When Congress extended the sales-tax deduction, retirees who live in states that have no income tax, received a tax-break option this month. Joyfully, a year old expired provision now restored by Congress gives taxpayers the option of deducting either state and local income taxes or state and local sales taxes from their federal returns.
That's wonderful news for retirees living in Florida as well as other income-tax-free states like South Dakota, with high percentages of people, 65 and older. It is definitely to the advantage of those residents in other lower-tax-states to look into which deduction is most suitable for them.
Paper-tax-filers will receive publication 600 by mail, which will include the updated deduction figures they can claim if they had forgotten to keep their sales receipts for the year.
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Electronic filers will need to keep checking the IRS Web site () for the updated publication.
In addition to the restoration of tax provision, Congress also restored the maximum $4,000 deduction for college tuition expenses, which applies to non-itemizers with a modified adjusted gross income below $65,000 (or $130,000 for couples). People that are transitioning to a second career whose incomes fall below that mark may find this particularly interesting.
Experts believe that the tax break and pension overhaul that Congress passed this year are some vital changes for long-term savers.
Beginning in 2010, the ability for all taxpayers to convert their traditional individual retirement accounts to Roth IRAs, with no income restrictions is the talk around town.
Affluent workers are instructed to begin making non-deductible contributions to their IRAs now, loading up the amount that will be eligible for Roth Conversion. To convert, tax-payers will owe income taxes on the money sitting in the traditional IRAs, but that money will then grow tax-free and then be withdrawn at retirement.
It's believed that people earning their highest and making that conversion will most likely pay more taxes today than they would if they waited until retirement to convert. In most cases the Roth strategy wins out.
With rates at their lows, many advisers are telling clients to plan finances as if rates will be higher in the future.
It is possible that when income tax rates rises, fewer people will fall into the alternative minimum tax structure, because they are required to pay the higher of the two rates. He says that if you've been trapped in the AMT in previous years, it might be better to defer expenses or income where you can for AMT purposes, such as investment costs and certain medical expenses or, in the case of income, stock options.
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