I’m not talking about donations to charities, but rather gifts from one person to another.  For example, parents decide to give money to a grown child who needs a down payment for a house. Or perhaps a sister wants to help out a brother who’s struggling financially.

For the year 2009, any person can give up to $13,000 to any other person without risk of having to pay a gift tax.

How an “IRS approved” gift works

What that means in practical terms is that a married couple, for example, could each give $13,000 to each of their two children. Thus each parent then could give as much as $26,000, for a combined total of $52,000 in 2009. Each child could receive as much as $26,000.

If the parents are feeling generous, they could also each give up to $13,000 to the wife’s unemployed brother. However, giver and receiver don’t have to be related.

By giving no more than the $13,000 limit, the giver avoids the possibility of having to pay a gift tax and the need to report the gift to the IRS.

One of the nifty things about the gift tax exclusion is that neither the giver nor the recipient has to report a gift on income tax returns. You can be generous and avoid the paperwork.  Just remember that if you don’t make a gift by December 31, the opportunity for 2009 goes away.

Avoid Unpleasant Withholding Surprises

If you’ve earned extra money this year, say from a side business you didn’t pay taxes on, you might end up owing money come April 15.  Married couples who both work and have one or more side jobs are at particular risk this year because of 2009 withholding changes under the stimulus plan.

How do you know if you haven’t paid enough withholding?

Use our slick 2009 TaxCaster to estimate your taxes. Increase withholding if you expect your tax bill will be much more than what you’ve paid in.

Many employers let you bump up your withholding for the last one or two paychecks of the year if you revise your W-4.

Free up your own money for the holidays

On the flip side, if you expect a big refund for this year, you can get some of it early, by decreasing withholding. This puts money in your pocket now, just in time for the holiday season.

Get a tax deduction when you buy a new car

A tax deduction for buyers of new cars expires on December 31, 2009. So if you plan to buy a new car, purchasing by year’s end could save you as much as $1,000 on your taxes.

This tax break, created by the stimulus plan, allows taxpayers to take a deduction on the sales tax paid on new car purchases between February 17 and December 31. And you get this tax break even if you claim the standard deduction—as most taxpayers do—rather than itemizing deductions on your tax return.

The amount of the credit depends on the car price, your local sales tax and your income tax bracket. The higher each of these numbers is, the greater your tax savings.

Give Gifts to Reduce Gains

Any individual can give another person as much as $13,000 in 2009, without triggering a gift tax. One strategy is to give appreciated stock instead of cash. You won’t have to pay taxes on your gain, and your recipients won’t be taxed until they sell theirs.

For the children in your life, you could set up a Coverdell Education Savings Account or a 529 College Savings Plan. These allow college savings to grow tax free, and with some 529 accounts, you get a state tax deduction.

Tax tip: Give a gift that pays later. Money you give to a child or other person with earned income can be used by them to kick start an Individual Retirement Account and contribute to their long-term retirement savings.

Give Now,  Save at Tax Time

Cleaning out your closets and donating unused items to charity is good for the charity and it can help reduce your taxes. If you itemize your deductions, every dollar’s worth of goods you donate can be taken off your income.

Use our free product, ItsDeductible, to value and record your used items, then import your contributions into TurboTax.

Take Investment Losses, Get Tax Benefits

Given the tumult in the stock markets,  you might have some big losers in your portfolio. If you have stocks that tanked since you bought them, you can take a tax loss that can offset taxable gains. (This applies only to taxable investments, not those in your 401(k) or IRA.)

Don’t have taxable gains? You can deduct $3,000 from your earned income in 2009 and again in future years until the loss is used up.

Sock It Away

Increasing contributions to your employer-sponsored retirement plan not only gives you a boost for the future, it saves taxes by lowering your taxable income.

But the hotter trend is that more people are e-filing from do-it-yourself tax software and online tax prep web sites. Last year, 32 million returns were e-filed from home computers, up almost 20 percent from the previous year’s record of 27 million.

