What's New with the IRS

Each year it seems like something within the IRS is changing. The rules are always evolving to fit government imposed laws and to improve the way things are done. For instance, the IRS has been working for years to create a system that is mostly done by computer. Now you can efile your tax return and not have to send the IRS a single piece of paper. The only reasons why you have to show your documents is if you are audited or if you must send in forms such as an installment agreement to pay your taxes over a set period of time.

But the paperless system that nearly 60% of Americans is using is not the only thing changing with the IRS. The last tax season brought some changes with it. For example, the $8,000 tax credit for buying a home that was simply a loan in the past does not require repayment.

Here are some other changes that you may find useful:

• The maximum foreign earned income exclusion is going to be adjusted on a yearly basis in order to coincide with inflation. For 2008, the maximum amount was $87,600. For 2009, the amount will be higher, which will be determined before the 2009 tax season.
• The exemption amount, which is the amount of money you can deduct for each exemption on your tax return, is at least $2,333, but cannot be higher than $3.500. If your income exceeds a certain amount, which is based on your filing status (single, married filing jointly, married filing separately), you do lose part of your exemption benefit. Fortunately, there is a cap on how much you can lose and that is 1/3 of total amount of your exemptions. You will still get no less than $2,333 for your exemptions.
• In 2008, the standard deduction increased as well. There are certain things that determine your standard deduction such as your filing status, if you're 65 years of age or older, and whether someone else can claim you on their tax return.
• If your income exceeds a certain amount, you may lose some of your itemized deductions. If you're married you have an income limit of $159,950 in order to get all of your money on your itemized deductions. Keep in mind that you can't lose any more than 1/3 the amount of the deductions.
• The maximum amount of self employment income that is subject to social security tax is $102,000.

These changes have their advantages and disadvantages depending on which income bracket you fall into and what your filing status is. This is to help reduce your amount of tax liability or increase it because your income surpasses a certain amount.

It is very important to stay on top of the changes that occur each year. Many individuals miss tax credits and deductions each year for the fact that they do not stay updated. Make sure that you check to see what the changes are to see if they are something that you can take advantage of and increase your refund or reduce your tax liability.