For those of you wondering about the contribution limits for your traditional or Roth IRA, the limit for 2009 is $5,000 or the amount of your taxable compensation (whichever is smaller). If you are over 50, then your contribution limit is $6,000. The same limits will apply for 2010, in case you're starting to plan your contributions for this year. For a table that helps compute your contribution and deduction limits for your Roth IRA, click here.

Also, if you're considering a switch from a traditional IRA to a Roth IRA, check out this article from our blog for more information.

To earn back some of the taxes taken out of your income, take advantage of a temporary tax credit available for years 2009 and 2010! This credit is for up to 6.2% of your earned income, with a maximum of $400 per individual or $800 for working married couples. Other details include:

• The income phase-out begins at $75,000 for individuals
• Earned income can be from wages or self-employment
• Other credits (such as Economic Recovery Payments) can reduce the amount of this credit
• You cannot receive the credit if you are claimed by someone else

The Making Work Pay credit took effect in July 2009, so you may have noticed relief - not in a lump sum, but in smaller withholdings on your paychecks. If this applies to you, then you may not receive the credit on your tax return, as it has already been applied to your paycheck. In some cases, employees may end up paying a small amount rather than getting a refund. If you wind up owing tax because too little was taken out of your paychecks during 2009, you may qualify for special relief on a penalty that sometimes applies.

To claim this credit on your 2009 return, you must determine if you have already received the credit throughout the year. For those who are filling a 1040, you will use Schedule M to determine your credit amount. Those filling a 1040-EZ should use the worksheet on the back to determine the amount you put on line #8. 

For more details, visit the IRS' website.

The new American Opportunity Credit is an extension of the Hope Credit from 2008. The changes make the credit more accessible to parents by increasing the phase-out amounts. For 2009 and 2010, the income phase-out will begin at $80,000 for individuals and $160,000 for married couples filling together. The expenses that the credit covers will now include required course materials, like all those expensive textbooks! The credit itself is also increased to a maximum of $2,500 per student annually and can be applied for 4 years of post-secondary education, an increase from only 2 years!

Click here for frequently asked questions on the IRS website.

If you have more questions about paying for college or applying for financial aid, visit our website.

 
- Maco & Associates