Phew, that’s a lot of numbers! But the gist is this – more people than ever are e-filing. And it’s no wonder. If you e-file, you get your refund back fast – in about 8 days vs. 4-6 weeks if you file by paper. Plus, you get confirmation that your return has been received by the IRS and get this, e-filed returns are much more accurate than returns prepared manually.

As e-filing has taken off, so has the number of taxpayers who have the IRS direct deposit their refund into their bank account. It’s an easy, fast and secure way to get your refund. And when you consider that last year, the average refund topped $2,700, who wouldn’t want their money asap?

This year, the IRS is enabling you to use some or all of your refund to buy U.S. Savings Bonds. Now you can e-file and have your refund deposited in up to 3 different accounts – checking, savings, IRA, Savings Bond or other account.

Last year, TurboTax eliminated separate federal e-filing fees from our desktop products, enabling customers to e-file up to 5 federal returns, the limit set by the IRS, and to prepare and print an unlimited number of returns. TurboTax Online has always included federal e-filing at no cost.

If you haven’t tried e-filing, this is the year. It’s easy, fast and secure and the best way to get your money back in your pocket.

Energy Efficient Improvments for the Home

If you’d like to lower your home heating bill this winter, the government has a hefty tax credit that could help.

By making certain improvements to your home, such as installing new, energy-efficient doors and windows or insulation, you could get a credit worth 30 percent of the cost. Spend $1,000 on a draft-free new front door, for example, and receive $300 off on your taxes.

For every dollar you spend on qualified improvements, you get 30 cents back. The improvements include hot water heaters, furnaces and circulating fans.

Basically, the government gives you money to help you save energy. And that helps you save money. It’s part of the 2009 economic stimulus plan.

What you need to know

There are a few rules, of course.

The credit can be taken in both 2009 and 2010, but the limit is $1,500 over both years.

The improvements must be to your primary home. They can include various energy-saving upgrades such as new hot water heaters, furnaces and circulating fans.

And, here’s the sticky part, they must meet certain energy-efficiency requirements. These are all spelled out at the government’s Energy Star web site.

Wind and solar production

If you’re feeling really ambitious, you could go for a much larger credit.

Instead of merely saving energy, you could start making your own renewable energy. You could get a 30 percent credit on the cost of installing small wind turbines, solar water heaters and solar panels.

This tax break is available through 2016 and there’s no dollar cap on the size of the credit. And, of course, the wind and the sun get thrown in for free.

Tax Extension Deadline - October 15

If you took the IRS up on its offer to let you postpone filing your 2008 federal tax return, your time is just about up.

Each year, the IRS offers taxpayers a six-month extension, from April 15 until October 15, to file their tax returns.

And every year a whopping 10 million of us take the IRS up on its offer.

Taxpayers who request an extension must still pay any taxes they owe by April 15. The extension gives them until Oct. 15 to file their returns and avoid late penalties

So don’t feel bad that your procrastination has caught up with you – after all, you’re hardly alone.

Just get started. And consider e-filing by Oct. 15, rather than mailing your return.

Why e-file?

First of all the IRS prefers that you do it that way, to cut down on errors and paperwork. And if you have a refund coming, you’ll get it much faster.

Second of all, e-filing is free.

And finally, when you e-file, TurboTax lets you know right away if your return has an error, such as a wrong Social Security number, and is rejected by the IRS.

You then have five days to fix the problem and re-transmit your return.

There are some exceptions to the October 15 deadline. Those who have extra time include troops serving in Iraq, Afghanistan or other combat zone localities and people affected by recent natural disasters.

For more information about filing with an extension, read Filing After April 15.

Flickr: DeaPeaJay

Tax breaks for college students and their families are bigger and better this fall than in 2008, thanks to the Stimulus Package passed in early 2009.

The stimulus not only increased the amount of a key tax credit for college expenses, it made the credit available to more students in 2009 and 2010.

What used to be called the Hope Credit is now the American Opportunity Tax Credit. A tax credit reduces your taxes dollar for dollar.

The Hope Credit was worth $1,800 annually, but only students in the first and second years of college qualified for it.

TheAmerican Opportunity Credit is a much heftier $2,500 – and it can be claimed by students during all four years of college. The new credit was also expanded to include more middle- and upper-middle income families.

