.S. national or resident of the U.S.

***Also, beginning with the 2009 tax return, the child must be your dependent and younger than the person claiming the credit.

Additional Child Tax Credit
An Additional Child Tax Credit may be available to those who qualify and have not used up the available amount against their calculated taxes.  The Child Tax Credit cannot reduce your tax below zero, but, if your Child Tax Credit is limited by your tax, you may be eligible for the Additional Child Tax Credit, even if your tax liability is zero.  You may qualify if:

- your taxable earned income is more than $8,500

- you have 3 or more eligible children and the Social Security and Medicare tax you paid is more than your
  Earned Income Credit (EIC).

Child and Dependent Care Credit
Taxpayers can receive a credit for up to 35% of qualified child and dependent care expenses paid as long as they need the care services in order to work.  Qualified expenses may be allowed up to $3000 for one eligible individual ($6000 for two or more).  Persons employed or looking for work who must pay someone to care for dependents under 13 or for a qualified disabled person may be able to take the credit.

Tax Break for Eligible Educators
Eligible Educators who spend their own money on classroom supplies may qualify for a tax break.  An eligible educator is a kindergarten through grade 12 teacher, instructor, counselor, principal or aide who works at least 900 hours in either a public or private school.  The adjustment for these expenses, of no more than $250, can be claimed whether or not the taxpayer itemizes.

Student Loan Interest
Taxpayers repaying student loans may qualify for a deduction up to $2500 or their student loan interest as an adjustment to income.  There are AGI limitations which determine deductibility.

Tuition and Fees Deduction
The Tuition and Fees deduction of up to $4,000 is available to help parents and students pay for post-secondary education. Below are ten important facts about this deduction every student and parent should know.

1. You do not have to itemize to take the Tuition and Fees deduction.
2. You may be able to claim qualified tuition and fees expenses as either an adjustment to income, a Hope or Lifetime Learning credit, or ??" if applicable ??" as a business expense.
3. You cannot take the tuition and fees deduction on your income tax return if your filing status is married filing separately.
4. You cannot take the deduction if you are claimed, or can be claimed, as a dependent on someone else's return.
5. The deduction is reduced or eliminated if your modified adjusted gross income exceeds certain limits, based on your filing status.
6. You cannot claim the tuition and fees deduction if you or anyone else claims the Hope or Lifetime Learning credit for the same student in the same year.
7. If the educational expenses are also allowable as a business expense, the tuition and fees deduction may be claimed in conjunction with a business expense deduction, but the same expenses cannot be deducted twice.
8. You cannot claim a deduction or credit based on expenses paid with tax-free scholarship, fellowship, grant, or education savings account funds such as a Coverdell education savings account, tax-free savings bond interest or employer-provided education assistance.
9. The same rule applies to expenses you pay with a tax-exempt distribution from a qualified tuition plan, except that you can deduct qualified expenses you pay only with that part of the distribution that is a return of your contribution to the plan.
10. IRS Publication 970, Tax Benefits for Education, can help eligible parents and students understand the special rules that apply and decide which tax break to claim. The publication is available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Hope and Lifetime Credits
The Hope and Lifetime Credits are nonrefundable tax credits for payments made for qualified tuition and related expenses for post-secondary education.  The Hope Credit remains at 100% of the first $1,200 of expenses and 50% of the next $1,200, for a maximum credit of $1,800.  The Lifetime Learning Credit gives a credit of 20% of qualified education expenses not exceeding $10,000 for a maximum credit of $2000.  There is no limit on the number of years the Lifetime Learning Credit can be claimed for each student.  The Lifetime Learning Credit may be limited by the amount of your income and the amount of the tax. 
*** You may be able to take a tuition and fees deduction for your education expenses instead of a lifetime learning credit.  You can choose the one that will give you the lower tax.

For tax years 2009 and 2010, the following changes have been made to the Hope credit. The modified credit is also referred to as the American opportunity tax credit.

