Get your 2008 Taxes Right

Figuring your income taxes may be more complicated this year.  Do you know which tax changes will apply to your returns?

Back in 2005, Steve Forbes was pushing for a flat tax.  If you didn't buy into the idea then, you might have a change of heart this year. With the 2008 and 2009 tax breaks, and hundreds of other recent tax code changes, your 2008 1040 promises to be anything but "EZ."

It's that time of year again, when you have to update yourself on what's happening with the tax code. Reading up on the annual changes is a dry, but necessary, exercise-since it may keep you from making expensive errors on your return. This year, the list of changes is a touch more convoluted than usual, mainly due to the impact of the tax breaks enacted both last year and this year. Here are a few of the hot tax issues that may need your attention as you calculate your 2008 income taxes.

Income taxes over-stimulated

Last year's tax stimulus checks represented an advance credit against your 2008 taxes. That might impact you this year, because the rebate amounts were estimated from your 2007 income. If your 2008 actual income indicates that you should have received a larger rebate, you can claim a credit for the difference against your actual 2008 taxes. This might happen if your 2008 income was significantly lower than your 2007 income, or if you were a dependent in 2007 but an independent filer in 2008.  Look for the Recovery Rebate Credit Worksheet in the 1040 instruction booklet for information on how to calculate the extra rebate.

The next stimulus-related issue is the first-time homebuyer credit, which can be worth either $7,500 or $8,000. Here's the distinction: Assuming that you meet the income requirements, if you purchased your home between April 9, 2008 and December 31, 2008, you probably qualify for the $7,500 credit. If you purchased your home between January 1, 2009 and November 30, 2009, you're in line for the $8,000 credit. In either case, you can apply the credit to your 2008 taxes.

If you buy your home after you mail off your 2008 return, you'll need to amend your 2008 taxes after the purchase to take advantage of the credit this year.

Tax breaks for foreclosures  

Of all the tax breaks enacted in the last few years, the one relating to forgiven mortgage debt could be worth the most. If your home was foreclosed and the lender had to write-off a portion of the debt balance, you don't have to pay taxes on the written-off amount. You will have to report the transaction, however, on Form 982.

Other issues

Other changes for 2008 include a more generous mileage rate, stricter requirements on receipts for charitable contributions, a broader net for the kiddie tax, and higher standard deductions. That flat tax plan is sounding better and better, isn't it?