For some lower-income taxpayers, the credit is also “refundable.” That means that if the credit is worth more than a taxpayer owes for the year, that taxpayer you could get up to 40% of the credit, or $1,000 as a tax refund.

Graduate students and other, post-secondary students who don’t qualify for the Opportunity Credit might still benefit from the Lifetime Learning Credit or for the tuition deduction.

You can read more about the new Opportunity Credit on TurboTax.com.To learn about all the different tax breaks for higher education, visit the new IRS Information Center on Tax Benefits for Education.

Caption: WoodleyWonderWorks

Don’t dawdle if you hoping to take advantage of the $8,000 First-Time Homebuyer Tax Credit .

To qualify you have to “close the sale” before Dec. 1 (not at year’s end as you might expect).

Closing the sale means that you officially own the home on or before November 30.

If you’re negotiating with the seller or even in escrow when the deadline hits, that won’t cut it.

Or, as the IRS puts it, “you may not claim the credit in anticipation of a purchase that has yet to happen.”

Because the credit is such a hefty sum, the IRS is monitoring taxpayer claims closely for possible fraud.

So get going.

Once you’ve got a purchase agreement and loan approval, it could take 30 or even 60 days to seal the deal. And you don’t want to be caught in a last-minute land rush of first-time homebuyers.

After all, the credit is a great deal.

It could put as much as $8,000 in your pocket. And you don’t have to repay it, as long as you live in the home for at least three years. You also must meet certain other requirements.

To learn more, read Taking the New 2009 First-Time Homebuyer’s Credit and First-Time Homebuyers Credit: 7 Surprising Facts.

With good planning, you could be “home” for the holidays.

You’ve probably heard of the First-Time Homebuyer Tax Credit, a popular tax break that’s part of the 2009 economic stimulus plan.

If you buy a home between January 1, 2009 and November 30, 2009 — and you qualify — the government will give you up to $8,000. And you don’t have to repay it, as long as you live in the home for at least three years.

First-Time Homebuyers Credit - Economin Stimulus

This tax credit has some interesting twists that just might help you qualify:

• First off, you don’t necessarily have to be a first-time homebuyer.
• The home you purchase doesn’t have to be a house.
• Someone else, such as a friend, relative or a parent, can help pay the mortgage, and you get the credit.
• If you want to rent out part of your main home, you can still qualify to receive the credit.

To get the details, read more about the homebuyer’s credit.

Not necessarily.

There’s nothing to report on your tax return if your investment lives — like most everyone’s does — in a 401(k) or an IRA. These are special no-taxes zones, where you can buy and sell securities and mutual funds without having to report the capital gains and losses on your tax return. When you eventually take your money out, however, you’ll have to pay income taxes on some or all of it (unless it’s coming from a Roth IRA.)

Stocks/Investments

But what about the investments you own outside of your retirement accounts?

Let’s say your 200 shares of the Bank of What Was I Thinking have fallen by 50 percent.

You can’t deduct your loss, however, if you haven’t sold those shares. Until you sell, you have what’s known as a “paper loss,” not an actual loss.

Now then, even if you sold your shares after watching them lose half their value, you still might not get to claim a loss. Let’s say you bought the shares at $50 each, they climbed to $140, then fell to $70 at which point you decided to sell them. However, you don’t have a loss. You have a gain of $20 per share. And you need to report that on your tax return.

Here’s another puzzler. You might have a taxable gain even if you didn’t sell any of your investments. How is that possible?

Because a mutual fund you own sold some stocks and bonds it had in its portfolio. Here’s what happens when the markets climb steeply then fall precipitously, as they did in recent months:

When the markets were booming, your mutual fund held stocks that had shot up value. And when the markets fell, some investors decided to bail. The managers of your mutual fund had to pay those investors, so the managers sold highly appreciated stocks to raise the cash. That generated capital gains for the mutual fund, which are passed on to you as capital gain distributions.

Unless, of course, your mutual fund is in your retirement account. You don’t have to report your “gain” to the IRS.

For more information on about taxes and your investments, read Capital Gains and Losses.