• The maximum amount of the Hope credit increases to $2,500 per student. The credit is phased out (gradually reduced) if your modified adjusted gross income (AGI) is between $80,000 and $90,000 ($160,000 and $180,000 if you file a joint return).    Exception. For 2009, if you claim a Hope credit for a student who attended a school in a Midwestern disaster area, you can choose to figure the amount of the credit using the previous rules. However, you must use the previous rules in figuring the credit for all students for which you claim the credit.
• The Hope credit can now be claimed for the first four years of post-secondary education. Previously the credit could be claimed for only the first two years of post-secondary education.
• Generally, 40% of the Hope credit is now a refundable credit, which means that you can receive up to $1,000 even if you owe no taxes. However, none of the credit is refundable if the taxpayer claiming the credit is a child (a) who is under age 18 (or a student who is at least age 18 and under age 24 and whose earned income does not exceed one-half of his or her own support), (b) who has at least one living parent, and (c) who does not file a joint return.
• The term "qualified tuition and related expenses" has been expanded to include expenditures for "course materials." For this purpose, the term "course materials" means books, supplies, and equipment needed for a course of study whether or not the materials are purchased from the educational institution as a condition of enrollment or attendance.

Medical Expenses
Taxpayers who itemize can deduct up to 7.5% of their AGI for Medical Expenses.  Medical expenses include:  eyeglasses, contact lenses, hearing aids, hospital fees, doctor and dentist fees, prescriptions and the cost of traveling back and forth to the doctor.  (Mileage to and fro is deductible at 18 cents per mile.)

New Vehicle Purchase Incentive

First-Time Homebuyer Credit
For taxpayers who have not owned their own home during the past 3 years prior to the purchase date of a home before December 1, 2009 may be eligible to receive a credit of up to $8,000 on their tax return. 

For 2008 Home Purchases:  The Housing and Economic Recovery Act of 2008 established a tax credit for first-time homebuyers that can be worth up to $7,500.  For homes purchased in 2008, the credit is similar to a no-interest loan and must be repaid in 15 equal, annual installments beginning with the 2010 income tax year.

For 2009 Home Purchases:  The American Recovery and Reinvestment Act of 2009 expanded the first-time homebuyer credit by increasing the credit amount to $8,000.  For a home purchased in 2009, the credit does not have to be paid back unless the home ceases to be the taxpayer's main residence within a 3-year period following the purchase.

Making Work Pay Tax Credit
The tax credit, established as a provision of the American Recovery and Reinvestment Act of 2009, means more take-home pay for millions of American workers.  This credit is available for 2009 and 2010 tax years.  It equals to 6.2% of a taxpayer's earned income.  The maximum credit for married couples filing a joint return is $800 and $400 for other taxpayers.  If eligible, self-employed taxpayers can also benefit from the credit by evaluating their expected income tax liability. 

Having too little tax withheld could result in smaller refunds or small balance due rather than an expected refund. 

The credit is either phased out or unavailable for higher-income taxpayers.  The phase out begins at $75,000 for single taxpayers and $150,000 for couples filing a joing return.

Nonbusiness Energy Property Credit
This credit equals 30 percent of what a homeowner spends on eligible energy-saving improvements, up to a maximum tax credit of $1,500 for the combined 2009 and 2010 tax years. The cost of certain high-efficiency heating and air conditioning systems, water heaters and stoves that burn biomass all qualify, along with labor costs for installing these items. In addition, the cost of energy-efficient windows and skylights, energy-efficient doors, qualifying insulation and certain roofs also qualify for the credit, though the cost of installing these items does not count.

By spending as little as $5,000 before the end of the year on eligible energy-saving improvements, a homeowner can save as much as $1,500 on his or her 2009 federal income tax return. Due to limits based on tax liability, other credits claimed by a particular taxpayer and other factors, actual tax savings will vary. These tax savings are on top of any energy savings that may result.

Residential Energy Efficient Property Credit
Homeowners going green should also check out a second tax credit designed to spur investment in alternative energy equipment. The residential energy efficient property credit, equals 30 percent of what a homeowner spends on qualifying property such as solar electric systems, solar hot water heaters, geothermal heat pumps, wind turbines, and fuel cell property. Generally, labor costs are included when calculating this credit.  Also, no cap exists on the amount of credit available except in the case of fuel cell property.

Not all energy-efficient improvements qualify for these tax credits. For that reason, homeowners should check the manufacturer's tax credit certification statement before purchasing or installing any of these improvements. The certification statement can usually be found on the manufacturer's website or with the product packaging. Normally, a homeowner can rely on this certification.  The IRS cautions that the manufacturer's certification is different from the Department of Energy's Energy Star label, and not all Energy Star labeled products qualify for the tax credits.

