By Denver Makle, 7th Army Joint Multinational Training Command Public AffairsDecember 30, 2009
GRAFENWOEHR, Germany- With wage and tax statements available for Soldiers and civilian employees online at www.mypay.dfas.mil and most banks and investment companies mailing reports of interest, dividends, and capital gains, the 7th Army Joint Multinational Training Command's Tax Center personnel gear up to provide free tax preparation and e-filing services throughout Bavaria. The tax centers in Ansbach, Illesheim, Bamberg, Grafenwoehr, Hohenfels, Schweinfurt and Vilseck are open for business, beginning Feb. 1, 2010.
"Military I.D. Cardholders, including Soldiers, Department of Defense civilians and retirees, who wish to use the free tax preparation and e-filing services should have all their documents, such as prior year tax return, W-2's, mortgage statements and receipts ready when the meet with preparers. It saves time." said Brad Huestis, Chief of Client Services Division at the JMTC Office of the Staff Judge Advocate. "Taxpayers with complicated returns should take extra time to ensure that their documents are in order."
A tax return is complicated when it includes capital gains, rental real estate income or loss, foreign earned income or foreign taxes paid, or multiple state income tax returns, said Huestis.
Last tax season tax centers throughout the region assisted 11,792 tax filers at no charge, saving more than $1.5 million in preparation and filing fees, and generating more than $22.4 million in direct deposit refunds.
Huestis outlines some important tax law changes that take effect this year, with a few reminders about rules that commonly trip up taxpayers every year.
"This year, taxpayers have the opportunity to take advantage of new tax credits," he said. "Credits are far more valuable to taxpayers than deductions, because deductions only reduce the amount of income subject to tax (for example at a 20 percent tax rate), while credits are applied to your tax bill at the very end when one dollar actually equals one dollar."
2009 Tax Credits
Making work pay credit - Taxpayers who have earned income from work may be able to take this credit. It is 6.2% of your earned income and cannot exceed $400 or $800 if married filing jointly.
Government retiree credit - Taxpayers who receive government pensions or annuities may be eligible to take this credit. This credit will reduce the Making Work Pay credit.
Finally, taxpayers who received an economic recovery payment do not need to pay taxes on it, but because this payment was really an advanced tax credit, it must be subtracted from any Making Work Pay and Government Retiree credits.
Earned income credit -Taxpayers may now claim three children for earned income credit purposes provided they meet the income and filing status tests:
Aca,!Ac Three or more children lived with you and you earned less than $43,279 or $48,279 for married filing jointly,
Aca,!Ac Two or more children lived with you and you earned less than $40,295 or $45,295 for married filing jointly,
Aca,!Ac One child lived with you and you earned less than $35,463 or $40,463 if married filing jointly, or
Aca,!Ac No children lived with you and you earned less than $13,440 or $18,440 if married filing jointly.
The annual amount of investment income to be eligible for this credit has been increased to $3,100. Taxpayers may continue to choose to include or exclude combat zone pay in earned income for the purpose of computing this credit.
First-time homebuyer credit. This credit has been extended for qualified home purchased after 2008 and before May 1, 2010. The amount of the credit is 10% of the purchase price of the qualifying home, with a maximum amount of $8,000. Taxpayers must meet certain use and time ownership tests, and only purchases of main homes in located in the United States qualify. This doesn't include vacation or rental homes. However, certain overseas government employees may be eligible for a one-year extension to purchase a home back in the United States.
American opportunity education credit. This is a new credit for 2009 and 2010 which modifies the Hope credit, and is available for the first four years of postsecondary education. The maximum credit per student, per year is $2,500 and part of it may end up being refundable. The amount of the credit will be gradually phased out if modified adjusted gross income is between $80,000 - $90,000 and $160,000 - $180,000 for married filing jointly.
Beyond these new credits, there have also been changes to the way the standard deduction is calculated. These changes are important, because taxpayers may reduce the amount of their income subject to tax by taking either standard or itemized deductions.
Standard deduction. Generally, the standard deductions depend upon the taxpayer's filing status:
Aca,!Ac $5,700 for Single and Married Filing Separate taxpayers
Aca,!Ac $11,400 for Married Filing Jointly or Qualifying Widow(er)
Aca,!Ac $8,350 for Head of Household
Taxpayers who wouldn't otherwise qualify to itemize their deductions can enjoy a higher standard deduction by adding the following to the above base amounts:
Aca,!Ac Up to $500 ($1,000 if married filing jointly) of any state or local real estate taxes paid that would be an allowable itemized deduction on Schedule A had the taxpayer itemized deductions.
Aca,!Ac Any state or local sales or excise taxes you paid on the purchase of a new motor vehicle after February 16, 2009, and
Aca,!Ac Any net loss from a federally declared disaster.
Personal exemptions. The amount has been increased to $3,650 for each exemption to which the taxpayer is entitled; however, taxpayers who have high income may lose part of their exemption amount not to exceed a one-third reduction.
Itemized deductions. There are no major changes except that taxpayers will have some of their itemized deductions limited when their adjusted gross income is more than $166,800 or $83,400 if married filing separately.
Cash for clunkers payments. Taxpayers who received a $3,500 or $4,500 voucher or payment under the CARS program to purchase a new fuel-efficient vehicle will not have to pay any federal income tax on the money they received.
Individual retirement arrangements (IRAs) contributions. Taxpayers can contribute a maximum of $5,000 or $6,000, if age 50 or older, annually to traditional or Roth IRAs. The amount contributed by an employer to a SEP or SIMPLE IRA plan will not affect this limit.
Tax benefits for adoption. The adoption credit and the maximum exclusion from income of benefits under an employer's adoption-assistance program have been increased to $12,150.
Divorced or separated parents. Noncustodial parents claiming an exemption for a child may no longer submit copies of divorce decrees or separation agreements that went into effect after 2008 to the IRS. Instead, a form 8332 must be attached to the return signed by the custodial parent giving the noncustodial parent permission to claim the child's exemption.
Foreign source income. American citizens with income from sources outside the United States must report that income on their tax returns, whether they reside inside or outside the U.S. and whether or not they receive a Form W-2 or 1099 from the foreign payer. Taxpayers who reside outside the U.S. may be able to exclude some or all foreign earned income from taxation, up to $91,400, but they must report the income on Form 2555 when they file their tax returns.
For more information, please contact your local tax center.
Note: Special thanks to Tracy Cooklin, JMTC tax center coordinator, and Brad Huestis, Chief of Client Services Division at the JMTC Office of the Staff Judge Advocate for compiling the facts used in this article.