Tax season is when we look at our family and friends in a different – and tax-deductible – light.

Can I count my sister-in-law as a dependent? How about my live-in girlfriend and her unemployed brother? What about my golden retriever?

Believe it or not, the IRS code tells us that any of the above, except the retriever, could qualify as a dependent under the right circumstances.

Why are dependents good to have at tax time?

For each dependent you can legally claim, you get a $3,500 deduction on your 2008 taxes. So if you are in the 25 percent tax bracket and have three dependents, worth $10,500 in deductions, you could save $2,625 on your taxes. (However, for some higher-income earners, deductions are reduced.)

In our society, where growing numbers of people live together who aren’t married or aren’t related, it’s good to know the rules. And if economic realities mean that you’ve had grown children move back home with you, or that you’ve extended financial help to a family member, you could get a tax break.

The following guidelines only apply to adult dependents. (The IRS has all sorts of rules for dependent children, particularly those whose parents are divorced. For information, see IRS Publication 504: Divorced or Separated Individuals.)

If you claim an adult as a dependent, that person must meet several IRS qualifications:

·Had less than $3,500 of gross income during 2008.

·Received more than half of his or her support from you for the year.

·Did not file a joint income tax return for 2008 with anyone else.

·Is a citizen or resident of the United States, or a resident of Canada or Mexico.

·Is a member of your household for the full year, or a relative who does or does not live with you.

As you can see, this last requirement opens your door – and your tax return – to many potential dependents, as long as you’re willing to support them.

So, to use our initial example, your live-in girlfriend and her brother who also lives with you could count as your dependents, if they meet qualifications.

But what if you support someone who doesn’t live with you, such as your elderly mother?

The IRS allows you to count as a dependent a whole list of relatives who don’t also have to occupy your home, as long as you provide more than half their annual support:

• Children, stepchildren, eligible foster child, grandchildren or great grandchildren
• Siblings, including half or step siblings
• Parents, grandparents, or any other direct ancestors
• Stepparents
• Aunts or uncles
• Nieces or nephews
• Fathers-in-law, mothers-in-law, sons-in-law, daughters-in-law, brothers-in-law, or sisters-in-law

Unfortunately, your golden retriever is not among these. Nor is your gardener or house cleaner, even though it might seem you support them. They’re your employees, not your dependents.

So the IRS is holding onto the money and hoping to unite the checks, which average $583, with their proper owners.

The agency asks taxpayers who moved or missed their rebate checks to update their addresses by Nov. 28, so the checks can be delivered by the end of the year. To date, the IRS has delivered rebates to some 116 million people.

Anyone whose rebate check has gone AWOL can visit the IRS website’s “Where’s My Stimulus Payment?” page, to get instructions on how to provide the correct address.

For more information on this and on missing 2007 tax refunds, read The TurboTax article, “IRS Seeks Owners of Undeliverable Tax Rebates and 2007 Refunds.“

What, you say? If by misfortune I’m unemployed, I still might have to pay taxes?

Yes, you might. At the end of the year you’ve taking unemployment benefits, you’ll get a Form 1099-G (and so will the IRS) reporting what you’ve been paid.

It’s good to know this up front, however, because you need to set aside enough money to pay any income taxes you might owe.

Depending on your circumstances, you might even be required to make quarterly estimated income tax payments because you’re no longer having taxes withheld by your employer.

(Estimated taxes are what the IRS expects people to pay when their income is not subject to withholding, such as investment or self-employment income.)

If you want to play it safe, though, the IRS gives you a way.

Fill out Form W-4V to have 10 percent of your benefits withheld for federal income taxes. You can do this online, but then you need to make a copy and sign it. Send it to your state unemployment office.

Congress added them as “sweeteners” to help the legislation go down smoothly with disgruntled constituents.

Taxpayers can be forgiven, however, if they don’t seem particularly knowledgeable or grateful about the tax sugarcoating. Most of the changes simply extended existing tax breaks that were about to expire.

These include deductions for teachers and for families with college students, as well as a credit for making energy efficient home improvements.