Eligible homeowners can claim both of these credits when they file their 2009 federal income tax return. Because these are credits, not deductions, they increase a taxpayer's refund or reduce the tax he or she owes. 

Standard Mileage Rates
Beginning on January 1, 2009, optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes are as follows:

• 55 cents per mile for business miles driven
• 24 cents per mile driven for medical or moving purposes
• 14 cents per mile driven in service of charitable organizations

The new rates for business, medical and moving purposes are slightly lower than rates for the second half of 2008 that were raised by a special adjustment mid-year in response to a spike in gasoline prices. The rate for charitable purposes is set by law and is unchanged from 2008.

The business mileage rate was 50.5 cents in the first half of 2008 and 58.5 cents in the second half. The medical and moving rate was 19 cents in the first half and 27 cents in the second half.

The mileage rates for 2009 reflect generally higher transportation costs compared to a year ago, but the rates also factor in the recent reversal of rising gasoline prices. While gasoline is a significant factor in the mileage rate, other fixed and variable costs, such as depreciation, enter the calculation.

The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs as determined by the same study. Independent contractor Runzheimer International conducted the study.

A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle. In addition, the business standard mileage rate cannot be used for any vehicle used for hire or for more than four vehicles used simultaneously.

Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.

Extended Tax Relief for Debt Forgiveness
Normally, debt forgiveness results in taxable income. But under the Mortgage Forgiveness Debt Relief Act of 2007, enacted Dec. 20, taxpayers may exclude debt forgiven on their principal residence if the balance of their loan was $2 million or less. The limit is $1 million for a married person filing a separate return.

The new law applies to debt forgiven in 2007, 2008 or 2009. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, may qualify for this relief.

The debt must have been used to buy, build or substantially improve the taxpayer's principal residence and must have been secured by that residence. Debt used to refinance qualifying debt is also eligible for the exclusion, but only up to the amount of the old mortgage principal, just before the refinancing. 

Debt forgiven on second homes, rental property, business property, credit cards or car loans does not qualify for the new tax-relief provision. In some cases, however, other kinds of tax relief, based on insolvency, for example, may be available.

Borrowers whose debt is reduced or eliminated receive a year-end statement from their lender. By law, the form must show the amount of debt forgiven and the fair market value of any property given up through foreclosure.

Special Charitable Contributions for Certain IRA Owners This provision, currently scheduled to expire at the end of 2009, offers older owners of individual retirement accounts (IRAs) a different way to give to charity. An IRA owner, age 70½ or over, can directly transfer tax-free up to $100,000 per year to an eligible charity. This option, created in 2006, is available for distributions from IRAs, regardless of whether the owners itemize their deductions. Distributions from employer-sponsored retirement plans, including SIMPLE IRAs and simplified employee pension (SEP) plans, are not eligible. To qualify, the funds must be contributed directly by the IRA trustee to the eligible charity. Amounts so transferred are not taxable and no deduction is available for the transfer. Not all charities are eligible. For example, donor-advised funds and supporting organizations are not eligible recipients. Amounts transferred to a charity from an IRA are counted in determining whether the owner has met the IRA's required minimum distribution. Where individuals have made nondeductible contributions to their traditional IRAs, a special rule treats transferred amounts as coming first from taxable funds, instead of proportionately from taxable and nontaxable funds, as would be the case with regular distributions.   Guidelines for Monetary Donations To deduct any charitable donation of money, regardless of amount, a taxpayer must have a bank record or a written communication from the charity showing the name of the charity and the date and amount of the contribution. Bank records include canceled checks, bank or credit union statements, and credit card statements. Bank or credit union statements should show the name of the charity, the date, and the amount paid. Credit card statements should show the name of the charity, the date, and the transaction posting date. Donations of money include those made in cash or by check, electronic funds transfer, credit card and payroll deduction. For payroll deductions, the taxpayer should retain a pay stub, a Form W-2 wage statement or other document furnished by the employer showing the total amount withheld for charity, along with the pledge card showing the name of the charity. These requirements for the deduction of monetary donations do not change the long-standing requirement that a taxpayer obtain an acknowledgment from a charity for each deductible donation (either money or property) of $250 or more. However, one statement containing all of the required information may meet both requirements.