Tax Basics 

Filing basics 

Your best strategy for minimizing tax liability and bolstering your financial position is to stay current on tax law. However, in a time of sweeping change, new legislation and regulations, continuing economic uncertainties, doing so can be a challenge. 

In 2009, tax law changes ranged from tax credits for employeesand undergraduate students to tax breaks for first-time homebuyers and unemployment assistance for workers involuntarily terminated. Yet, what remains constant is the need for in-depth knowledge when preparing your taxes.

Filing status 

Taxpayers can file as single, married filing jointly, married filing separately, head of household or qualifying widow(er). If you are married and filing jointly, you can take advantage of tax credits and benefits not available to couples filing separately. Unmarried taxpayers may file as single or, if they qualify, as head of household. If more than one filing status applies to you, you may want to choose the one that results in the lowest tax obligation.

Exemptions 

You may claim a personal exemption for yourself, your spouse and each of your dependents. A dependent child includes children born to your family, stepchildren, foster children and adopted children. Each exemption reduces taxable income by $3,650 in 2009. However, the exemption benefit is lost if your adjusted gross income (AGI) is above the amounts indicated below: 

2009 exemption phase-out limits    

• Single — $159,950 up to $282,450
• Married filing jointly/Qualifying widow(er) – $250,200 up to $372,700
• Married filing separately – $125,100 up to $186,350
• Head of household – $208,500 up to $331,000

For 2009, even with an AGI in excess of the phase-out maximum, you still may take a $2,433 personal exemption. The personal exemption reduction is being phased out and will be fully repealed by 2010.

Deductions

The basic standard deduction for 2009 is: 

• $5,700 if single or married filing separately,
• $11,400 for married filing jointly or qualifying widow(er)
• $8,350 for head of household

Taxpayers age 65 and older and/or blind receive an additional standard deduction of $1,100, and $1,400 if the individual is also unmarried and does not have a surviving spouse.  

In addition to above-the-line deductions, you can claim the standard deduction or choose to itemize your deductions. Itemized deductions include specific state and local taxes, mortgage interest, and charitable contributions. 

Even if you do not itemize, some deductions are still available, including traditional IRA, SEP and qualified plan contributions and contributions to Health Savings Accounts. In general, you should itemize if your total allowable itemized deductions are more than the standard deduction, although there are exceptions. 

Keep in mind that the value of some of your itemized deductions will be reduced if your AGI is above $166,800 ($83,400 if married filing separately). This reduction will be eliminated in 2010. 

Next: Retirement tax breaks     

This article was provided by the American Institute of Certified Public Accountants (AICPA).