In this rough-and-tumble economy, this passes as good news: You’ve still got something that you didn’t know you were in danger of losing.

Unfortunately, it could also be running short of merchandise.

That’s because some people accustomed to donating are holding on to clothes in their closet longer or selling them on eBay, to save money themselves.

At the Salvation Army, sales nationwide increased during the summer while donations declined, according to a Sept. 10, 2008 report in The New York Times. Some individual shop managers even said they feared running out of goods by year’s end.

So if you’ve been meaning to donate stuff in the back of your closet or the corner of your garage, that news should give you some motivation.

Need more reasons to conquer your closet-cleaning procrastination?

Remember that your donations are tax deductible, as long as you itemize deductions when you file your income taxes. And keep in mind, that TurboTax makes it easy for you through It’sDeductible.

It’sDeductible is a nifty online service provided free to TurboTax customers. It lets you track your donations year-round, helps you determine their value, then imports the information into TurboTax when you prepare your income tax return.

The IRS requires that you list the “fair market value” of all your donations (yes, each and every outgrown t-shirt and stuffed animal). That value is what the items would fetch in thrift stores, resale shops and online auctions.

It’sDeductible continuously gathers pricing information from online and store surveys.

Even though market values are typically far less than items cost when new, you might be surprised at how quickly your castoffs can add up to several hundred dollars.

A pair of men’s khaki pants, depending on the condition, could be worth $6 to $8 each. A full-sized Bratz doll would snag you a $6 to $10 deduction.

To meet IRS requirements, your donations must be in good condition. They also must be fully itemized and valued, given to a legitimate charity and the charity must provide you a receipt every time you donate.

So take your mind off the economy: De-clutter, do good and get a tax deduction all in one.

This year, however, the deadline carries added significance. It’s the last day for Americans to file a return and receive a tax rebate in 2008.

The IRS is hoping that 4.3 million retirees and disabled veterans, who normally wouldn’t be required to file a tax return, will also file by Oct. 15 to get a rebate, or economic stimulus payment.

“Don’t let the economic stimulus payment pass you by,” said IRS Commissioner Doug Shulman. “If you want the payment this year, you should file by Oct. 15.

“We recognize that there may be older Americans and disabled veterans who still have not filed for their stimulus payment. If you know of a friend, neighbor or family members who may be in that situation, please give them a hand if they need it.”

The rebates are worth as much as $600 per individual, $1,200 for married couple and $300 for each qualifying child. The only way to get a rebate is to file a tax return.

The IRS said on Sept. 23 that it had received returns from 80 percent of the Social Security and Veterans Affairs beneficiaries deemed eligible.

The remaining 20 percent have a variety of ways to file a return at no charge. They can file a simple 1040A by mail or seek help at a local IRS office.

TurboTax also offers free online tax preparation software for these filers.

By the end of August, the IRS had distributed rebate checks worth $93 billion to nearly 115 million individuals and families. Those who miss out on getting a rebate this year will have a second chance when they file their 2008 tax returns – they just won’t get their money until 2009.

As for the 10 million taxpayers who requested an extension until Oct. 15, they too could be eligible for the rebate.

Taxpayers who request an extension must still pay any taxes they owe by April 15. The extension gives them until Oct. 15 to file their returns and avoid late penalties. With the rebates, some of them have additional incentive to hit the deadline.

That’s why the IRS tries to ease the burden of disaster victims by routinely giving them extra time to file tax documents.

In recent weeks, the IRS has announced tax-filing extensions for residents of regions hit by three storms and declared presidential disaster areas: parts of Florida where Tropical Storm Fay struck, parts of Louisiana that were battered by Hurricane Gustav and sections of the Gulf Coast where Hurricane Ike landed.

The type of relief and the length of extended deadlines vary by disaster. Residents who need information about a particular disaster should read the IRS article, Tax Relief in Disaster Situations, which offers detailed information about each.

In the case of Fay, residents have until Nov. 17 to file taxes and make payments that would otherwise by due between Aug. 18 and Nov. 17, 2008. This includes individuals who had requested an extension and had planned to file their 2007 tax returns by Oct. 15, 2008.

Victims of the more recent Hurricane Gustav have until Jan. 5 to meet tax deadlines normally occurring between Sept. 1 and Jan. 5, 2009. These include:

• Individual estimated tax payments due Sept. 15, 2008

• Individual extended 1040 tax returns due Oct. 15, 2008

• Corporate extended 1120 tax returns due Sept. 15, 2008

Taxpayers and tax preparers affected by Hurricane Ike have been given an extra seven days, until Sept. 22, to file corporate tax returns and third-quarter estimated taxes otherwise due on Monday, Sept. 15, 2008. Other tax extensions could be announced later.

Some residents who have lost or damaged property and are uninsured or underinsured could qualify for a tax break.

Fortunately, both federal and state governments offer tax breaks to families who save for college, using what are known as 529 savings plans. The plans are named after Section 529 of the Internal Revenue Code and are sponsored by state agencies.

Every state has one or more 529 plans, offering various mutual-fund-like investments, and any family can invest in any one of the more than 100 state plans.

So what do these plans offer that you wouldn’t get with regular mutual funds?

Money-saving tax advantages:

• While you can’t deduct your contributions on your federal taxes, the earnings can be withdrawn tax free if used for eligible college expenses. These include tuition, and room and board.

• Many states do allow you to deduct your contributions or receive a credit on your state taxes, if you contribute to that state’s plan. If you’re a New York resident, for example, you can deduct up to $5,000 of a contribution to a New York 529 plan ($10,000 if filing married jointly) on your state tax return. To check out your state’s plans and tax benefits, see http://www.collegesavings.org/viewState.aspx.

• Even better, some states will let you deduct your contribution even if it was made to another state’s 529 plan.  Kansas, for example, allows its residents to deduct up to $3,000 ($6,000 for joint filers) per student per year for contributions to its or any state’s plan.

• And finally, some states, like the federal government, let you withdraw earnings tax free. Again, check http://www.collegesavings.org/viewState.aspx.

If your state doesn’t yet allow a deduction or credit for your 529 plan contribution, keep your eye on your state tax website.  More states are moving in that direction.

For more information on 529 plans, check out:

http://www.sec.gov/investor/pubs/intro529.htm

http://www.collegesavings.org/index.aspx

http://www.savingforcollege.com/

http://www.savingforcollege.com/kiplinger/plan_details.php

Many 401(k) plans allow workers to borrow against their savings and, in effect, pay themselves back with interest within five years. A study by the nonprofit Transamerica Center for Retirement Studies found that employees taking loans from their plans jumped to 18 percent in 2007, from 11 percent in 2006.

Unfortunately, raiding your 401(k) will not only put a big dent in your retirement savings for the long term, it could cause you considerable tax pain in the short run.

Here’s why.

Say you have some pressing bills, so you take out a $10,000 loan from your $20,000 401(k). True, you won’t be adding to your retirement savings, but at least you’ve got some breathing room, and you’ll replenish your account within five years. At least that’s the plan.

Now let’s say that because the economy is slowing, you get laid off from your job. Most company plans require you to repay your 401(k) loan, typically within 60 days from your layoff – or your loan will become a “distribution.”

In tax parlance, that means that the IRS now considers your loan to be income, like your wages, and you have to pay taxes on it. So, even though you’ve probably spent the loan and you have no job, you owe taxes. If you’re in the 28 percent tax bracket, you could owe $2,800. And if you’re under age 59 1/2, you’ll also get dinged with a 10 percent penalty, or another $1,000.

Many 401(k) plans also permit participants to take what are known as “hardship distributions,” for such immediate financial needs as preventing a home foreclosure or paying for a burial. The money is withdrawn and not repaid.

You might expect from the description that taking money from your 401(k) in this manner would involve some financial mercy.

Nope. The same income taxes and penalty apply. You’re facing a big tax bill and the likelihood that it could take years to replenish your retirement savings.

Why do retirement plans let workers sabotage their savings this way? Financial experts theorize that if the plans didn’t allow for some kind of withdrawals, not many people would use them. Let’s hope that despite current tough times, few are tempted.